SBI chief’s loan discipline remark raises political heat

Political correctness has killed common sense. The Congress party on Friday submitted a breach of privilege notice against State Bank of India (SBI) chairman Arundhati Bhattacharya for 'insulting farmers and the House' through her remarks on loan waiver.

The SBI chief had said recently that loan waivers affected credit discipline, and those who get waivers, expect that their loans will be similarly waived in future.

In another development, a group of Congressmen, including legislators, on Thursday staged a protest outside the SBI headquarters at Nariman Point protesting against Bhattacharya’s remarks on farm loans waiver. The protesters, numbering over two dozen, raised slogans against SBI and entered the SBI building demanding to meet some senior officials to register their formal grievance. “However, even as a senior officer was going to meet them, the protesters left the premises,” an SBI official said.

The leader of opposition in the Maharashtra Assembly, Radhakrishna Vikhe Patil, said he had submitted the notice to Speaker Haribhau Bagde as “Bhattacharya did not apologise for her remarks despite the Congress demand”. In his notice, the senior Congress leader said Bhattacharya’s comments were “insulting to farmers, elected representatives and the House”. The Opposition Congress and NCP have been demanding a complete loan waiver for farmers by raising the issue in the legislature.

Bhattacharya had said that farm loan waivers upset credit discipline. “We feel that in case of a (farm) loan waiver, there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. Such future loans often remain unpaid,” said Bhattacharya. She, however, added that the bank had not received any proposal from the government to waive farm loans in Uttar Pradesh. She made the comments on the sidelines of an event in Mumbai on Wednesday.

“Today the loans will come back as the government will pay for it but when we disburse loans again them, the farmers will wait for the next election expecting another waiver. As such, future loans given often remain unpaid," she said.

Bhattacharya said though it is important to support farmers but it has to be done in a way which does not disrupt credit discipline among them. “When we are trying to ensure that the farmers do well it is important for us to make credit available to them so that they can leverage and do better and for that it is important to have credit discipline,” Bhattacharya said.

Apart from dealing a blow to bank balance sheets, such waivers stop the flow of credit to farmers in the interim as banks wait to receive the outstanding dues from the government, thereby impacting the operations of poor and marginal farmers.

Uttar Pradesh and Punjab are critical states given that the banks have around 10 per cent of loans in these states and they are mostly in the agriculture sector with a reasonably high share of bad loans between 3 and 10 per cent across banks. Public banks have higher exposures in this segment as compared to private banks. For the first quarter ended June 2017, the total agriculture loans given by banks in Uttar Pradesh was Rs 86,000 crore of which crop loans were to the tune of Rs 55,000 crore, the overdue loans were at 8,400 crore. Around 10 per cent of agriculture loans in UP were impaired (loans overdue including those which are yet to be classified and written off by banks).

According to a report by Kotak Institutional Equities there are two key fears from such farm loan waivers. One on loan growth as the fear of bad loans overshadows lending decisions. In Andhra Pradesh (AP), post the split of the state, non-performing loans (NPLs), while they have been stable at 5 per cent of loans, the growth has significantly slowed down.

“There are three aspects to it. Once the government announces a farm loan waiver, it should immediately pay the banks otherwise a delay may result in banks losing interest rate. For a farmer getting a second loan for his operations in the interim becomes difficult as commercial banks give further credit only after receipts and so they will have to borrow from other expensive sources. Co-operative banks would be the worst hit as their margins on agri-loans are very low. Thirdly, farmers who have been regularly paying will not have any incentive to honour his loans. This will actually hurt the poor farmers,” echoed another banker.

Meanwhile, Congress leader Vikhe Patil said, “Bhattacharya is not a policy-maker and she cannot take a decision regarding loan waivers to farmers. She had no right to make such comments.” He alleged that the SBI chief’s remarks were “ a violation of the rights of the legislature which makes laws”.

Meanwhile, the notice by the Congress did not come up in the House due to repeated disruptions over the demand for the loan waiver. The state assembly witnessed four adjournments amid uproar, before it was adjourned for the day.

The Congress, NCP and ruling Shiv Sena have been asking for a package to fully write off all existing farm loans in Maharashtra since the budget session of the state legislature started. The Shiv Sena has even warned the BJP that it would disrupt the proceedings till the farm loan waiver package is announced. Chief minister Devendra Fadnavis has informed the legislature that in the past five years, there have been 16,000 farmers’ suicides despite writing off farm loans, and asked the opposition, “Who would guarantee that suicides will stop after another such scheme is implemented?”