Farm loan waiver dues from state governments are hampering banks in stepping up credit to priority sectors such as agriculture and rural development, said officials."Fiscal irresponsibility in managing farm loan waivers is straining both state economies and the banking sector," said one of the officials, who did not wish to be identified, adding that states have been announcing populist measures without considering their fiscal implications.The uncertainty and delays in reimbursements disrupt the operational efficiency of banks, eroding trust in state policies, a bank executive said on condition of anonymity. Delayed or absent reimbursements lead to liquidity crunch and choke their capacity to extend credit, he added.The Telangana government owes ₹20,865 crore to public sector and regional rural banks for farm loan waivers. Expectations of loan waivers lead to delayed or defaulted repayments by farmers, contributing to a rise in non-performing assets (NPAs). In August 2014, the BRS government in the state had notified a loan waiver of ₹17,000 crore covering scheduled commercial banks, regional rural banks and cooperatives.This practice strains the banking sector and reflects fiscal irresponsibility that undermines long-term economic growth, the official cited earlier said, noting that farm loan waivers have become a politically expedient tool for consequent governments in Telangana."Most of these announcements are made without adequate budgetary provisions, leaving the financial burden to banks," the official said.States with significant committed expenditures hike borrowing to meet short-term needs, which worsens long-term financial stability, the official added.
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