Nabard echoes RBI, calls farm loan waivers a ‘moral hazard’

The National Bank for Agriculture and Rural Development (Nabard) described farm loan waivers as a "moral hazard" and said such facilities should be targeted only at the needy.

"Debt waivers create a moral hazard from a credit repayment perspective and we cannot have omnibus waivers," chairman Harsh Kumar Bhanwala told reporters in Delhi, a week after the Uttar Pradesh government announced a Rs36,000-crore farm loan waiver package.

With demands for similar measures on in other states like Haryana, Maharashtra and Tamil Nadu, Bhanwala said there is a need to look at the moral hazards which such schemes create and urged targeting such schemes only at needy farmers.

He said every time a debt waiver is announced, it is taxpayers' money which is used to help bail out the farmers.

The comments come days after Reserve Bank of India Governor Urjit Patel also expressed strong displeasure over such measures.

Nabard today reported a 4.24 per cent increase in its post tax net for 2016-17 at Rs2,631 crore, and a 16.27 per cent expansion in its outstanding loans at Rs3.08 trillion.

Bhanwala said with the development finance institutions, which primarily refinance banks' agro loans, the financial sector is set to surpass the Rs9 trillion agro loans target for fiscal 2017 set by government and will repeat the performance in fiscal 2018 by exceeding the Rs10 trillion target.

Nabard is laying extra focus on long-term irrigation funds and expects to deploy up to Rs25,000 crore for this purposes through identified projects (up from Rs9,000 crore in fiscal 2017) and also to mitigate climate change impact, Bhanwala said, adding the company will also be focusing on micro-irrigation sector this year, and plans to deploy up to Rs2,000 crore in it.

He said share of long-term loans has risen to 24 per cent of its total loan book now from 19 per cent two years ago, and Nabard will continue to focus on increasing this number.

Its outstanding borrowing increased to Rs80,000 crore from Rs60,000 crore in the year-ago period and Bhanwala said there would be an increase of Rs15,000 crore in the outstanding borrowing in fiscal 2018.

Nabard was able to recover a few of its bad loans in the just concluded financial year and consecutively the non- performing assets ratio has come down to 0.07 per cent.

With the Centre having announced a target to double farmers' incomes in the next five years, Nabard is working with the states to develop action plans to ensure that the targets are met, he said, adding a pilot project of working closely with the communities towards this purpose is being implemented in seven states.

As part of the pilot project, it will be working in 10 villages of a district having over 1,000 farmers each in every state and the job will start with identifying the base income structures in each states.

On demonetisation, Bhanwala said there was a jump in repayments in the initial days but credit demanded was impacted later. He, however, added despite this, the Rs9 trillion target has been met.

In a first, Nabard has also started operating a financial inclusion fund and sanctioned installation of 2.07 lakh point of sale machines for different banks since February, he said, adding they will be deployed soon.

For villages which lack mobile connectivity and also power shortages, it has allocated Rs308 crore towards this purpose.