Deferred unrest

With PSU banks currently awash with NPAs, will the Maharashtra government be able to honour its loan-waiver commitment?

Apoorva Salkade

The Kisan Long March, launched by CPI (M)-affiliated All India Kisan Sabha (AIKS) to protest against the agrarian distress reached the Maharashtra State Assembly in Mumbai today. After walking for about 180 km in the blazing sun over the past week, around 35, 000 farmers, who belong to tribal-dominated areas in Nashik, Thane and Palghar, are demanding a loan waiver, implementation of the Forest Rights Act, fixed remunerative prices for agri-products and the implementation of the recommendation of the MS Swaminathan Commission.

This is not the first time the state’s farmers are making headlines for a statewide protest. Last year, Maharashtra witnessed the year’s first strike in June followed by the government’s decision to waive off farm loans and when it failed to grant the promised Rs.34,000-crore waiver, the strike resumed in November. In addition to this, issues such as a low minimum support price, market access, faulty crop insurance schemes, limited area under irrigation and lack of agriculture research continue to exist.

While several blame the state government for a flawed implementation of the loan waiver, others blame banks for not getting the job done. The state government’s hasty decision has added an additional burden on banks that are already reeling under the pressure of burgeoning NPAs. To top it off, there was the poor timing of the loan waiver announcement — the beginning of kharif season restricted the banks’ capacity to disburse fresh loans to farmers for sowing. Their woes took a turn for the worse when a below average rainfall resulted in farmers losing almost half of their kharif crop. And the spate of distressing events didn’t end there. The cotton crop was infected by an infestation of the pink bollworm cutting into expected yields. 

For now, the protest in Mumbai has been called off after the Devendra Fadnavis government has agreed to address the needs of farmers. However, it is highly unlikely that the state government will declare another loan waiver given the stressed balance sheets of banks. The loan waiver announced in June impacted public sector banks the most due to their high exposure to farm loans as directed by the government. According to a Kotak Institutional Equities report, in Maharashtra, PSU banks hold 52% of total farm loans, followed by co-operative banks and private banks that hold 32% and 12%, respectively. The report further states that Bank of Maharashtra accounts for 60-65% of total loans in the state and holds around 12% of non-performing loans in the agriculture portfolio.

The government has agreed to give a written draft of the solutions within the next two months to the farmers. Populist measures like writing-off farm loans come at the tax-payers' expense and do very little to alleviate the plight of deserving farmers.