Seniors bankers feel the government might ask the Reserve Bank to issue SLR bonds to banks to clean-up their agri-NPAs. “We have received some indications that the RBI will issue Statutory Liquidity Ratio (SLR) bonds. However, no official communication has reached us as to who will take up the burden,” UCO Bank Chairman and Managing Director S K Goel told PTI.

The loan waiver will impact farmers whose loans were due as on December 31, 2007 and had defaulted. However, crop loans for the current kharif and abi seasons still need to be paid back this year. The pressure on the government to come up with drastic measures began with suicides in Vidarbha.

According to a door-to-door survey undertaken by the Maharashtra government in 2006, which probed all 17.64 lakh farmers from 8,351 villages in six suicide-ridden cotton districts, 4.34 lakh farmers (about 25%) were “acutely distressed,” 9.14 lakh (about 53%) were under “medium distress” while 3.7 lakh (about 22%) were without any distress. Of these, the number of small and marginal farmers was 15.63 lakh accounting for Rs 1,400 crore in outstanding loans. Clearly, the loan-waiver should give them immediate relief.

But a committee chaired by R Radhakrishna, director, Indira Gandhi Institute of Development Research, to examine agricultural indebtedness stopped short of suggesting waiver of loans. There are several reasons why:

• Only 51.3% of all farmers have access to institutional (bank) credit. Private moneylenders accounted for Rs 40,000-crore debt, according to NSSO figures.

• Debt from non-institutional sources, a major portion of which was from moneylenders, carried an interest rate greater than 30%. The committee pointed to an urgent need to relieve the farmers from private debt carrying high interest rate by transferring it to institutional agencies. This loan waiver doesn’t affect these farmers at all.

... contd.