100-word take | Loan waivers come at a time when bad loans in the agriculture sector are rising

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The gross non-performing assets in agricultural bank loans went up from around 5 percent of advances to the sector in March 2017 to 8.4 percent by September 2018.

Did expectations of farm loan waivers lead to a rise in loan defaults by farmers? The Reserve Bank of India’s Financial Stability Report says that gross non-performing assets in agricultural bank loans went up from around 5 percent of advances to the sector in March 2017 to 8.4 percent by September 2018. That’s a rather steep deterioration. The stressed assets ratio in agriculture now stands at 8.6 percent.

That’s not all. The annualised slippage ratio (the fresh accretion to NPAs/Total standard assets at beginning of the year) in agricultural loans in September 2018 stood at 6.3 percent, higher than 5 percent for loans to industry, 3.8 percent for bank advances to the services sector and 2.3 percent for retail loans. After the recent spate of farm loan waivers, this ratio is likely to worsen. The politicians do not seem to care that they are sowing the seeds of the next bad loan crisis.