Waiver of loans, indeed a respite for PSU banks

Government of Uttar Pradesh (U.P) announcing a loan waiver worth Rs 36000 crore for small and marginal farmers seems to be beneficial for the banking sector. Nine private and public sector banks have issued Rs 70,046 crore, and out of this Rs 49,811 crore are crop loans.

Major public sector banks like SBI, Punjab National Bank & Allahabad Bank are leading with exposure to agricultural loans in UP state. Total crop loans issued by all the commercial banks including regional rural banks have increased to Rs 87,759 crore in U.P. in particular.

Waiver of crop loans is dual advantage for banks as their stressed advances get reduced and farmers also again become eligible for taking new loans leading to credit growth for the banks. Crop loans contribute almost 60% of total agricultural loans, making it more risky.

Although the waiver of loans is expected to see marginal impact on overall NPAs of banks, it will indeed prove to be beneficial for banks, making room for further credit growth, as the equilibrium has been disturbed post heavy deposits in the period of demonetisation.