Loan waivers add to woes of banks

Farm loan waivers in major states in the country have turned out to be bad news for major PSU banks. The banking sector is already reeling under the stress of rising NPAs and the recent farm loan waivers are also expected to impact credit discipline in the economy.

These loan waivers have been announced when the banking sector is facing heat of rising non- performing assets (NPAs) and under capitalisation of banks. The loan waivers are expected to impact credit costs and loan availability of the banks.

Major PSU banks such as State Bank of India, Punjab National Bank, Bank of Maharashtra, IDBI Bank, Bank of Baroda, Canara Bank and Bank of India have Rs 2.26 lakh crore in agricultural loans and Rs.61,400 crore as farm loans. The private sector banks such as ICICI Bank, HDFC Bank and Axis Bank have Rs.53,900 crore of exposure to agricultural loans and Rs 13,800 crore to farms loans.

Further, the PSU banks are also facing the problem of low capital adequacy, which is holding these banks from further growth. The Indian government has previously infused Rs.50,000 crore into the banking system and remaining amount of Rs.20,000 crore is expected to be infused by the end of 2018. However, industry reports claim that public sector banks require Rs 70,000-Rs.95,000 crore to sustain current growth.

Banks are opting for raising capital through equity dilution and QIPs to meet the Basel-III norms. Looking forward, banks are expected to expedite recoveries and sell their stressed assets to ARCs to clean up their balance sheets. However, loan waivers further encourage more such waivers in future, instead improving the repayment ability of farmers.

Bank Nifty was trading positive today, up by 51 points intra-day, lifted largely by Bank of Baroda, up by 2.2 per cent, PNB was up by 1.5 per cent and ICICI Bank up by 1.9  per cent at 14:11 hrs on account of RBI's move to file insolvency and bankruptcy proceedings against 12 major corporate accounts.