The loan waiver schemes announced by the Andhra Pradesh and Telangana Governments can significantly impact the credit culture in the farm sector, India Ratings & Research (Ind-Ra) has said.
The move could lead to reduced availability of credit to the farmers from financial institutions, forcing them to go to private lenders.
It estimated that the two states accounted for ₹1.4 trillion or about 19 per cent of the country’s total agricultural loan outstanding in the current financial year.
The firm felt that this could incentivise parties in other states to come out with similar schemes, seeing electoral gains. “The most vulnerable would be states in which elections are nearing," it said, commenting on the loan waiver promise, in a statement here on Monday.
The research firm pointed that the waiver could carry the risk of significantly impairing asset quality going forward.
The research firm pointed out that regional public sector banks would bear the brunt of the waiver.