AP loan-waiver scheme hits banks, self-help groups

The much-hyped debt-waiver scheme of the Andhra Pradesh Government is adversely impacting self help groups (SHGs) as well as banks.

Bankers in the State now feel that the scheme, instead of doing good, had actually become a deterrent to credit flow to the sector, famed for its discipline in repayments.

According to CVR Rajendran, President of the State Level Bankers’ Committee (SLBC) and Chairman and Managing Director of Andhra Bank, the SHGs, which had an excellent track record in the State before the debt redemption scheme was put in place, are now totally ‘distraught’ and ‘huge’ non-performing assets (NPAs) have been added in the last nine months.

One of the reasons for this problem could be the adverse repayment climate generated on account of the mass loan waiver euphoria that led to borrowers becoming complacent and feeling they did not have to repay their loans. Another reason has been the inordinate delay in capital infusion to SHGs as assured by the Government.

Though the Government announced relief to SHGs by way of capital infusion of up to ₹1 lakh per group, the modalities are yet to be finalised. It would be extremely difficult for the women’s groups to service entire dues to banks at one time.

“This has totally vitiated the repayment culture of these groups resulting in NPAs mounting under this sector,” Rajendran said.

The total outstanding loans to SHGs in Andhra Pradesh stood at ₹13,844 crore as on December 31, 2014. The total balance in overdue accounts, however, is ₹2,174 crore, of which ₹888 crore has been declared as NPAs, as per SLBC data.

The percentages of total balance in overdue accounts and NPAs to outstanding loans are 15.70 and 6.41 per cent respectively. In view of these alarming numbers, banks have appraised the Reserve Bank of India of the situation and requested for a special dispensation to the State to tide over the peculiar situation being faced by banks. The RBI’s decision is awaited.

On its part, the State Government should release the “long assured capital before it is too late; this would go a long way in shoring up the asset quality in all banks,” said a circular of the SLBC.

After the microfinance crisis in 2010, MFIs have almost exited from lending in Andhra Pradesh and Telangana and banks are the only source of credit to the under-privileged sections, particularly women. Unless the loan-waiver issue is addressed, it will be difficult for SHGs to get fresh credit.