Banks have been witnessing a rise in slippages in agricultural loans during the second quarter of current fiscal. While a section of bankers attribute the rise in non-performing assets to banks moving to system driven identification of bad loans, some say it is because of higher defaults and poor recovery mechanism.
The bad loans are to the tune of 3-5 per cent of total slippages, senior bank officials said.
‘Cause for concern'
The loans to the agricultural sector are under stress, “whether this is due to poor recovery or genuine hardships we are yet to ascertain. But it is a cause of concern,” Mr Pratip Chaudhuri, Chairman, State Bank of India, told
State Bank's gross slippages, excluding those from restructured accounts, during the second quarter amounted to Rs 6,238 crore.
The bank has been focusing on recovery from non-performing assets. “The recovery is picking up. As farmers get money we will accelerate our recovery efforts,” Mr Chaudhuri said while announcing the bank's quarterly performance in Mumbai recently.
The rise in bad loans is due to a combination of factors, said Mr Vaibhav Agrawal, Vice-President, Research-banking, Angel Broking.
“Priority sector lending typically expose banks to higher NPAs, this has been compounded by system driven identification of bad loans.
“Moreover, the agricultural debt waiver announced by the Government has also affected the repayment culture to a great extent.”
Andhra Bank reported gross NPAs of about Rs 550 crore from the agricultural sector. The bank is however hopeful of recovering more than 50 per cent by the end of this fiscal.
“The rise in bad loans is largely because of banks adopting a system-driven approach for identification of such loans.
“Earlier, small advances of Rs 1-2 lakh were not captured very efficiently, but it is being generated by the system now. We are, however, hopeful of recovering Rs 250-300 crore by December or latest by March of this fiscal,” said Mr R. Ramachandran, Chairman and Managing Director, Andhra Bank.
Last fiscal
The slippages were lower during second quarter of last fiscal as the Government had cleaned the balance-sheet of banks by way of farm loan waiver to the tune of Rs 60,000 crore in 2008-09.
“The advances extended by banks thereafter will have a moratorium of 6-12 months and it takes another three more months for it to be classified into the category of NPAs.
“So, not too many cases of bad loans were reported last year,” said Mr S. L. Bansal, Executive Director, United Bank of India.