The Andhra Pradesh and Telangana Governments are planning to waive loans worth ₹1 lakh crore. This is perhaps the biggest loan waiver ever, say bankers.

The Telugu Desam Party (TDP) returned to power after a gap of 10 years on the promise of waiving loans worth ₹82,000 crore taken by farmers and Self Help Groups.

The Telangana Rashtra Samithi (TRS), set to form the first Government in Telangana, had also promised to waive farmers’ loans up to ₹1 lakh, totalling to about ₹20,000 crore.

Apart from farmers and members of self-help groups, banks too are happy with the measure. With increasing bad loans, the loan waiver comes as a relief to banks, as they will be reimbursed.

As of January 1, 2014, the percentage of NPAs to total loans outstanding under agriculture, MSE and SHG lending were 5.08 per cent, 5.36 per cent and 3.44 per cent, respectively.

“In a way it is good for banks because they can recover complete dues,” CVR Rajendran, CMD of Andhra Bank and President of the State Level Bankers’ Committee, told Business Line .

Generally, banks are paid the entire amount by the state government, which is unlikely in the case of Andhra Pradesh. “There is also an option of paying to banks in the form of Government bonds or other appropriate instruments,” he added.

CR Sasikumar, Head of State Bank of India, agrees that the waiver will give banks “some certainty” on recovery. “There are also certain moral hazards and issues in this whole process. But from the recovery point it is good,’’ he said.

Modalities

But the process will be a challenge for Andhra Pradesh, which is starting with a deficit. Telangana is more comfortable given its surplus budget and relatively lower payout. The Chief Ministers-designate of the two States have already begun work on the waiver.

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