Delay in loan-waiver, rise in farm NPAs hit banks’ Q1 numbers

Banks in Andhra Pradesh and Telangana are paying a heavy price on account of delay in finalising the modalities of loan waiver and its execution in the two States.

There was a massive increase in non-performing assets of leading public sector banks, as reflected in their first quarter performance.

“The entire financial discipline has been spoiled. Lack of clarity and delay in announcing modalities have resulted in halt of repayment by almost all farmers,” CVR Rajendran, Chairman and Managing Director, Andhra Bank told

What is alarming for banks is the fact that as a lag-effect, most customers also stopped paying other loans. “Technically, even if one loan of an individual is classified as a non-performing asset (NPA), any other loans outstanding from that person will have to be classified as a bad loan,” he said.

To this extent, Andhra Bank took a hit of ₹1,400 crore including ₹1,078 crore worth agricultural loans, while the remaining was on account of other loans borrowed by farmers.

The leading banks in the two States are Andhra Bank (with majority of branches in AP), State Bank of Hyderabad, now the convenor of the Telangana State-level Bankers Committee, State Bank of India (SBI) and Syndicate Bank.

In the first quarter ended June 30, 2014, Andhra Bank reported an increase in net NPAs from 3.11 per cent to 3.89 per cent.

Though the quantum of agricultural loans to be waived is lower in Telangana, SBH too was impacted to some extent as its net NPAs had gone up from 3.12 per cent to 3.37 per cent. State Bank of India is yet to announce its first quarter numbers. “However, at the field level we see the same trend of farmers not repaying loans in the two States,” said a senior SBI official.

The concern for banks is lack of clarity till date, which might result in continued adverse impact during the second quarter as well. With Reserve Bank of India acting tough on permissions to reschedule crop loans in Andhra Pradesh on the grounds of drought, it now remains to be seen how the stalemate over loans will be resolved. Banks will have to keep their fingers crossed until then.

The size of loans to be waived, including credit extended to self help groups, is pegged at over ₹60,000 crore.