MUMBAI: Disbursement of agricultural loans has soared in election-bound states, raising fears that it could be on expectation that political parties may announce loan waiver schemes.

Farm loans, including loans for allied activities, rose 7.6% from end-March to touch Rs7.2 lakh crore at the end of July, according to Reserve Bank of India data. It was also a fiveyear high for the four months.
Five states – Maharashtra, Haryana, Jammu and Kashmir, Jharkhand and Delhi — go to polls this year. Bankers say that farmers have started borrowing huge amounts with the expectation that a loan waiver scheme will be announced by political parties seeking a mandate.

“States that are about to go to polls are the obvious culprits,” SBI Chairman Arundhati Bhattacharya had told reporters recently.

In the period under review, farm loans have seen the highest growth rate compared with other segments such as retail, which grew by about 4% in the same period. Loans to the services sector and to industry recorded negative growth.

Loan waiver and interest rate subvention schemes are popular poll planks for political parties contesting elections. In August, Andhra Pradesh – the state with a revenue deficit – announced a crop loan waiver in its budget for 2014-15. It is estimated to cost the state exchequer overRs40,000 crore. The Reserve Bank of India, however, has objected to such sops.

United Andhra accounted for more than Rs1 lakh crore in farm loans, according to bankers. “With some banks rescheduling the short-term crop loans to medium-term loans, the outstanding loan amount could have gone up,” a banker said, requesting anonymity. According to RBI governor Raghuram Rajan, the country saw big loan amounts being waived in 1989 and 2009. “This is not healthy for the system. It disrupts the credit culture. Interest subvention means, the government will partly bear the interest repayment liability on behalf of borrowers,” Rajan said at a banking conclave in Mumbai earlier in the week.