Khan dubs farm loan as bubble, flays govt for setting targets
Amid reverses faced by banks on farm loans, RBI's former deputy governor H R Khan has come out strongly against the practice of agri credit targets set by the government every year for lenders and termed them as a "perpetual bubble".
"The banking system has just been reactive to the targets given by government, he said, speaking at an industry awards event organised by consultancy D&B here last night.
Noting that every year the government keeps on setting new credit disbursal target in the trillions in budget, and the banks exceed it, Khan said most of these are short term crop loans.
The need is to support long term needs of the farm sector through capital investments, he said, adding that the proportion of capital investments in total farm credit has fallen to 20 per cent from 35 per cent level five years ago.
He said in the last 10 years, while credit to the farm sector has grown at 18 per cent, the production rose only 12 per cent and farmer incomes continue to be depressed due to a variety reasons, including lower prices for their produce rise in wages and input costs.
Investments need to be done in aspects like warehouses, supply chains and other infrastructure-related aspects, he said.
Khan, who retired from RBI last year, termed agriculture loans as a "perpetual bubble" which the public policy has not been able to solve.
Many a times, the short term farm loans are taken for consumption purposes and claimed that a fourth of the money raised through it goes for buying gold, he said.
The former carrier central banker, however, did not make any mention to the rash of farm loan waivers which has affected credit behaviour and increased NPAs for the banks as farmers stop servicing their loans once such announcements are made.
He said these are challenging times for the banking sector because of the twin problem of NPAs and pressure on capital levels.
On the insolvency and bankruptcy code, Khan said, "We should be realistic and cautiously optimistic as our experience says that no system has been really effective." For NPAs, he pointed out that thermal power and telecom are the concerning sectors to watch out for.
Khan said he does not favour bank consolidation at this point, as it will not alleviate any pains being faced on NPAs and capital requirements.
Without naming SBI, he said the country's biggest lender had its GNPAs shoot up to the double digit mark because of the merger of associates.
On capital, he said provisioning for the IBC accounts and a shift to the Ind-AS system of accounting will create new pressure even though the central bank may give some relaxation on the accounting change.
Standard Chartered Bank's country head Zarin Daruwala, who also spoke at the event, said dealing with the top-50 NPAs can help halve the extent of the NPA problem.
She also pitched for banks being allowed to look at a firm's GST filings and making it mandatory for banks to share financial transaction details for effectively dealing with the issue.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.