DebWaiver2Farmer Articles

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Business Daily from THE HINDU group of publicationsWednesday, Jul 16, 2008
Who benefits from the waiver?
Sharad Joshi
The last act in the drama surrounding the Agricultural Debt Waiver and Debt Relief Scheme (ADWDR) announced by the Finance Minister on the February 29 is unfolding in rural India. All the leading banks were instructed to put on their notice-boards the lists of farmers who actually benefited from the scheme.
The banks faced a Herculean task and certainly tried their best to acquit themselves creditably.
The details of the scheme in close print cover some two dozen pages. On June 18 the Ministry of Finance issued clarifications on some 32 points. To prepare detailed lists of the beneficiaries of the scheme mentioning the financial extent of the benefit derived by them 12 days after the issue of clarifications was no simple task. In addition to preparing the lists of beneficiaries, the lending banks were required to issue individual certificates to each farmer loanee.
Guidelines
The small and the marginal farmers were to be given certificates mentioning the amounts borrowed by them since March 31, 1997 till March 31, 2007 and which had remained unpaid till December 31, 2007. The calculation was further complicated by the fact that the loans that were rescheduled under the packages announced by the government in the years 2004 and 2006, and which had remained unpaid, were also required to be mentioned.
On June 18 the Government made a further amendment and ordered that all loans, even those taken before 1997, were to come under the purview of the scheme if they were covered under the rescheduling packages announced in 2004 and 2006. The certificates for the small and marginal farmers had to give the total amounts of crop loans, short-term loans and long-term loans that had become overdue and, hence, eligible for debt relief.
‘Other farmers’
As regards ‘other farmers’, that is those holding more than five acres of land, the certificate was even more complex. It had to mention all loans taken between 1997 and 2007, which had become overdue. The loans rescheduled under the 2004 and 2006 packages taken before 1997 had to be taken into account.
Three-fourths of the amount overdue was to be paid by the loanee farmer in three instalments on September 30, 2008, March 31, 2009 and June 30, 2009. These farmers had to sign affidavits committing themselves to this schedule of payment. The certificates in their favour do mention the amount overdue as also 25 per cent thereof, which becomes eligible for debt relief.
The lists were put on the notice-boards of the lending banks, much to the disappointment of most farmers — small and large — who did not find their names therein. The farmers, however, did not fail to notice that the biggest beneficiaries were large farmers who had managed to avail themselves of big loans, taking advantage of their positions on the boards of directors of the lending banks. In Satara district of Maharashtra a single individual who happens to be the chairman of a co-operative bank has benefited to the extent of Rs 35 lakh from the scheme.
Overdues are new loans
I organised interaction sessions in two villages of Satara district — Chinchani Vandan and Patkhal. The feedback from the farmers brought out some astonishing facts. The ADWDR scheme covers crop loans, investment loans for increasing production in agriculture as also investment loans in activities auxiliary to agriculture, such as dairy, poultry, piggery, and so on.
As regards the crop loans that are taken by the farmers for meeting costs of input such as tillage, seeds, fertilisers, manures, pesticides, power and labour, and which are supposed to be returned within 18 months, the whole scheme has become ridiculously pointless because of the widely rampant practice of conversion of old loans into new loans every year, year after year. This system works on the following lines.
At the opening of the crop season, a farmer who has not been able to repay his previous loans finds himself ineligible to get a fresh loan for the coming year. The Chairman/Secretary, very condescendingly, offers him a way out. If the loanee farmer can manage to pay the chairman/secretary about 4-5 per cent of the outstanding loan, he agrees to juggle the books of accounts to show that the old overdue loan has been settled and a fresh loan is paid to the farmer. Under this system, crop loans never become overdue. Consequently, the provision in the scheme for the write-off of overdue crop loans is entirely redundant.
In the two villages where I interacted with the farmers, I came across only one case of overdue crop loan. The case of this farmer is very peculiar. He and his brothers live together and cultivate the land together. However, on paper they are all small farmers because the ancestral land has been subdivided between them in successive generations. It so happened that in the last two years, for some reason, he was not able to convert his old crop loan into a fresh one. As a result, he will benefit from the loan waiver scheme. The small as also the large farmers, thus, gain nothing from the waiver of the overdue crop loans.
Investment loans
As regards the investment loans the position is more bizarre. The certificates issued to the farmers mention the amounts of loans taken between 1997 and 2007 and then mention the amounts overdue without mentioning the amounts repaid by the loanee farmer time to time.
The certificates do not mention the rates at which the interest was calculated nor is there any way of knowing for sure if the lender bank has charged simple interest or compound interest. There is, thus, no way of knowing if the lending banks have observed or flouted the instructions of the Supreme Court against charging of compound interest.
As if this is not enough, there is an even curiouser stipulation. The ‘other farmers’, that is those holding more than five acres of land, in order to be eligible for the debt relief, are required to repay the first instalment of 25 per cent of the overdue amount on or before September 30, 2008.
Now, the farmers in Maharashtra are unlikely to get any new income this year before that date. They would, hence, not be able to respect the schedule of repayment and would, automatically, be disqualified not only from the debt relief but even from getting fresh loans. The only way they can save themselves is by taking recourse to borrowing from the private money-lender. The ADWDR scheme thus contains within itself the seeds of a new generation of farm indebtedness.
The UPA Government, in order to avoid owning up its responsibility for the farmers’ indebtedness and mass suicides, announced a highly legalistic scheme. Indications are that the scheme will itself prove a massive liability for it in the ensuing general elections.
(The author is Founder, Shetkari Sanghatana and Member of Parliament, Rajya Sabha. E-mail: sharad.mah@nic.in)
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Business Daily from THE HINDU group of publications

Monday, Jun 16, 2008
S. D. Naik
The substantial expansion of farm waiver package by the UPA Government from Rs 60,314 crore announced in the Budget to Rs 71,680 crore reflects its growing loss of nerve with approaching elections. This announcement has come closely on the heels of bringing political pressure on the State Bank of India to withdraw its internal circular to branches to temporarily suspend new loans to tractors and power tilling equipment segment following mounting non-performing assets (NPAs ) in the segment.
The loan waiver scheme has now been enlarged to include plantations and horticulture, allied agricultural activities such as dairy and poultry farming, as well as investment credit for purchase of tractors and bullocks, deepening of wells etc. Moreover, as recommended by Mr Rahul Gandhi, the scheme will now include bigger farmers with more than five acres of land in dryland areas.
The Government has decided to create a Farmers’ Debt Relief Fund, with an initial corpus of Rs 10,000 crore. The Finance Minister has also stated that Rs 40,000 crore (instead of Rs 25,000 crore) will be provided this year towards the debt waiver scheme. The future installments will be in subsequent Budgets until 2011-12.
ILL-CONCEIVED
Clearly, the massive loan waiver scheme is ill-conceived from several angles. For one, it will impose a huge additional fiscal burden at a time when global crude prices have gone through the roof and the Centre will have to provide for hefty increases in salaries of its employees under the Sixth Pay Commission award.
Moreover, with the National Rural Employment Guarantee Scheme (NREGS) having now been extended to al the 600 districts of the country, the Centre will have to provide more funds for the scheme. Second, it is grossly iniquitous in that it leaves out nearly two-thirds of the farmers who have borrowed from private moneylenders.
Moreover, it will make the farmers who repaid their loans in time, feel betrayed and affect the carefully nurtured credit culture. Already, many banks are finding their farm sector NPAs rising because of non-repayment of loans.
Third, it is a one-time benefit to only a small section of farmers who borrowed from institutional sources and is no substitute for the substantially higher investments needed in agriculture and rural infrastructure on a sustained basis.
Even after the announcement of the expanded package, an overwhelming majority of affected farmers feel left out and new demands and suggestions have been coming from different States every day. In fact, the State government has now announced its own package to include some of the left-out farmers. Thus, as the Magasasay award winning journalist, Mr P. Sainath has aptly put it: “The UPA Government’s waiver is no solution to even the immediate crisis, let alone long-term agrarian problems.”
PRAGMATIC ALTERNATIVE
A pragmatic alternative for the Government would have been to implement some of the recommendations made by the Radhakrishna Committee on Rural Indebtedness. The Committee had suggested several remedial measures to tackle the serious problem of rural indebtedness. However, loan waiver did not find a place in its report.
After noting that more than half of the farm households do not borrow from institutional sources and that they pay usurious rates of interest on borrowings from moneylenders, the Committee wanted the banks to grant a one-time term loan to such farmers to free them from the clutches of moneylenders. It had also mooted a Moneylenders’ Redemption Fund with an initial corpus of Rs 100 crore to operationalise the scheme.
Some of the other pragmatic suggestions of the Committee included the rescheduling of loans, making available fresh loans and waiving of interest liability of borrowers for the extended period of up to two years (both for short and long-term loans).
The financial burden of this was to be equally shared between the Central and State governments. More important, the Committee had suggested that those who repaid their dues promptly must be rewarded.
Thus, rescheduling of loans could have been for a much longer period of three-five years, interest waivers, making available fresh loans on government guarantee, and finding some way to provide the much-needed relief to those indebted to moneylenders on the lines suggested by the Radhakrishna Committee, would have been a much better alternative.
WAY FORWARD
While the damage caused by the ill-conceived loan waiver scheme cannot be undone now, the government should immediately initiate both short and long-term measures to rejuvenate agriculture. And, as the Expert Group on Agricultural Indebtedness has suggested, rejuvenation of the farm sector lies in addressing basic structural, institutional and technological factors as also the restructuring of public support systems.
First and foremost, there is an urgent need to reverse the long-term declining trend in public investment in agriculture since 1980-81. There has been a sharp decline in the share of public sector gross capital formation (GCF) to 17.23 per cent in 1999-2000 from 43.2 per cent in 1980-81. Contrary to expectations, private investment failed to compensate for the drastic decline in public sector investment in the sector.
To overcome the resource constraint, funds allocated under ‘Bharat Nirman’ and National Rural Employment Guarantee Scheme could be used to boost the asset base of the farm sector.
Serious efforts are needed to ensure that not only the institutional credit to the sector increases significantly, but that it reaches more number of farmers, particularly the small and marginal farmers. Though farm credit has shown a robust growth over the past few years, the number of farmers covered has not increased proportionately.
In this context, the suggestion of the Expert Group to make Micro-Finance Institutions (MFIs) an integral part of mainstream banking deserves consideration.
The banks should be asked to provide resource support to MFIs on the condition that they moderate their interest rates and abide by ethical banking practices. This will immensely benefit the vast majority of small and marginal farmers who have no access to banking institutions at present.
The other areas requiring urgent attention are the strengthening of Research and Extension Services and risk mitigation measures such as crop insurance, weather insurance, price risk mitigation and expanding the livelihood opportunities for the rural population outside the farm sector.
Far-reaching changes are also needed in the land use pattern, water management, reclamation of waste-land and selection of crops to suit the environmental needs. Organic farming also needs a closer look to make agriculture sustainable.
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Business Daily from THE HINDU group of publicationsFriday, May 30, 2008

Arvind P. Datar
In Budget 2008-09, the Finance Minister, Mr P. Chidambaram, announced the write-off of Rs 60,000 crore of loans given to small and marginal farmers holding up to two hectares. For other farmers, 25 per cent of the outstanding amount was to be written off. Other ministers and politicians were quick in claiming similar relief. The Agriculture Minister, Mr Sharad Pawar, called for a waiver of loans given to fishermen and also for increasing the minimum exemption area from two to five hectares.
The Finance Minister has accepted some of these demands and the subsidy will now cost the exchequer Rs 71,680 crore. Farmers cultivating up to five acres of land are also eligible and the scheme has been extended to poultry, dairy and bee-keeping.
The domino effect has been felt at the State level as well. The Tamil Nadu State Budget for 2008-09 provides for a complete waiver of loans given to handloom weavers. Housing loans up to Rs 25,000 availed by economically weaker sections from co-operative banks have also been written off.
With elections for several State assemblies looming ahead, it is only a matter of time before this Santa Claus syndrome spreads to different States, and each Chief Minister tries to outdo the other by writing off or waiving loans given to different sections of society.
Counter-productive
The loan waiver scheme will be counter-productive and, ironically, affect the small and marginal farmer the most. A recent article in the Economic and Political Weekly (March 15-21), discusses the disastrous consequences of the debt relief scheme announced by Devi Lal in 1990-91.
The share of moneylender’s loans to farmers had actually increased from 17.5 per cent in 1992 to 26.8 per cent in 2002! All attempts to control exorbitant rates of interest charged by money-lenders and various schemes of debt relief have miserably failed. Indeed, it is impossible to control or regulate the money-lender and his usurious rates of interest. The present loan waiver will only tighten the stranglehold of rural Shylocks.
Muhammad Yunus, Nobel laureate and founder of the Grameen Bank in Bangladesh, perhaps knows more about lending money to the poor than all our Finance Ministers combined. In his book Banker to the Poor, Yunus specially points out that Grameen Bank never, never writes off a loan.
Even after a cyclone or flood, so common in Bangladesh, the Grameen Bank would reschedule the loan and give a longer grace period for repayment. But it never wrote off the loan. Yunus states: “The repayment of loan boosts the self-reliance, pride and confidence of an impoverished person in his own ability. To forgive a loan does just the opposite and can undo years of difficult work in trying to get that borrower to believe in his or her own ability. When Governments forgive loans extended by nationalised banks, it creates an almost untenable situation for micro-credit programmes to recover their money”.
Rewarding law-breakers
After 60 years of pro-farmer policies, the agricultural sector is still in a sorry state. Every budget has numerous schemes for rural employment or some other relief. But large amounts allocated for roads, irrigation and other projects are consistently siphoned off. Rajiv Gandhi famously admitted that only 19 paise of each rupee reached the poor. The confession implies that 81 per cent is knocked off by politicians, bureaucrats and contractors.
Farmers enjoy a huge fertiliser subsidy, free power and minimum price for their agricultural output. But these benefits clearly do not reach the rural poor and have failed to make the small farmer financially independent. It is clear that subsidies, handouts and freebies are not the solution to the problems facing the small and marginal farmer. The loan waiver scheme will not only seriously damage the banking sector but, even more importantly, do irreparable harm to our national character. Such schemes breed contempt for the law and any kind of contractual obligation.
Over the last several years, we have consistently rewarded law-breakers and punished law-abiding citizens. Income-tax evaders are not prosecuted but given the benefit of voluntary disclosure and samadhan schemes. Builders who flagrantly violate building laws are given the benefit of “regularisation”.
Farmers who repaid their loans despite all odds cannot but feel a sense of outrage; indeed, farmers who repaid their loans and honoured their contractual obligations look like idiots while the defaulters can literally laugh their way to the bank.
Risk of fraud
The loan waiver scheme will now increase the demand of different sections of society for getting waivers and write-offs. It can also breed serious fraud. Loans can be taken in the name of existent or non-existent farmers or labourers by the local political mafia and periodically written off.
The success of Germany, Japan and Singapore has not been accidental. It is, in each case, a result of visionary leadership and the dedication and discipline of the people. It requires men of stature to make a country economically strong and have the necessary self-discipline and integrity not to allow anyone to plunder the country’s resources.
On the other hand, it requires no intelligence to write off loans or distribute other gifts to the public. From the distribution of free sarees and dhotis, we have graduated to colour TVs and gas stoves. What prevents political parties from promising one motor-cycle for every family belonging to the weaker sections?
The distribution of largesse at the cost of the tax-payer is very simple and can be accomplished by any politician; good governance requires politicians to rise to the level of statesmen.
The Santa Claus syndrome will have a crippling effect in the years ahead. With coalition politics taking centre-stage, long-term national interests are being increasingly sacrificed for short-term political gains. The loan waiver scheme was perhaps the worst way of helping the small and marginal farmer.
(The author is a Senior Advocate of the Madras High Court.)
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Business Daily from THE HINDU group of publications
Thursday, Jun 05, 2008
Achieving Sisyphean proportions
SHARAD JOSHI
The more the Finance Minister grapples with the problem of farmers’ loan waivers, the more he appears to get bogged down in its complexities. How did this massive burden of farmers’ indebtedness arise at all? For decades, those in authority have been placing the blame on such diverse factors as uneconomic size of holdings, vagaries of climate, pest damage, inordinately high rates of interest, low level of literacy, diversion of loans to non-agricultural purpose s, low yields, addictions to alcohol/drugs and even sheer laziness of the farmer community.
These anti-farmer calumnies have, for decades, persisted in the textbooks on agriculture. It was in 1986-89 that things changed. The statistical data submitted by the Ministry of Commerce to the World Trade Organisation (WTO) on the subsidies given to farmers made it quite clear that the farmer was not to be blamed for his penury and colossal burden of debt that was crushing him.
All economists and political parties had to concede that the farmers’ indebtedness was largely a result of successive governments’ deliberate measures to keep domestic agricultural prices depressed by using one or the other of their vast armoury of instruments of market intervention.
Agriculture, as a whole, had become a losing proposition, irrespective of the size of individual holdings or geo-climatic zones or the State in which the land was located.
Rising indebtedness
The indebtedness continued even after private money-lending was proscribed and replaced by an elaborate structure of co-operative credit.
The attempts to promote formal credit institutions such as commercial banks and the co-operative credit institutions further impoverished the rural economy inasmuch as rural savings were sucked into the urban sector. Farm indebtedness was unrelated to the merits or demerits of any particular credit institution. No matter what the source of credit, indebtedness continued to rise.
Even the colonial government was sensitive to the misery of farmers, as seen in the alacrity with which it responded to the Deccan riots; the governments of Independent India, however, have not cared to respond to the demands of the farmers’ organisations for debt relief/loan waivers, voiced at least since 1984. The matter was brought to a crunch by the spate of farmers’ suicides that numbered over 1,50,000 since 1985.
An analysis of the suicides showed they were spread fairly equally across all castes and age-groups.
There was a preponderance of landholders among those who took their lives. Clearly, the landless labourer, who could count on his fixed income, howsoever uncertain, was generally better off than the landholding farmer, who faced the vagaries of nature as well as the tyranny of the political state.
The highest incidence of suicide was among the cotton-growing farmers in Andhra Pradesh, Karnataka and Vidarbha. That was conclusive evidence that the phenomenon of indebtedness and suicides was directly related to the extent of negative subsidy imposed on various crops. Cotton suffered from the highest negative subsidy since pre-Independence days.
Cotton growers had become further vulnerable because of the extent of the use of pesticides the crop needs as also the rising incidence of spurious pesticides/seeds and adulteration. Those in authority continued to put the blame on the various factors mentioned above. They could not have signed a confession that the suicides were a direct result of the anti-farmer economic policies they had followed since Independence.
Faulty basis
The farmers had made a clear case that their loans were both illegal and immoral and that the quantum of loan was insignificant compared to the loss caused to the farm community from the negative subsidies imposed by the government.
Even before February 29, when the Finance Minister announced the Loan Waiver and Debt Relief scheme (LWDR), the country at large expected that, in the last Budget before the general election, there would be some attempt to assuage the farmers’ anger.
The Finance Minister ought to have prepared a scheme of debt relief which should have recognised that the uneconomic character of the agricultural vocation is a national phenomenon not related to the size of the holdings or to the character of the institution from which the loan was obtained. It made no sense to make a distinction between the loanees on the basis of the size of holdings or between the various lenders on the basis of their structural character. This is the truth that the UPA government could not afford to accept as it established the culpability of all the governments since 1947.
The Finance Minister tried in the initial version of the LWDR to stick to the belief that indebtedness is caused by the uneconomic size of holding, the vagaries of nature and the tyranny of private moneylenders. The loan waiver scheme announced in the last Budget was clearly based on this theory.
The scheme caused widespread dissatisfaction, impossible to ignore. The Finance Minister has since announced an extension of the scheme that increases its cost from Rs 60,000 crore to Rs 71,680 crore.
Under the extended version, all farmers — small, marginal and big — in 237 identified unirrigated and drought-prone districts in various States will get a minimum one-time debt relief of 25 per cent of the outstanding loan amount, or Rs 20,000, whichever is higher.
The extended version is, of course, an improvement over the initial one, in that the dichotomy between the small, marginal and other landholders has narrowed to some extent. The farmers with holdings larger than five acres will now be entitled to some benefit if they are located in the districts identified as drought-prone.
Still not logical
That, however, does not make the scheme any more logical or consistent. The indebtedness is not due to any natural climatic factors. It is more the result of the State’s keeping agricultural prices depressed.
The list of the identified districts is going to raise more questions than it resolves. Since in most southern States the monsoons start in the first week of June, there will be uncertainty as to which farmers are entitled to get fresh crop loans and which farmers are not.
The non-seasonal rains that the Northern region has been experiencing of late suggest that the onset of the monsoons in the North will be considerably delayed. As a result, farmers in the southern region may become vulnerable to uncertainty about eligibility to get fresh crop loans.
Fixing the district as a unit for judging the eligibility of a farmer for the loan waiver is irrational. In crop insurance schemes, it is acknowledged that even a block is a highly unsatisfactory unit for settlement of claims.
The availability of rainwater varies widely within a district. There are regions within a district that benefit from major or minor irrigation schemes while others do not. Treating all the farmers in a given district as a homogeneous category would be an absurdity.
Further, the list includes some districts that are well-endowed with water resources while it excludes certain others have long been recognised as drought-prone. The ‘district approach’ will only result in many inter-district disputes, which may be difficult to resolve.
The UPA government and the Finance Minister P. Chidambaram, in an effort to clear the ruling parties of the charge of chronic animosity towards farmers, seem to be making things so complicated that it is impossible to come up with workable remedies that will make a real difference.
The Finance Minister is apparently unable to shake off the burden of farmers’ indebtedness, which is weighing him down even more each day.
(The author is Founder, Shetkari Sanghatana and Member of Parliament, Rajya Sabha. E-mail: sharad.mah@nic.in)

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Business Daily from THE HINDU group of publications
Thursday, Mar 13, 2008
Mechanics of farm loan waiver
Sanjiv Agarwal
In 2007-08, gross domestic product (GDP) is estimated to grow at 8.7 per cent and agriculture (which accounts for 17.5 per cent of GDP) a mere 2.6 per cent. While growth of agricultural credit is all set to exceed the 2007-08 target, credit in 2008-09 is pegged at Rs 2,80,000 crore.
Budget 2008 has announced a Rs 60,000-crore debt wavier scheme for farmers. The scheme envisages complete waiver of all loans of marginal and small farmers that were due as on December 31, 2007, and remained unpaid until February 29, 2008.
For other farmers, a one-time settlement (OTS) scheme has been announced wherein outstanding loans which were due as on December 31, 2007, but remained unpaid till February 29, 2008, can be settled at a rebate of 25 per cent against the balance payment of 75 per cent.
Whither the resources?
Not only this, once such loans are settled or waived, the same farmers would still be eligible for fresh loans from banks.
This will result in about three crore small or marginal farmers getting relieved and another about one crore farmers getting settlement. All this is expected to be over by June 30, 2008. The scheme will have a direct bearing on the bottom-line of scheduled commercial banks, regional rural banks and cooperative credit institutions.
So far as the Government in concerned, the Rs 60,000 crore burden has not been provided for in the Budget, meaning that it will have to be funded by future tax collections. From where the resources will come is still not clear. Such a huge amount can neither be left to be recouped under the head, ‘contingencies’ nor left without being provided for. If that be the case, it would mean that either the respective banks or the taxpayers will have to take the hit
In public sector banks (PSBs), non-performing assets (NPAs) as regards the agricultural sector stand frozen now (cut off is February 29, 2008), as banks will have to write off their advance/lending portfolio to that extent. The actual figure could be even more than Rs 60,000 crore.
What banks will gain is the cleaning up of the messy agricultural loan portfolio. Now such loans will be out of the books and banks, in turn, will be provided with liquidity. In what form the liquidity will be is not yet clear. Will it be a simple reimbursement, a form of subsidy or some other financial package will be known in April. Ideally, this should be made known immediately as only then banks can decide whether to book such waivers and OTS in 2007-08 or 2008-09 (before June 30).
Type of liquidity
If the banks get liquidity in the form of bonds, it could be considered as fresh tier II capital. What would effectively happen is that on the liabilities side of the balance-sheet the capital would be shown, and assets (NPAs) will get replaced by investments in the form of bonds on the asset side. For banks, these amounts were already NPAs and had either been or would eventually be written off in the books by charge to profit and loss (P&L) account. In any case, liquidity was never a case as these were dead loans with virtually nil chances of recovery. It is expected that banks will be compensated as and when loans fall due.
Depending on how the scheme is framed by the Government, banks will account for the same.
In case the banks have already provided for such loans as bad/doubtful/sub-standard assets, they will gain to the extent the provision is reversed as a result of recovery/waiver under the scheme.
If no such provision exists, the banks will only get rid of such NPAs and their books will be cleaned up. If the Government reimburses this NPA amount, the banks will merely set off these advances against the funds so received from the Government. But if the Government decides to provide liquidity by issuance of bonds, the banks’ assets will get substituted, that is, NPAs will go out of the balance sheet and bonds would be shown as investment. Any interest earned on such bonds could then be accounted as income by banks.
Despite the huge waiver, the small farmer could continue to reel in debt as formal credit is only a fraction of the total credit. Overall, therefore, it is felt that banks may not have much to lose. But once they start afresh, they will start creating NPAs again as such borrowers are eligible for fresh loans.
(The author, a chartered accountant, is an independent director in a public sector bank.)
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