Banks, which are already reeling under huge bad loans, are likely to take a hit of Rs 27,419 crore if the Uttar Pradesh government goes ahead with its farm loan waiver proposal, State Bank of India (SBI) has said.

The scheme will also “definitely cause some amount of stress for the state’s fiscal arithmetic” in the coming year, it said, cautioning the state government. According to the SBI’s research report, total outstanding credit for the agriculture sector is Rs 86,241.20 crore in the state with average ticket size of Rs 1.34 lakh. “According to RBI data (2012), 31 per cent of the direct agriculture finance went to marginal and small farmers (landholdings up to 2.5 acres). Taking this as a proxy for UP as well, approximately Rs 27,419.70 crore will have to be waived off in case loan waiver scheme is implemented for the small and marginal farmers for all banks,” the SBI report said.

The Bharatiya Janata Party (BJP), which has formed the government in the UP, had promised to waive farmers’ loans in the election manifesto if elected to power. The party and its allies won a whopping 325 seats in the 403-member House. The loan waiver promise has come at a time when NPAs of public sector banks (PSBs) surged by Rs 1 lakh crore during the April-December period to Rs 6.06 lakh crore.

As per Socio-Economic and Caste Census 2011, 40 per cent of rural households of Uttar Pradesh are engaged in cultivation. When it comes to landholdings, 92 per cent are marginal and small landholdings in UP, according to 2010-11 Agriculture Census. The SBI report said the UP government’s total revenue for FY17 was Rs 3,40,255.24 crore according to Revised Estimates. Thus, the amount of Rs 27,419.70 crore to be waived off is approximately eight per cent of total revenue. “This will definitely cause some amount of stress for the state’s fiscal arithmetic in the coming year. The incumbent government in UP has to go beyond the traditional solutions and find innovative ways of adding to its revenues,” it said.

Last week, SBI chairman Arundhati Bhattacharya had said that farm loan waiver disrupts “credit discipline” among borrowers as they expect future loans to be waived as well.

While it is important for banks to make credit available to farmers so that they can leverage and do better, it is also important to maintain a credit discipline, she had said. The Reserve Bank of India (RBI) had also expressed reservation over the loan waiver scheme by various state governments. “Repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market,” former RBI Governor Raghuram Rajan had said. Andhra Pradesh and Telangana governments had earlier declared loan waivers for the farmers hit by cyclone Phailin.

The agriculture sector in India faces a lot of issues which need attention. Raising farm productivity is one of the areas that should be focused on. Efforts should be made so that the farming community is covered by formal banking system so that they can easily avail crop loans. “With the introduction of PMJDY, almost all the households in UP now have bank accounts, but only a small proportion of population engaged in agriculture have availed of agriculture advances from scheduled commercial banks,” the report said.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.