SBI for policy support to enable loan recovery

Source :BL:15 Feb 2012

State Bank of India wants policy support and regulatory intervention in the agriculture sector so that bad loans from this sector could be tackled effectively, said a top official. For India's largest bank, bad loans from the agriculture sector rose to 19 per cent (or Rs 7610 crore) of the total non-performing assets (Rs 40,098 crore) in the quarter ended December 31, 2011, against 16 per cent (Rs 4524 crore) in the corresponding year ago period.

Besides calling for policy support and regulatory intervention, Mr Diwakar Gupta, Managing Director, SBI, flagged the issue of moral hazard whereby some borrowers in the agriculture sector don't pay banks despite being in a position to do so on expectation of loan waiver being announced by the government. Policy intervention is required, at the pre-harvest and post-harvest stages, as the current size of land holding as well as technology used makes farming unsustainable.

Mr Gupta pointed out that farmers often find themselves in a bind. The reason: on the one hand, a bumper harvest can depress the price of produce; on the other, Nature's vagaries can impact their crops.

SBI has 53 lakh small borrowers in the farm sector whose average loan ticket size is Rs 62,000 and recovery presents a challenge. As of December-end agriculture advances accounted for 12 per cent of the total advances portfolio of Rs 8,69,393 crore.

When it comes to recoveries, Mr Gupta said though banks may be justified in exerting pressure on defaulting borrowers to recover their dues, the legal process acts as a drag.