Analysts said despite the best intentions of these legislations, the impact of these decisions on credit culture demands scrutiny.
The Maharashtra government fulfilled its poll promise waiving loans up to Rs 2 lakh and also offering a Rs 50,000 incentive for farmers regularly paying their loans. The government has earmarked Rs 20,000 crore for the waiver and Rs 15,000 crore for the incentive for non-defaulters. The decision is estimated to benefit 5 million farmers that have outstanding crop loan dues up to September 30, 2025.
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Suresh Ganapathy, head financial services research, Macquarie Capital Securities, said such farm loan waivers eventually result in higher NPAs (non-performing assets) in the agriculture space, leading even standard loans to turn bad as borrowers lack sufficient repayment incentives in the face of waivers. “We had seen agriculture NPAs coming down over the past several years and hence this development is negative in our view… While all banks in India have to meet their priority sector targets and agriculture loan targets, PSB customers or farmers are usually more vulnerable. To set in context, even today private sector bank agriculture NPAs are much lower. For example HDFC Bank agriculture NPAs were at 3.8% as of FY25 compared to SBI at 8.4%,” Ganapathy said.
He pointed out how SBI’s farm NPAs spiked to 16% in FY20 from just 6% in 2017 after states like UP, Maharashtra, Punjab announced a waiver that year, though the numbers have come down since then. Though the short term impact for banks could be positive, the long term impact needs to be watched out for.
Also Reas\d: India may face $7–8 billion higher monthly import bill as crude surges“Agriculture linked gross NPAs in Maharashtra are high at around 17% for PSU Banks. The scheme would help banks reduce their overdues and bring down NPAs in the medium term but one will have to watch out for the impact on credit culture and general repayment trends in the near term,” said Nitin Aggarwal, analyst at Motilal Oswal.
India Ratings & Research said that the proposed law may lead to operational disruptions, weaken credit discipline and increase delinquencies for microfinance institutions.