Maharashtra is in talks with banks to stagger over four years the repayment of farm loans worth Rs 34,000 crore that the state recently waived.
Banks would have had to write off these loans if the government hadn't taken over the burden, Finance Minister Sudhir Mungantiwar said in an interview with BloombergQuint. The state also has the option of issuing bonds at a coupon rate of 7.1 percent but chances are only banks will end up subscribing them, he said.
A staggered repayment of waived farm loans is a better option for lenders.Sudhir Mungantiwar, Finance Minister, Maharashtra
Almost half of the Rs 1.17 lakh crore loans advanced for agriculture and related activities in the state were either overdue, restructured or had turned into non-performing assets as on March 9, according to data provided by the state's cooperation department. Nearly a third of these are owed to public sector banks, which are among the worst affected by bad loans in India. The central bank expects non-performing assets of Indian lenders to further rise to more than 10 percent of gross advances by March next year.
Also Read: In Charts: Maharashtra's Farm Loan Crisis Worse Than It Appears
Public sector lenders including State Bank of India, Bank of Maharashtra, Bank of India, Central Bank of India and IDBI Bank own more than half the overdue farm loans in the state. The banks didn't respond to BloombergQuint's queries on whether they are in talks with the state to stagger the repayments.
Maharashtra already has a fiscal deficit of 1.5 percent of GSDP at more than Rs 35,000 crore and the waiver will put the “state's finances under stress”. “But we will have to carry this burden for farmers,” Mungantiwar said.
The state government is also looking at options to cut the costs of its existing borrowings. It has reached out to the finance ministry seeking a lower interest rate on loans taken between 2003 and 2008 under different flagship schemes, he said. It pays an interest rate of 10.5 percent on loans worth Rs 75,000 crore and aims to save up to Rs 1,625 crore a year on interest payments.
If nothing else works, the state will be forced to borrow more from the open market and wants the cap on such borrowings to be raised from Rs 35,000 crore to Rs 50,000 crore.
Also Read: Farm Loan Waiver To Dent Maharashtra's Medium-Term Growth Prospects
No Cut In Infrastructure Spending
Mungatiwar said the farm loan waiver will not cut down or delay infrastructure spending on projects such as Mumbai Metro, Mumbai-Nagpur Super Expressway, Jalyukta Shivar, Navi Mumbai Airport. Most of these projects are also going to be funded by multilateral agencies like the World Bank, Japan International Cooperation Agency and the Asian Development Bank, he said.
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