Farm loan waivers are not long term solutions for farmers
Banks have to focus on providing new and improved services to their clients and upgrading their technology infrastructure in order to enhance customers overall experience and gain competitive advantage, Venkaiah Naidu, Vice President of India, has said. They have to harness digital growth to scale up to the level of world class businesses, Naidu said at Punjab National Bank’s 125thFoundation Day celebrations in the capital. Time is now ripe for “systemic reforms” in banking sector and there has to be checks and balances so that loopholes in the system are not taken advantage of, he added.
Naidu asked banks to maintain strict vigilance during pre and post sanction procedures of loans and never compromise on due diligence process. They (banks) must constantly strengthen their internal processes to effectively monitor funds and maintain strict discipline in lending, he said. Naidu’s remarks are significant as it comes at a time when PNB has just come out of Nirav Modi perpetrated scam that blew a Rs 14,000 crore hole in the bank’s balance sheet.
While advising banks to up their game on due diligence and loan monitoring, Naidu also acknowledged that there has been societal decay in values and many have moved away from ethical behaviour. In many instances, there are situation of the units turning sick, but the owners are doing well, he said.
FARM LOAN WAIVERS
Naidu also came down on poll time promises of ‘farm loan waivers’, noting that it was not going to help farmers in the long run. “Politicians are taking to populism. Loan waivers are not going to help farmers in the long term. Farm loan waiver will at best bring temporary relief but these are not permanent solutions. Policymakers should think of bringing permanent solutions”, he said.
Efforts must be taken to supplement infrastructure, provide market linkages and take care of providing timely, affordable and cheaper credit to farmers, he said. Both the leading political parties — BJP and Congress — have promised much for farmers in their election manifestoes.
On its part, Congress has promised to waive farm loans and make farm debt a civil liability. Besides having a separate agriculture budget, Congress has also promised Rs 72,000 a year to be transferred to the poorest 20 per cent families. The BJP has in its manifesto reiterated its assurance of doubling farmers’ income by 2022 and expanding the Pradhan Mantri Kisan Samman Nidhi Yojana (direct payment of Rs 6,000 per year to farmers owning less than 2 hectares of land) across the whole country. Farmers over 60 years of age and those who run small scale shops have been promised a pension.
BIG TICKET PROJECTS
Naidu said that banks have to take a relook at the practice of financing of big ticket projects which have long gestation period and hence face cash flow issues. Banks can make use of data analytics and technology to identify early warning signals of loan defaults and evolve robust mechanism to identify the hidden NPAs. They must focus on nurturing internal skills for credit assessment and undertake forensic audits to understand the intent of the borrower, Naidu said.