How Kisan Credit Card NPAs are hurting SBI

India's largest lender State Bank of India (SBI) has seen its gross non-performing assets (NPAs) under Kisan Credit Card (KCC) loans doubling in just a matter of three years.

The onus of higher delinquencies partly rests on the trend of farm loan waivers that had started nearly four years ago. However, the general slowdown in the economy, rural distress and lower price realisation have also been the contributors to growing NPAs in the KCC segment.

According to available figures, SBI's gross NPAs have doubled to 16 per cent by September 2019 from 8 per cent in 2016-17. The size of gross NPAs is about Rs 17,000 crore-plus for the public-sector bank.

SBI being India's largest bank with total assets worth Rs 37 lakh crore, alone contributes 15 per cent to the total outstanding NPAs of banks, cooperative banks and regional rural banks put together.

If SBI's gross NPAs are to be taken as a yardstick, the industry's NPAs under KCC would roughly come around at Rs 1 lakh crore-plus.

Currently, the total outstanding loans under KCC amount to Rs 7.09 lakh crore for the industry. The outstanding KCC loans were to the tune of around Rs 6.68 lakh crore in 2017-18.

The biggest share of (outstanding) KCC loans comes from Uttar Pradesh (UP) with an outstanding card balance of Rs 1.09 lakh crore. Rajasthan is next with Rs 81,070 crore followed by Madhya Pradesh (Rs 64,725 crore), Punjab (Rs 57,073 crore), Maharashtra (Rs 55,934 crore) and Gujarat (Rs 44,998 crore).

KCC, a two-decade-old product, offers collateral-free loans especially for meeting the working capital requirements of farmers, who are allowed to use the funds for cultivation, post-harvest expenses and consumption. The interest charged by banks is very nominal at 7 per cent per annum.

KCC mirrors the NPA trend in the overall agriculture portfolio. SBI's agriculture NPAs have trebled over the last three years. In fact, the public sector banks (PSBs), especially the Bank of India, IDBI Bank and other lenders, have also seen NPAs of over 15 per cent-plus.

A recent RBI study has drawn a correlation between the farm loan waivers announced by the states and the growing defaults in those states. The RBI has always discouraged the Centre from announcing loan waivers as it creates a moral hazard. There is a tendency of people defaulting in anticipation of relief from the government.

Before 2014, the loan waivers were few and far between. Almost three decades ago, the central government announced a nation-wide farm loan waiver scheme which was followed by another waiver after 18 years under the Congress-led UPA government. This new trend of states announcing loan waivers is a dangerous one as the state finances are already stretched.

The loan waivers are already constraining the resources of the states for public expenditure. While the government has taken some path-breaking insurance-led steps such as crop insurance and medical support, a lot needs to be done for developing a strong agriculture infrastructure. The investments during the post-harvest phase have been completely neglected, which is an area that needs to be looked into by the government.

Along with states, the banks are also becoming the biggest casualties of rising NPAs due to KCC loans as it also impacts their balance sheets.

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