Meeting priority sector targets could be challenging for banks this year, as at least two sectors—agriculture and education—are showing signs of stress.
Education and agriculture loans are components of priority sector lending. Notably, banks are increasing restructuring both the categories of loans. According to data from Reserve Bank of India (RBI), released on October 10, education loans outstanding showed a year-on-year decline of 3.5 per cent. As on August 18, they stood at Rs 59,300 crore, against Rs 61,500 crore a year ago. Growth in agricultural loans has been muted as well, though banks are compelled to extend such loans under priority sector lending. Loans to agriculture and allied activities showed a growth of 6.5 per cent as on August 18, on a year-on-year basis, down from 13 per cent last year. Also, in the financial year between March and August, loans agriculture and allied activities fell by 1.6 per cent, according to RBI data.
In June 2015, RBI had said rescheduling of payment period of education loans due to unemployment of borrower will not be treated as restructured accounts for computing non-performing assets (NPAs). The directive is now being actively implemented, as banks are stretching the repayment tenure to ten years, from seven years in general.
“We are liberally restructuring education loans, and offering lots of concession to students as the job market is not good. We are also offering students a one-time settlement,” said a senior official of Indian Bank.
“Education loans are showing negative growth and defaults are on rise. On an average the NPAs in the segment are close to 10-15 per cent. The relaxation norms of RBI, which was announced in 2015, are now being implemented,” said a senior official of Kolkata-based United Bank of India.
According to a report by CRIF High Mark, 10.2 per cent NPA was observed in education loan portfolio as on March 31 2017, up 21 per cent year-on-year over the past two years.
“There is a lot of stress in the education loan segment, as several engineering colleges have close down,” said an official of UCO Bank.
In case of agriculture loan, after poor recovery in case of rabi crop loans, kharif crop loans are also showing stress. At Kolkata-based United Bank of India, recovery of short-term rabi assistance has been around 20 per cent lower. Against a recovery of around Rs 700-800 crore, this year, so far rabi crop loan recovery has been around Rs 550-650 crore. Debt waiver schemes offered by various state governments are impacting repayment, said bankers.
“It would be challenging to meet the agriculture lending targets this year, as there is a lot of stress in the sector,” said a senior official of United Bank of India.
Earlier, HDFC Bank, reported a 0.20 per cent jump in gross NPAs for the June quarter, which it cited due to spike in bad loans in the agriculture sector. Kharif loan recovery season is generally at peak around November-December.
For most banks, the NPA in the agriculture sector is around 5-6 per cent, much lower than corporate loans. However, in view of high amount of restructuring, the NPAs are hardly reflected in books.
In June this year, Maharashtra government announced a debt waiver of Rs 34,000 crore for nearly 8.9 million farmers. Earlier, the Uttar Pradesh government waived loans worth Rs 36,359 crore for about 21 million farmers. This apart, Andhra Pradesh waived loans of about Rs 20,000 crore, Punjab gave Rs10,000 crore, Telangana announced a Rs 15,000-crore waiver while Karnataka announced Rs 8,000 crore.
According to priority sector norms, scheduled commercial banks have to give 40 per cent of their loans (measured in terms of Adjusted Net Bank Credit or ANBC) to identified sectors. Within this, for agriculture 18 per cent target is given to banks. And within this 18 per cent, a target of 8 per cent of ANBC is prescribed for small and marginal farmers. Loans to individuals for educational purposes, including vocational courses up to Rs 10 lakh, are also counted as priority sector loans.