Upcoming Elections In 6 Agricultural States Leads To Risk For PSU Banks

Six states will conduct the elections in the upcoming 18 months. It will increase the risk to the PSU banks. Farm loan waivers refer to schemes that help protect farmers who cannot pay their loans on time. Thus, the upcoming elections will use it to a large extent. The farmers will get the promises related to their pending loans. Following are more details about the upcoming risks to PSU banks.

How Can The Upcoming Elections In 6 States Impact PSU Banks?

The GNPA ratio is high in public-sector banks and lower in private-sector banks. As the cases of unpaid or pending loans increase in the states, there is almost Rs. 3 trillion waived in a decade. These 6 states are majorly agricultural-based states. Thus, the chances are high that the states will have the loan waiver announcements. These waivers have also helped the agricultural industry to grow. It can grow by 30-85% as of now. The current data shows that banks are at risk. There are several reasons behind it.

The major reason is the waiver announcement. There are loans worth Rs. 6.7 trillion. The NPA ratio is already high between 5-19%. Public banks are facing more difficulty. They have an agricultural GNPA ratio between 15-25%. However, private banks have a ratio between 3-4%. Scheduled banks offer the farmers loans. These loans are of different durations. The first one is for 18 months, the other ones are between 18 months to 5 years. The long-term loans are for more than 5 years.

The small farmers have a lot of difficulties in repaying the loan. Thus, the crops often get damaged. It leads to a huge loss. The farmers are not able to pay the loan on time. The farmers get distressed. In conclusion, six states are going for elections in the upcoming 18 months. However, it can potentially lead to risk for public banks. Their GNPA ratios are increasing. Apart from that, the private banks have a much better GNPA ratio.

There is an increased slippage in areas like MP, Rajasthan, and Kerala. The farm loan waivers are increasing the risk for PSU banks. They will have difficulty coping with the increasing amount of waivers. Till now, Rs. 3 trillion has been waived in 18 states in the last 10 years. There is also increasing stress in the NBFC-MFI ratio. There are 30-85% spike in NPA as well. It is because of the increasing waiver amount. There can be some focus on finding other alternatives as well. Stay tuned for more information on our website.