Banks have recommended Bad Banks for agricultural loans

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Recently, in order to improve recovery of bad loans in the agriculture sector, major banks have made preliminary discussions to set up an Asset Reconstruction Company (ARC) specifically to deal with agricultural loans.

  • At present, there is no integrated mechanism to deal with Non-Performing Assets (NPAs) in the agriculture sector. Also, there is no such law relating to the enforcement of mortgage contracts on agricultural land.
  • ARC is a special type of financial institution. It buys out the liabilities of the bank at a mutually agreed price. In addition, it attempts to recover the debts or associated securities on its own.
  • At the end of March-2021, the gross NPA ratio of banks for agriculture sector was 9.8%, while for industry and services it was 11.3% and 7.5% respectively.
  • Ahead of the assembly elections in many states in the year 2022, concerns have been raised that the NPAs in the agriculture sector may increase (due to loan waivers).

Benefits of ARC for Agriculture Sector

  • With a single institution/ARC, the cost of recovery can be optimized, as the agricultural market in India is scattered.
  • Regular banking relationships are not affected, as this makes the balance sheets of banks impeccable.

Source- The Hindu

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