Consequently, as a knee-jerk reaction bank stocks took a beating as marketmen thought that Banks will have share a large part of the burden.

However, sanity prevailed in the banking industry with the realisation that the banks won’t be hit as the FM told the parliament that the government will provide for waiver in the budget. When Deccan Herald spoke to a cross section of bankers in Mumbai, majority of them said they expect the government to compensate them for waiving loans to small farmers and as such, the move should be seen as positive for lenders. “It is a positive move because we expect the government to fund it,” said M S Sundara Rajan, Chairman of state-run Indian Bank. He added, “The move would cut down the bad loans, which will help the interest income and provisioning towards bad assets and it also gives the opportunity to lend further.”

Focus on inflation
“It was a long-felt need for the industry and something needed to be done as defaults were getting repetitive,” said C P Swarnkar, CMD of state-run Syndicate Bank.

In this context, Udday Kotak, MD, Kotak Mahindra Bank said that the focus of this budget was on inflation. I feel this was a pre-election budget and therefore, we saw a lot of cut in excise duties. The politics of economics is at play. The bank wavier depends on the money the government is going to compensate to the banks and the number of borrowers that actually exist.”

But Canara Bank Chairman M B N Rao had a different view. He said, “Loan waivers is going to have a negative impact on the behaviour of the farmers who might take loan. Though, the government has waived off the loan it may not be reasonable to assume that the government shall reimburse the entire loan taken by the farmers. We need to wait and see what steps the government takes on the writing-off of these loans.” 

He further clarified that as banks do provide for overdues including NPA between 20 to 100 per cent, it would be too optimistic on the part of banks to expect the Government their profitability by reimbursing those component of overdues – for which a bank has already provided in its balance sheet.