Loan Waivers vs. Write-offs: Who Bears the Bigger Burden?

In the last five years, Indian banks have waived off  ₹7,26,891 crore in bad loans, but only  ₹64,526 crore, just 9% was allocated to the agricultural sector, according to the data presented in the Rajya Sabha. This reveals a striking disparity, as the bulk of financial relief continues to favor corporate defaulters over struggling farmers.

In the same period, banks have also written off ₹7,26,891 crore, removing these loans from their financial records. However, this does not mean recovery efforts have stopped. While businesses may get their loans restructured or written off, farmers often have fewer restructuring options.

Examining the Distribution of Loan Waivers and Write-offs

According to various reports, farmers across India have faced financial distress due to unpredictable weather, low crop prices, and rising input costs. To ease their burden, loan waivers have been implemented as a form of relief.

According to a report in Kanal, IDBI Bank is struggling to recover ₹6,609.46 crore from its top four willful defaulters, including ABG Shipyard Ltd, Amtek Auto Ltd, Bhushan Power & Steel Ltd, and Punj Lloyd Ltd. These four companies alone account for 24.88% of the bank's total outstanding NPAs. The issue raises concerns about the growing burden of bad loans and the challenges of recovery, especially as the government moves toward privatizing the bank. Banking unions argue that without addressing these defaults, the sale of IDBI Bank could further weaken public accountability.

Understanding Loan Waivers vs. Loan Write-offs

Loan Waiver → The borrower (usually farmers) is completely freed from repaying the loan. This is mostly done by the government to help small farmers in financial distress.

 Loan Write-off → The bank removes the unpaid loan from its records as a loss, but it can still try to recover the money. This is mostly done for big corporate loans when companies fail to repay.

Loan Write-offs by Public Sector Banks (PSBs)

Image: Data on loans written off by major PSBs.

Courtesy: Mr. Devidas Tuljapurkar

Loan Waivers and Agricultural Sector Allocation

Image: Data on loans waived off by major PSBs.

Courtesy: Mr. Devidas Tuljapurkar

Loan Write-Offs and Agricultural Support: AIBEA

Kanal spoke to Mr. Devidas Tuljapurkar, Joint Secretary of All India Bank Employees Association (AIBEA), who explained that loan write-offs are mainly a financial accounting exercise used by banks to manage their balance sheets.

"Banks argue that write-offs do not cause financial losses because they have already made 100% provisions for Non-Performing Assets (NPAs). However, these provisions come from hard-earned profits",Tuljapurkar explained. He further pointed out that the current government’s claims of reducing NPAs are misleading, as much of the reduction is from write-offs rather than actual recoveries.

"Banks have a tendency to write off large advances, which normally are not from the agriculture category. Those which fall in this category also must be large & not crop or term loan of small & medium farmers. AIBEA is opposed to writing off. Agriculture needs support but not by write-off. It can be interest subvention to small & marginal farmers or debt relief to small & medium farmers but in no way write-off" he emphasised.

According to him, “Agriculture needs real financial support, not just the removal of loans from records. Instead of write-offs, farmers should receive interest subvention (lower interest rates) and actual debt relief to help them survive the financial crisis.”

Farmers Speak: How Loan Waivers Affect Them

A farmer from Chalisgaon, Maharashtra, shared his perspective on the loan waiver system, highlighting that it is not always granted when farmers need it the most. He explained that "while unpredictable weather, rising costs, and unstable crop prices push farmers into financial distress, loan waivers are provided, but not necessarily at the time of crisis."

He further remarked,"Loan waivers are often announced when elections are near."

According to a report, the last pan-India farm loan waiver was done by the United Progressive Alliance (UPA) government in 2008 in the form of a ₹60,000 crore economic package. Incidentally, the waiver came a year ahead of the 2009 Lok Sabha elections, in which the UPA was re-elected with a bigger majority.

 The data highlights the distribution of loan waivers and write-offs across different sectors. While farmers face challenges such as debt, unpredictable weather, and rising costs, loan waivers serve as a measure of financial relief. At the same time, loan write-offs are an accounting practice used to manage non-performing assets. Ensuring a balanced and transparent approach to financial relief remains important for the stability of both the agricultural and corporate sectors.