The slow pace of economic growth may continue to impact the overall credit demand in the next few months, analysts said. India with 6.2% GDP growth for the March quarter, has lost the status of world’s fastest growing economy as China’s GDP grew 6.9% in the same period.
Growth may dip further in second quarter after implementation of Goods & Services Tax before returning to normalcy later in the year.
The India Meteorological Department’s southwest monsoon forecast for 2017 at 98% of the long period average is however a good news not only for the agriculture sector but the economy as a whole, says India Ratings and Research.
While banks are pinning their hopes on normal monsoon for a better harvest as well as a recovery in economic activities, and thereby rise in loan demand, but issues like farm loan waiver has the potential to disrupt farm loan delivery.
The waivers announced by the BJP-led state governments in Uttar Pradesh and Maharashtra may mask the delinquencies for the time being, but it affects the credit culture and repayment behaviour, making banks wary of giving fresh loans.
RBI has cautioned the central government of the perils of farm loan waivers by states, saying this may jeopardise fiscal discipline.
In its policy review, the central bank said the risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen “with the announcements of large farm loan waivers.”
“Debt waiver can significantly impact the credit culture among the agriculture communities in other states,” India Ratings & Research said in a note.