AP dangles PSU profit carrot to raise funds for crop loan recast

Written by fe Bureau | Hyderabad | Updated: Jul 31 2014, 06:20am hrs
The Andhra Pradesh government has decided to raise loans from banks, by guaranteeing future revenues of profit-making public sector undertakings and state-run corporations, to mobilise resources for the proposed crop loan recast scheme. The government plans to open an escrow account from which the banks would get regular payments.

The Andhra Pradesh government is still in discussions with the RBI for rescheduling crop loans. There is no closure of corridors on this proposal, a senior government official told FE, adding the government planned to raise loans from profit making state-run corporations such as Beverages Corporation and AP Mineral Development Corporation. The move comes in the wake of recent RBIs displeasure on the populist schemes of the Chandrababu Naidu government that sought to restructure farm loans.

We are seeking rescheduling to the extent of R12,000 crore for crop loans availed upto October 2013 and not the entire amount. The remaining R31,000-odd crore will be the liability of the state government, the official said.

For this, the government has identified certain departments such as the transport, stamp and registration among others, whose revenues will be securitised on the future income for the loan waiver. We will constitute a committee to suggest ways for mobilisation of funds. We plan to create a farmers welfare cess in revenue-generating departments to pool up resources. We will also mobilise income from mining activity and create an escrow account for securitisation of funds, the government official said.

Besides, the state government has also formed a committee to raise the R32,000 crore needed for implementing the loan waiver scheme. The committee will suggest ways and means to raise the funds needed, said P Pulla Rao, agriculture minister.

In a recent meeting, Naidu said that those who cleared their loans would also benefit as the state would deposit R1.5 lakh in their accounts by way of cash transfer. We have decided to extend the loan waiver scheme to honest payers and those who are not in a position to take the burden. We will

pay directly to banks to clear the loans taken by farmers and in respect of those who have been prompt in repayments, we will deposit the amount in their accounts. This will cost the government over R43,000 crore but will benefit 96.27% of the total farmers, he said.

The financial position of the Andhra Pradesh government is not healthy as it is left with a fiscal deficit of more than R15,000 crore. The Fiscal Responsibility and Budget Management Act (FRBM) limits the states borrowing capacity to about R15,839 crore, while it requires nearly R43,000 crore to fulfill its promise of loan waiver to farmers, weavers and SHGs, bankers point out.

Further, banks and institutions such as Nabard are against the debt waiver scheme as it is bound to affect the credit culture among the borrowers. The total exposure of Nabard (Telangana and AP circle) to the combined state of Andhra Pradesh for short-term loans of R16,393 crore and Nabards refinance is about R8,600 crore. Since RRBs and cooperative banks have to be repaid with no options at all, we are against the debt waiver scheme, said a Nabard official.