Keeping aside the issues relating to the moral hazard arising from the farm loan package, the Rs 60,000 crore estimate might be closer to the reality of overdues of the small and marginal segment of farmers.
Judging from the RBI?s Report on Trends & Progress of Banking total agricultural NPAs at end-March 2007 could rise by another Rs 2,000 crore by end-Dec 2007, from the Rs 64,000 crore. To this should be added overdues, i.e., irregular payments whose corpus is often larger than NPAs.
One has to remember that NPAs are those loans which are 90 days past their due date. But a lot of payments are made with delays of 30 and 60 days. Banks are better at managing irregular payments through internal calls and recovery measures whereas the rural banks are unable to do. For scheduled commercial banks overdues of Rs 9,300 crore as on end-March 2006 was 26% higher than NPAs. This is likely to be larger for the other institution classes by say 30-35%. This means that overdues of rural cooperative banks are likely to have been about Rs 62,000 crore by end-March 2006.
As the loans & advances of these rural banks have grown 6% in 2005-06 and assuming the same rates of growth in 2007 and 2008, aggregate overdues are likely to be touching Rs 69,000 crore in March 2008.
Data shows that for regional rural banks 58% of their advances were to agriculture and 42% to non-agriculture. Again assuming a same share for the NPAs, this translates into a Rs 3,900 crore liability. The aggregate total overdue can therefore be projected at Rs 84,000 crore.
In that scenario if the small and marginal farmers account for 50% of overdues, up from their share of 27% in 2002-03, a 100% waiver of Rs 84,000 crore works out to Rs 42,000 crore and another Rs 10,000 for the big fish. Even if one substitute the gross NPAs of the banking sector instead of their net figure that is likely to add only about Rs 7,000 crore to the total, i.e. Rs 59,000 crore instead of Rs 52,000 crore.