State Bank of India chairman Arundhati Bhattacharya on Tuesday criticised loan waivers, saying they tended to disrupt credit discipline for at least four to five years and also lead to higher non-performing assets (NPAs).

Speaking on the sidelines of an event, Bhattacharya said that borrowers typically opt not to repay a loan, if they feel they could get away with it. “It, sort of, breaks the credit discipline. Borrowers need to be able to repay the loan so that they can source the loan again to undertake the activity. If loans become NPAs, they will not be able to undertake that activity,” she explained.

Bhattacharya said there are better ways to reward a needy farmer. She said that the bank has Rs 700-800 crore of agricultural NPAs in Andhra Pradesh and Telangana, but since the subsidy was borne by the state governments, there was no immediate concern.

Last week Andhra Pradesh CM N Chandrababu Naidu had announced loan waivers of up to Rs 1.50 lakh per family. The move is expected to benefit around 23 lakh families. As per the government’s ‘Debt Redemption Scheme’, those who availed loans between April 1, 2007, and December 31, 2013, were eligible for waiver.

A report by India Ratings & Research pointed out on Monday that the debt waiver promises by the governments of Andhra Pradesh and Telangana can significantly impact the credit culture among the farmers in both the states. India Ratings estimated the total agricultural loans in these two states around Rs 1.4 lakh crore (about 19% of the country’s total agricultural loans outstanding as of FY14).

Bhattacharya said there had been a moderate pickup in loan growth in the last couple of months, in the retail and corporate segments. SBI had seen a 10% y-o-y growth in credit till November, she said, adding the growth was better than the first six months of FY15. “Loan growth is slowly inching up, but still very slow,” Bhattacharya said, adding the new projects are still a challenge , though there were some interests on the renewable side and on the commercial real estate side.

In Q2 FY15, SBI’s total advances stood at Rs 12,42,638 crore, up 9% y-o-y. According to RBI data, non-food credit or loans given by banks to companies and individuals, grew subdued 11.16% year-on-year, for the fortnight ended November 14, 2014, taking the outstanding credit in the system to Rs 61.47 lakh crore. Credit growth, which had plummeted to a decade low of 9.8% in the fortnight ended September 5, had picked up in subsequent fortnights thereafter.

SBI launches composite index to map & predict manufacturing activity 

The country’s largest lender, State Bank of India, has launched a composite index to map and predict manufacturing activity. The index incorporates the loan portfolio of the bank in addition to mining activity, interest rates, commodity prices and other key indicators of economic activity.

SBI’s loan book will have a large weightage in the index. However, it will not indicate the bank’s decisions on the loan book, said SBI chairman Arundhati Bhattacharya. “We want to contribute to the pool of knowledge that is available on the economy,” she said. The bank’s month-on-month index level for December was 50.5 while the y-o-y index was 55.4. The indices show a strong manufacturing recovery for the month.
Every month, the bank will release two composite indices that will map the manufacturing data month-on-month and year-on-year. Two separate indices have been constructed and both are on a scale of 0 to 100. Index above 50 implies growth over previous respective period and less than 50 suggests a contraction.

“This indicator will track two months in advance the possible trends in official estimates,” said Bhattacharya.