Finance Minister Arun Jaitley said on Monday that the Centre would not bear the burden of loan waivers to farmers, saying states offering debt relief would have to generate their own resources.
The clarification came after Maharashtra and Madhya Pradesh joined a growing list of states that have announced costly bailouts for farmers following widespread protests.
"I have already made the position clear that states which want to go in for this kind of schemes (farm loan waivers) will have to generate the money from their own resources. Beyond that, the central government has nothing more to say," the minister said after a review meeting with the heads of all state-run banks.
On Sunday, Maharashtra announced it would write off the loans of small and marginal farmers after a 10-day strike. This will cost the government around Rs 1.14 lakh crore.
Madhya Pradesh Chief Minister Shivraj Singh Chouhan has also promised to look into the demand for waiving off farm loans after police firing on farmers protesting for debt relief and better crop prices claimed six lives on June 6.
The BJP government in Uttar Pradesh was the first to make such an announcement, writing off farm loans worth more than Rs 30,000 crore.
Bank of America Merrill Lynch (BofAML) recently predicted that various state governments are expected to write off $40 billion (Rs 2, 57,000 crore) in farm loans by the 2019 general elections. In 2008, the UPA government also waived off farm loans equivalent to 1.8 per cent of India's GDP.
RBI governor Urjit Patel also recently warned against such loan waiver steps. "Farm loan waivers can lead to fiscal slippages and undo the work on the fiscal deficit done over the past two years," Patel said last week after the RBI's monetary policy committee meeting.
The Finance Minister, however, expressed satisfaction on the bad loan recovery process by PSU banks. "Banks have made stable operating profit of Rs 1.5 trillion. Obviously, this was subject to various provisioning requirements, and after the entire provisioning done, there has been a net profit of Rs 5.74 billion."
Under the Insolvency and Banking Code, 81 cases have been filed, of which lenders have initiated action in 18 cases. "These are already before the National Company Law Tribunal, and since the bulk of the NPAs, about 70% are either in a consortium or multiple banking arrangements, a speedy resolution is required," Jaitley said.
The minister also said that the RBI was set to announce the list of those debtors under a new ordinance where a resolution was required through IBC process. "You will be shortly hearing about it."
The minister also reiterated the government's stand on consolidation of state-run banks. "Consolidation of banks was not on the agenda as far as this present meeting is concerned. But I can tell you; we are actively working in that direction. Jaitley said.
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 "Arun Jaitley")
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