A fresh diktat from the Reserve Bank of India, barring banks from giving in to government pressure and waive off farm loans, could be a death blow to lakhs of farmers, who are seeking a bailout package.

At a time when governments in newly created Telangana and Andhra Pradesh are under intense pressure from the farming community for promising to waive thousands of crores in farm loans and doing precious little, the RBI has instructed leading banks in both states, to oppose the proposal of loan wavier at any cost. "The Reserve Bank of India is worried because such a huge waiver would become a trend in future across the country. Such demands could arise from 10 states going to polls in the next two years. And all these states will take a cue and announce such a scheme," a senior bureaucrat, who was conveyed the RBI's decision by a leading bank, said.

The country's Central Bank is worried that a poor monsoon predicted this year will also ignite a demand for the loan waiver in many states, if demands of AP and Telangana are met.

RBI's decision comes a day after the High Court admitted a petition by a former TDP MLA, challenging the government's decision to promise concessions in farm loans to the tune of Rs 50,000 crore, despite it being the prerogative of banks.

In absence of any clarity on the loan waiver scheme from the government, banks have begun slapping notices to farmers to repay the loans, senior bankers said. Senior bank officials say the RBI were wary that assembly elections in two important states of Maharashtra and Haryana are due in late 2014. Thereafter states of Jharkhand and Jammu and Kashmir will go to polls in early 2015, followed by Bihar, one of the most backward states in India, in the second half of 2015.

Election for major states such as West Bengal, Kerala, Assam and Tamil Nadu are also scheduled in the first half of 2016. The loan waiver, if permitted in Andhra Pradesh and Telangana, would become a major poll issue, and all parties will resort to promising loan waiver if they come to power. "Loan wavier should not trigger a national financial calamity," a top source said. Both AP and Telangana governments also announced loan waiver to all self-help groups, which has not gone down well with the Centre.

A principal secretary of Andhra Pradesh who attended a national meeting of the woman and child welfare department in New Delhi a few days ago was asked why SHGs needed loan waiver, when they were in excellent financial conditions and in a capacity to repay 100 percent loans.

Interestingly, a senior officer, who attended the review meeting, said many eyebrows were raised with respect to the inclusion of SHGs in loan waiver schemes."How come AP under Chandrababu Naidu, which showcased SHG groups as ideal-poverty eradication movement, included it as a poll promise," a senior minister was quoted, as having said. (Times of India)