Loan default
Also called: Poor loan recovery · Topic: Rural Credit, Microfinance and Financial Inclusion · NCERT: Class 11, Ch 5 "Rural Development"
Meaning
Loan default means a borrower fails to repay a loan. Class 11 NCERT says default is "chronically high" in agriculture, meaning it has stayed high for a long time. It weakens rural banks other than commercial banks, such as cooperatives and Regional Rural Banks, because money that is not repaid cannot be lent again. A key question is whether default is wilful, meaning the borrower could pay but chooses not to, or caused by distress such as crop failure, low prices or the lack of insurance.
Example
A small farmer takes a crop loan to grow groundnut on 3 acres. Pests destroy the crop and she has no insurance, so she cannot repay. Her loan goes into default and her debt keeps growing. This is distress-driven default, not wilful default.
Don't confuse with
- Farm loan waiver: Default is a borrower's failure to repay. A waiver is a government decision to cancel all or part of farmers' outstanding loans, often after large-scale distress. Critics say waivers can lead to more wilful default later, because farmers start waiting for the next waiver.