Banks firm on farm loans despite default fear

Despite expressing fears of rising defaults, banks today committed themselves to promptly sanction fresh loans to farmers covered under the Centre’s Rs 71,000-crore debt wavier and relief scheme.

Bankers, including those from public sector banks who have a lion’s share in farm credit, met financial sector secretary Arun Ramanathan in the capital for a review meeting.

“The secretary emphasised that credit flow to agriculture needs to maintain its tempo. Nearly 40 million farmers have managed to get rid of the defaulter’s tag and the government has taken an undertaking from banks to ensure fresh loans to beneficiaries of the scheme,” said a senior public sector bank executive who attended the meeting.

While data are unavailable, fresh credit flow to farmers during April-July this year was lower than the comparable number last year as bank executives were busy implementing the scheme, while demand in certain parts of the country has been lower due to deficient rains, government officials pointed out in the meeting.

Bankers also expressed concern over the rising dues, especially from those farmers who were not defaulters. “The fresh credit should not turn into bad debt, else it will badly affect the financial health of banks,” a banker said.

Meanwhile, the ministry officials have asked the banks to start communicating to farmers about the payment of bank dues.

Bankers requested the Reserve Bank of India to reconsider provisioning norms that it has prescribed for amounts involved in debt relief and wavier.

According to the guidelines, the amount eligible for wavier can be considered as performing assets only when banks make loss provisions in present value (PV) terms. The discount rate for arriving at the loss in PV terms is to be taken as 9.56 per cent. This was the yield to maturity on 364-day treasury Bill on July 30, 2008, the date when the circular was issued.