Banks to get 9% on farm loan dues

Interest payment to start from July; lenders may not need to make provisions.

In a major relief to banks, the government is likely to pay 9 per cent interest on the outstanding farm loan debt waiver amount of around Rs 55,000 crore. The payment is expected to be made over a period of three years.
 

FINAL FIGURES
Bank	Debt waiver	Debt relief	Total
SBI	8,885.00	1,456.00	10,341.00
Central Bank	1845.45	290.16	2,135.61
PNB	1729.00	304	2,033.00
Canara Bank	1332.51	298.66	1,631.17
Allahabad Bank	1256.93	263.61	1,520.54
(Amount in Rs cr)                                     Source: Finance ministry

In addition, sources close to the development told Business Standard that banks would be exempted from making provisions for receivables. The Reserve Bank of India (RBI) had earlier instructed banks to make adequate provisions since the amount waived or settled was not being reimbursed immediately nor was any interest being paid on it.

“Lenders are likely to get around 9 per cent interest on the outstanding amount due to them,” a finance ministry official said. The interest payment is likely to be from July onwards. The government is unlikley to make any immediate budgetary allocation on this account and is expected to pay the interest annually.

However, bankers are looking at an interest rate of 9.5 per cent, which was the prevailing rate of the 364-day treasury bill on July 30 this year.

An announcement on interest to be paid to lenders is likely next month, when the government will seek a parliamentary approval for releasing the first instalment of Rs 25,000 crore to public sector banks, regional rural banks and cooperative banks. A budgetary provision for interest payment will, however, be made later, an official said.

“This will be a welcome move as we would have suffered losses since the funds are locked up. In addition, we would have made provisioning on the receivables as per the Reserve Bank of India instructions,” a senior executive at a large public sector bank said.

The debt waiver and relief scheme implemented in June this year bailed out 36.5 million small and marginal farmers, who had defaulted on loans to the tune of Rs 66,000 crore. While the central government is expected to reiumburse Rs 55,000 crore, the remaining amount, which is in the form of penalty and legal charges, is likely to be borne by lenders.

Public sector banks, which account for Rs 30,700 crore of the total debt waiver and relief scheme, had taken up the issue of interest payment with Finance Minister P Chidambaram during a meeting on August 13. Chidambaram had assured the banks to look into the matter.