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Debt relief scheme extended for another six months.

The government today announced an additional 1 per cent interest subvention for farmers who repay their short-term crop loans according to schedule. It also extended the repayment period for loans under the debt waiver and debt relief scheme for farmers by six months from December 31, 2009, to June 30, 2010.

“In view of recent drought in some states and severe floods in some other parts of the country, the period for repayment of the loan amount by farmers is being extended by six months from December 31, 2009, to June 30, 2010,” said Finance Minister Pranab Mukherjee while presenting the Budget for financial year 2010-11.

The 1 per cent interest subvention for timely payment is over and above the similar benefit provided in the last Budget. The government said it would pay 2 per cent higher interest subvention to lenders on short-term agricultural credit in 2010-11. This will enable public sector banks, regional rural banks (RRBs) and cooperatives to lend to disciplined farmers at lower interest rates.

Mukherjee has set aside Rs 3,000 crore for paying interest subvention on farm loans, as against Rs 2,011 crore this year.

State Bank of India is likely to be the highest beneficiary from the debt relief scheme. Other public sector lenders such as Bank of Baroda, Punjab National Bank and Corporation Bank have completely provided for such loans. Banks will not have to provide for the scheme till the June quarter of the next financial year. And, if the repayment does not happen in June, they will have to classify these loans as non-performing assets in the July-September quarter.

The government will also infuse funds into RRBs.

The finance minister said banks had been consistently meeting their targets for agriculture credit flow in the past few years. The government has set a target of Rs 3,75,000 crore for the next financial year, Rs 50,000 more than in the last Budget.

The government had allowed farmers to pay 75 per cent of the outstanding debt in three installments to avoid paying the rest. The one-time settlement scheme was part of the 2008-09 Budget, which recommended complete waiver of agriculture loans taken by small (land holding of 2.5-5 acres) and marginal farmers (land holdings of up to 2.5 acres) and partial relief to other farmers.

To step up financial inclusion, the finance minister said by March 2012, banking facilities would be provided in all habitations with population in excess of 2,000. By using the business correspondent model, the government also proposed to provide insurance and other financial services in 60,000 habitations. The allocations for Financial Inclusion Fund and Financial Inclusion Technology Fund have been increased by Rs100 crore each, which will be contributed by the Centre, the Reserve Bank of India and the National Bank for Agriculture and Rural Development.