RBI asks banks to extend debt relief benefits till June-end

The Reserve Bank of India (RBI) has directed urban cooperative banks not to treat the accounts of the farmers covered under the Debt Relief Scheme as bad if they agree to repay 75 per cent of due by June 30, 2010.

The RBI directive follows the government decision, announced in the Union Budget 2010-11, to extend by six months the last date of payment of 75 per cent debt due from farmers under the relief scheme to June 30, 2010.

"Where the farmers covered under the Debt Relief Scheme have given the undertaking, agreeing to pay their share under the OTS (one time settlement), their relevant accounts may be treated by banks as standard/performing...," the Reserve Bank said in a statement.

It said banks should make adequate provision for the loss in present value (PV) terms for all receivables due from the borrowers.

The government has extended the deadline in view of the drought in some states and the severe floods in others last year. Earlier, it had decided to make the accounts of "other farmers" eligible for debt relief of 25 per cent, provided they cleared the balance 75 per cent by December 31, 2009.

The government had also said that banks and lending institutions were allowed to receive less than 75 per cent of the debt amount under the OTS, provided they bore difference because they would be compensated by it only for the 25 per cent of the amount under the debt relief.

The RBI directive said that in case farmers delay payments beyond June 30, 2010, the outstanding amount in their accounts will be treated as NPA (non-performing asset).

It said, "The asset classification of such accounts shall be determined with reference to the original date of NPA (as if the account had not been treated as performing in the interregnum based on the aforesaid undertaking)."

RBI said banks and lending institutions may charge normal interest (from February 29, 2008) on the eligible amount from July 1, 2010, up to the date of settlement of debt.