Banks to get Rs 25,000-cr farm loan relief in Oct

The government will reimburse Rs 25,000 crore to public sector banks, regional rural banks (RRBs) and cooperative banks in October as the first tranche of payments for the Rs 66,600-crore farm debt relief scheme.

While the government will be reimbursing Rs 55,000 crore, banks will have to take a hit on the remaining amount. The finance ministry is yet to decide if the Centre will pay interest on the outstanding amount, which is to be paid over a period of three years, Financial Services secretary Arun Ramanathan told reporters today. The lenders have demanded that 9.5 per cent interest be paid on the outstanding amount.

 

The Rs 25,000 crore will be paid after the first supplementary demand for grants is approved by the Parliament, said Ramanathan after Finance Minister P Chidambaram met 88 RRB chiefs.

An official said Chidambaram had written to chief ministers of Orissa, Uttar Pradesh and Jammu and Kashmir, seeking their share of the recapitalisation of six RRBs.

Though a year has passed after a decision was taken in July 2007 to infuse around Rs 1,800 crore in 27 RRBs, whose networth has been wiped out, 15 of them are yet to be recapitalised due to delays by the states concerned.

Since the share capital of RRBs is contributed in the ratio of 50:35:15 by the Centre, sponsor commercial banks and state governments respectively, all the three have to invest in line with their shareholding. Till the end of July, 12 RRBs had been fully recapitalised with an amount of Rs 889 crore.

While Assam, Manipur, Nagaland, Rajasthan and Maharashtra have agreed to release their share in 2008-09, Chidambaram has written to Orissa, J&K and Uttar Pradesh chief ministers to expedite their contribution, a finance ministry official said.

For the recapitalisation of 15 RRBs, the Centre will provide Rs 453 crore, while sponsor banks and states will chip in with Rs 305 crore and Rs 131 crore respectively.

Ramanathan said seven RRBs will be merged by December and there will be gradual consolidation in each state to increase their balance sheet size and ensure their sustainability in the long run.

During 2007-08, 81 RRBs reported a cumulative operating profit of Rs 1,428 crore, while nine RRBs incurred combined losses of Rs 56 crore. Ramanathan said all banks will become profitable in the current financial year. The deposits of these banks rose 19 per cent to Rs 99,081 crore, while advances were up 25 per cent to Rs 60,739 crore in 2007-08.