 "AP Cabinet to approve modalities on financing the debt waiver")
Referring to a plan discussed with the bankers in this regard yesterday, he said the State-level Bankers Committee (SLBC) had constituted a sub-committee to give its consent by today evening based on which the Cabinet would give its final approval.
On Tuesday, Andhra Bank executive director S K Kalra told the SLBC meeting that the state government was contemplating to provide 20 per cent of the eligible farm loan dues as an immediate relief.
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In the evening, sources in the government confirmed the receipt of a communication from the bankers. “They have agreed to settle for the payment of 20 per cent of the loan liability by the government. The total amount will be around Rs 5,000 crore,” a senior government official told Business Standard.
The banks will renew the loans of the borrowers on receiving 20 per cent of the loan dues against each individual account. The process is expected to be completed by the end of next month, according to the official.
To meet the remaining debt obligation, the government has devised a complex plan under which a special purpose vehicle (SPV) will be created to issue bonds to farmers besides seeking loans from the banks by securitising a set of identified future earnings to redeem these bonds.
In contrast, the Telangana government recently released Rs 4,250 crore or 25 per cent of the total loan liability to the banks with a promise to give the remaining along with interest in equal installments in the course of next four years.
Commenting on AP’s plans, a senior State Bank of India (SBI) official said the banks would not come into picture either in the government’s waiver scheme or in the issuance of bonds as both were a matter between the government and the farmer. These bonds cannot be considered as valid instruments for creating charge over them unless approved by the RBI, he said.
The government yesterday offered to pay Rs 5,000-7,000 crore to banks through the proposed SPV, Farmers' Empowerment Corporation, as against the total eligible loan liability, which is estimated at Rs 25,000 crore after restricting the eligibility to Rs 1.5 lakh per family. There are over 8 million crop loan borrowers in AP. SBI and Andhra Bank together account for almost 50 per cent of these loan accounts, according to the officials.
As the debt waiver promise completely derailed the credit cycle in the farm sector, the bankers openly expressed their views opposing the move. “The bankers strongly believe that agriculture should be a profitable business and farmers should not be made to look at waivers. Instead, they may be provided with the necessary inputs, forward and backward linkages to make it profitable,”Kalra said in his opening remarks at the meeting.
The bankers also requested the government to set up a second Debt Recovery Tribunal (DRT) in the state to reduce the pendency in cases as well as hasten the recovery process in high volume loans. They also asked the government to form joint teams to assist the banks in recovering the dues.
According to the bankers, fresh loan disbursals in the ongoing kharif season stood just about 10 per cent of the annual agriculture credit target of Rs 56,019 crore for 2014-15 while in normal conditions about 65 per cent of the credit target is achieved during the kharif season itself.
As on June 30, the credit flow during the first quarter under the priority sector stood at Rs 11,205 crore, which is 14.39 per cent of the annual disbursement target of Rs 77,894 crore as compared with an achievement of 31 per cent in the corresponding quarter previous year. Deposits and the advances grew at just 3.41 per cent and 1.68 per cent respectively in the June quarter over the March quarter. Finance minister said about 65 per cent of the total credit disbursal to the priority sector was going to agriculture as against 29 per cent in the combined state.