Commercial banks' bad farm loans just Rs 11,000 cr

The mother of all loan waiver packages announced in the Budget on Friday will have limited impact on commercial banks. This is because commercial banks' non-performing assets (NPAs) or sticky loans in the farm sector were just Rs 11,000 crore at the end of December, 2007.

The amount was Rs 7,367 crore at the end of March, 2007, according to the latest Reserve Bank of India Trend and Progress of Banking in India report.

Finance ministry officials said today the majority of farm loans "" as much as Rs 49,000 crore "" is on the books of co-operative and regional rural banks. The entire amount will be reimbursed to all banks in cash against the earlier expectation that it will be a mix of cash and bonds.

As a result, the government will reimburse Rs 37,000 crore to cooperative banks, which will have to waive overdue agricultural loans to marginal farmers under the farm loan waiver proposal. The share of regional rural banks and commercial banks will be Rs 12,000 crore and Rs 11,000 crore, respectively.

Banks which have made a provisioning for the non-performing assets will be able to write the amount back as profit, officials said.

This means commercial banks, which generally make 50 to 75 per cent provisioning for such NPAs due to the stringent norms mandated by the Reserve Bank of India, will make a neat profit.

For example, State Bank of India's total agriculture credit portfolio is close to Rs 35,000 crore, of which the NPAs involving small and marginal farmers are close to Rs 2,000 crore. The bank has made a provisioning of Rs 1,000 crore, which can now be written back as profit.

The package, ministry officials said, will take care of all crop loan NPAs. For investment credits, the relief will be partial. For example, if a farmer has taken a loan to buy tractor, the waiver package will be applicable only to that part of the equated monthly instalment (EMI) on which he has defaulted. He has to pay the balance on his own.

Officials said a majority of the lending portfolio of RRBs and rural credit institutions consists of small and marginal farmers. The default rate is also much higher for these institutions. Hence, their share in the waiver package is much higher than commercial banking entities.

UCO Bank Chairman and Managing Director S K Goel said the share of agriculture in total credit is close to 12-13 per cent for the commercial banks. It is as high as 70-80 per cent for Regional Rural banks (RRBs) and cooperative credit institutions.