The farm debt waiver and relief scheme is still haunting banks.
At least two banks – Bank of Baroda and Corporation Bank — have made higher provisions during the quarter-ended December, as many of the potential debt relief beneficiaries did not make use of the scheme.
The government had allowed farmers to pay 75 per cent of the outstanding amount in three installments to get a 25 per cent relief. In the wake of the poor response despite the deadline being extended to December 2009 (from June 2009 earlier), some of the banks have approached the finance ministry to give farmers time till June this year to clear their share of the dues. Banks have cited poor monsoon in 2009 for seeking an extension.
Banks have sought further extension, as they would be required to set aside additional amount. The provisions are expected to be made during the current quarter.
A further extension of the deadline to June will mean that banks will have time till October-December for classifying the outstanding amount as non-performing asset (NPA) and make provision.
However, some of the banks have already made provision in the third quarter of the current financial year.
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State-owned lender Bank of Baroda had an outstanding of Rs 211 crore from the debt relief scheme. Similarly, Corporation Bank has also made a provision of around Rs 12 crore in the last quarter towards the debt relief scheme.
“Since the loans were not repaid even after six months of the original deadline, as a prudential measure, we decided to provide for the outstanding amount. However, efforts to recover those debts will continue,” said a senior Bank of Baroda executive.
Bankers said with pressure on bottom lines emanating due to high bond yields, banks would want to reduce their provision burden significantly.
Since the farm debt relief scheme, many farmers have deferred paying their installments in the hope for a fresh package from the government. As a result, banks are reporting a higher level of defaults.