FinMin mulled Rs 5,000-cr guarantee company before farm loan waiver

Prior to announcing the Rs 60,000-crore farm loan waiver package, the finance ministry had toyed with the idea of setting up an Agriculture Credit Guarantee Corporation with a corpus of around Rs 5,000 crore to deal with bad loans.

The entity would have insured lenders against borrower defaults with banks making less provisioning for such loans and continuing to offer farm loans.

However, the plan was dropped after the amount of the waiver and relief package rose to a massive Rs 60,000 crore.

"We then thought of giving direct subsidies to farmers as there will be no leakage in this scheme and the benefits will go directly to farmers," said a government official.

Cooperative banks account for Rs 37,000 crore or about 61 per cent of the Rs 60,000-crore package announced in the Budget. Regional rural banks and scheduled commercial banks account for Rs 12,000 crore and Rs 11,000 crore, respectively.

The details of the farm package are likely to be finalised by March 25. As the government will implement this package over a period of three financial years, it may make a provision of up to Rs 25,000 crore in 2008-09.

Part of the financial assistance due for restructuring of cooperatives according to the recommendations of the Vaidyanathan Committee is also likely to be part of the package, officials say.

Cooperatives and banks may also have to share a little burden in case of default loan accounts, which have been written off for prudential accounting norms.