In a relief to farmers who had defaulted on loan repayments, the government and the Reserve Bank of India (RBI) have allowed banks to write-off loans even if only a part of the 75 per cent outstanding amount, as stipulated in last year’s debt relief scheme, was repaid.
The only rider was that the government would not provide additional funding and restrict reimbursement to the bank to 25 per cent of the outstanding amount.
In addition, the government has allowed banks to recover the 75 per cent outstanding amount in one tranche instead of three instalments as was provided originally.
Farmers, who had defaulted on loan repayment would, however, be required to make the payment by the month-end to continue to be eligible for the scheme. Earlier, the instalments had to be paid by September 30, 2008, March 31, 2009 and June 30, 2009.
Under the loan settlement scheme, a farmer was eligible for 25 per cent relief, if he cleared 75 per cent of the outstanding amount. But many farmers could not meet the stipulated deadlines and found themselves in a situation where they ran the risk of missing out on the benefit of the biggest ever farm loan relief and waiver scheme. This prompted banks to approach the finance ministry, which issued the required instructions.
The government communicated the decision to RBI earlier this month. The banking regulator issued the required instructions today.
“The ultimate aim was to clean up the books of banks and make thousands of farmers, who had defaulted on loan repayment, to be eligible for fresh loans. If we can do so by tweaking the scheme a little, without any impact on banks or government finances, then there is nothing wrong,” said a government official.
