Regional banks in a spot on poultry loans

There is confusion among the regional rural banks regarding the central bank's direction on poultry exposure after the bird flu outbreak.

On February 17, the Reserve Bank of India had issued certain directives to all the scheduled commercial banks under which all the unpaid loans would be converted into the term loans. This was keeping in view the loss of income due to the culling of birds and the steep fall in demand for poultry products and their prices.

According to the RBI circular, all the principal and interest due on the working capital loans as also interest and installments and interest on term loans, which have fallen due for payment on the account of the flu till December 31, 2007, and remaining unpaid may be converted into term loans.

Moreover, the converted loans could be recovered in installments based on the projected future inflows over three years with an initial moratorium of up to one year.

Similarly, rescheduling of the existing term loans would also be allowed, again with a moratorium period up to one year depending upon the cash flow generating capacity of the unit.

The banking regulator has directed the regional rural banks to complete the rescheduling process by April 30, 2008. The above relief measures might be extended to all accounts of the poultry industry, which were classified as the standard accounts as on December 31, 2007. Later, the borrowers would be eligible for fresh loans according to their needs.

For the West Bengal-based Bangiya Grameen Vikash Bank, which had started its own relief programme for the flu outbreak, the scenario has changed as the poultry exposure also falls under the agriculture and allied activities thereby under the debt waiver scheme. Prior to the Budget, directives from the regulator were at par with the bank's ongoing programme.

Hence, the banks are confused regarding the actual calculations of what it should be and whether to continue with the current circulars or wait for the government guidelines.

When contacted, Ambarisha Nanda, chairman, Bangiya Gramin Vikash Bank, said the RBI circular would be merged with the ongoing flu relief programmes of the bank. However, he also said that every thing regarding the process of implementation would be clear once the bank receive the circular on the farm loan waiver scheme.

"We are awaiting the guidelines from the government as the exposure to the poultry units falls under the loans to agricultural and allied activities and hence this should come under the waiver scheme. So the correct implementation is possible only after the clear direction from the regulator," Nanda said.

The final decision regarding this would be taken only after the board meeting, which is scheduled to take place in two days, Nanda informed.

Currently, the bank has an exposure of Rs 450 crore in the agriculture and the allied activities out of which poultry exposure amounts to around Rs 10 crore.