RBI & govt. allows banks to write-off farm loans not fully paid

The government and the Reserve Bank of India (RBI) have provided relief for farmers who have defaulted on loan repayments. The RBI and government has permitted banks to cancel loans even if only a part of the 75 per cent outstanding amount, as fixed in last year’s debt relief scheme was repaid.

The only condition for write-off loans is that the government will not give any additional funding and limit reimbursement to the bank to 25 per cent of the outstanding amount.

Moreover the banks have been allowed by the government to recover the 75 per cent outstanding amount in one tranche in place of three installments as was permitted originally

However the farmers, who had defaulted on loan repayment, will be required to repay the 75 per cent of their loan by the month-end to avail the scheme. Before, the installments were to be paid by September 30, 2008, March 31, 2009 and June 30, 2009.

According to the loan settlement scheme, a farmer was eligible for 25 per cent relief, if he repays 75 per cent of the outstanding amount. But many farmers could not meet the set deadlines due to which they were afraid that they will miss out on the benefit of the biggest ever farm loan relief and waiver scheme. This impelled banks to take the issue to the finance ministry, which issued the required instructions.

The decision was communicated to the RBI by the government early this month. The apex bank has issued the necessary instructions today.

A government official said, “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”.