1. Maharashtra farm loan waiver: Setback for Devendra Fadnavis government as RBI declines proposal to ease norms

Maharashtra farm loan waiver: Setback for Devendra Fadnavis government as RBI declines proposal to ease norms

In a major setback for Devendra Fadnavis-led Maharashtra government, the Reserve Bank of India (RBI) has rejected its proposal to ease the norms on farm loans that have turned bad.

By: | New Delhi | Updated: August 12, 2017 11:11 AM
Maharashtra farm loan waiver, farm loan waiver, RBI on farm loan waiver, RBI, Maharashtra government, Devendra Fadnavis, Devendra Fadnavis government, non-performing assets, NPAs, loans to overdue, farmers in maharashtra, Sudharshan Sen, Sudharshan Sen RBI The move is considered as a big blow to the state government which had announced a farm loan waiver scheme of Rs 34,022 cr in the recent past. (Image: PTI)

In a major setback for Devendra Fadnavis-led Maharashtra government, the Reserve Bank of India (RBI) has rejected its proposal to ease the norms on farm loans that have turned bad. Besides not providing a special dispensation for all the bad loans restructured in the past, the RBI has also classified them as non-performing assets (NPAs), stated a report by Indian Express. The move is considered as a big blow to the state government which had announced a farm loan waiver scheme of Rs 34,022 cr in the recent past. As per the official records obtained by the paper, these loan sum up to nearly 67 per cent of the total farm loan waiver benefit. As rural bank can not approve fresh crop loans to such accounts without lowering of the provisioning norms by the RBI, the Maharashtra government had approached the banking regulator on July 10 seeking a special dispensation. However, the proposal was declined by RBI’s Executive Director Sudharshan Sen on August 7.

Sen wrote a letter to the state government which according to The Indian Express read: “While the grant of loans to overdue/NPA accounts is not barred, these are purely commercial decisions to be taken by the banks in which the RBI won’t intervene. Further it will be appreciated that where the existing accounts of borrowers are NPAs, or were NPAs that were subsequently settled by the bank at a loss, it is necessary for the bank to recognise the uncertainty of the repayment associated with the account and classify and provide for it accordingly. In view of this, we are unable to grant any special dispensation for such cases.”

The report also added that RBI’s rejection to lighten the norms would now add additional burden on rural banks, especially state-run banks and the banking cooperatives, to make higher provisions while extending fresh crop loans as per government’s proposal. These banks and cooperatives are already struggling with huge pile of stressed assets.

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While the RBI has agreed to make a special dispensation in case of short term loans, it has imposed riders. “We are agreeable to have the Rs 10,000 loan (to NPA farmers) classified as ‘standard’ to begin with, provided the Government of Maharashtra first identified and advises the concerned banks regarding the farmers to be given these loans and advises the RBI regarding the aggregate amounts of such loans,” Indian Express quoted Sen’s letter informing further.

Apart from the aforementioned issue, the banking regulator has also looking for an undertaking from the government that the overall amount of all these stressed loans along with the interest payable on it would be recovered from government’s own resource maximum by December 31, 2017.

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