Rs 60k cr farm loan waiver seen a win-win

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Finance minister, P Chidambaram on Friday announced agriculture loan waivers to the tune of Rs 60,000 crore for debt-trapped farmers. Chidambaram also said the waiver would be complete for marginal farmers holding up to 2 hectares of farmland. As for other farmers, the finance minister announced a one-time settlement with a rebate of 25% against 75% repayment of loans.

The implementation of waivers and relief would be completed by June 30 this year. Farmers would be granted fresh loans as per existing rules thereafter, Chidambram said.

Out of the Rs 60,000 crore debt waiver, schedule commercial banks account for only Rs 12,000 crore while cooperative banks and regional rural banks share the remaining Rs 37,000 crore and Rs 11,000 crore, respectively.

The finance ministry would make the funds available to the banks as and when they have to collect those debts, so that liquidity does not suffer, government sources said. The ministry is planning to compensate the debt waived by banks over a period of three financial years.

The first tranche of the total waiver, amounting to Rs 25,000 crore to Rs 27,000 crore, will be released by June 30 during the kharif period, these sources said.

The remaining amount would be paid in two tranches of Rs 20,000 crore and Rs 15,000 crore in following two financial years.

Over the 3 years, the government will provide liquidity to the banking system equivalent to the amount written-off by banks, Chidambaram told reporters in a post-budget conference.

“The government will make this amount available to the banks over a period of three years. I have done my homework, and the details of how it would work will be made available over time. (Banks will not shell out this money).”

Source said finance ministry has already sent its inputs to the Reserve Bank and Nabard (National Bank for Agriculture and Rural Development) and have asked them to prepare a detailed roadmap based on these inputs. Chidambaram said the move would help in cleaning up the books of the banks and reduce their non-performing assets.

The total outstanding debt of banking sector to the farmers stands at Rs 3.2 lakh crore, the sources said. This debt is given in a 2:1:1 ratio of short-term credit, investment credit and indirect agricultural credit.