Banks may absorb 20-25% of farm loan package

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The banking sector may have to forego about 20% to 25% of the loan waiver amount of Rs 60,000 crore, as estimated in the Budget.

As per the RBI norms, the banks are supposed to absorb the loan amounts, which were already been written off before the cut-off date, June 30. While the defaulted farmers get their full benefit, the bankers have to incur a loss.

“It is a common banking practice to write-off the bad debts from its profits every year. However, we will still follow up with the borrower, and the money so collected will be added to the profits of the bank. And in the present case, the banks cannot get the written-off amount either from the borrower or the government,” a senior banker told FE.

In Andhra Pradesh, which claims to be the major beneficiary from the scheme, the bankers are estimating a waiver benefit of Rs 12,557 crore, but banks have to absorb at least about Rs 2,000 crore, which were written-off before the cut-off date, sources said.

Though the bankers are not willing to come on the record, they say that it would be premature to decide how much the banks will have to absorb. A clear picture will emerge only by June 25, as the banks have fixed an internal deadline for preparing the list of beneficiaries. However, sources say that it would be extended by a week or so, since the beneficiaries’ list has to be audited before being finalised.

They also add that no bank manager is ready to take the risk of releasing the beneficiary list, without a proper audit and approval from the regional office. “Once the list is put up in the notice board of the bank, it would be final,” sources said. In case of any deviation, on being proved false, the bank manager will be held responsible.

Meanwhile, the state Cabinet sub-committee headed by finance minister K Rosaiah reviewed both the RBI norms and how the banks are preparing the list of the beneficiaries.

The committee has also asked the bankers to prepare the list of those who are contemplating repaying the loan and availing the 3% interest scheme. The state government has decided to extend an incentive of Rs 5,000 to each of the farmers who have paid the loan, maintaining the time schedule.