The RBI has recently urged banks to stand tall on the occasion and provide relief in areas affected by natural calamities. The RBI categorically said that banks do not have to wait for separate instructions to provide reliefs. Banks can follow the standing guidelines issued earlier relating to such occasions.
The recently issued RBI guideline said, "The precise details in regard to the provision of credit assistance by the commercial banks, will depend on the requirements of the situation, their own operational capabilities and the actual needs of the borrowers. The bank branches can decide this in consultation with district authorities."
Further, the RBI has even asked banks to assess the situation and take immediate measures to provide appropriate relief to the affected persons.
Included in the relief measures are
* One, conversion of short-term production loan into term loans on the due date of repayment.
* Two, repayment period of the converted term loans to be fixed for a period up to three years in exceptional cases and for small and marginal farmers this can be extended up to five years.
* Three, all short-term loans, except those which are overdue at the time of occurrence of natural calamities, should be eligible for conversion facilities.
* Four, only perennial amount of the short-term loan should be converted into term loan. In the case of small and marginal farmers, interest on short-term loans which has been converted may be postponed and recovered in full at the time of the next harvesting/marketing season. There should not be any compounding of interest outstanding on the short-term loan in such cases.
* Five, the rate of interest for the converted loans should be the same as that charged on short-term loans.
* Six, pending finalisation of conversion/rescheduling operations which might take time, the eligible cultivators should be disbursed crop loans for the current seasonal operations.
Bankers said that they are already following the RBI guidelines and have asked their branches to follow suit. Further, the RBI has allowed banks to breach the prescribed ceiling of up to one per cent of their published profit for the previous year for making donations to the Prime Ministers Relief Fund but with the specific approval from their boards.
As per the extant RBI guidelines, there are more powers and discretion to the banks in relation to operational aspects and in deciding the quantum of relief assistance to be provided to the affected farmers in respect of agricultural advances. RBI has also asked the banks to inform it about the action taken by the commercial banks in this regard.
On donations to national or other calamity funds, the RBI said that the decision to allow the banks to go above the prescribed limit was taken based on the representations from the Indian Banks Association (IBA) and some banks seeking exemption citing that the prescribed limits were inadequate to contribute to relief measures sufficiently.
RBI also said that the amount of donation should be reasonable as compared to the published profits of the bank for the previous year.
But, RBI has kept the ceiling of Rs five lakh for loss-making banks per annum unchanged. Earlier, the banks were prohibited from making donations in excess of the prescribed limit of one per cent of previous years profits and there was no exemption on any category of donations and there was a bar on carry forward of unused limits from one year to the other.
Here the thrust is clearly in providing reliefs and concessions, but no one should forget that agricultural lending has always been a problem area for the commercial banks, particularly for the private banks. Banks have been persistently providing credit under the 18 per cent agricultural lending norms laid down by the RBI.
Take the case of agricultural advances. For state-run banks, as on end-March 2001, total agricultural advances constitutes 15.65 per cent of net bank credit, of which 4.60 per cent is through indirect advances.
The scene is gloomier in the case of private banks. Of the total advances by private-sector banks at 9.55 per cent, indirect lending is quite high at 5.53 per cent. Banks tap easy ways of indirect lendings simply to avoid high transaction and follow-up costs. There is a clear decline in direct lending as was indicated by the VS Vyas Committee on rural credit. And there lies the need for better and wider participation of private-sector which may also include NBFCs, chit funds.
Although the Union Budget 2002-03 had failed to address the critical problems for agricultural growth, the Centre has announced minor proposals for the deregulation of the agricultural sector.
The Budget proposed removal of the remaining regulatory and procedural rigidities that exist and improved rural infrastructure. Meanwhile, the funds for RIDF VIII will be enhanced from Rs 5,000 crore in 2001-02 to Rs 5,500 crore in 2002-03 but at lower interest of 8.5 per cent, two per cent down from 10.5 per cent.
Further, this rate will be fixed at the prevailing bank rate plus two per cent. Assistance to the states from RIDF is linked to reforms in the agriculture and rural sectors.
During 2002-03, macro management programme has been allocated Rs 682 crore, down by 7.5 per cent compared to the revised estimates of 2001-02.