Banks witness robust farm loan recovery after extension in debt relief scheme

The debt relief scheme has helped banks in speedy recovery of agricultural loans. As a result, in the last quarter agri non-performing assets (NPAs) of most of the banks has reduced.

Earlier in union budget 2010-11 Finance Minister Pranab Mukherjee had announced extension of debt relief scheme. Mukherjee extended the debt relief scheme of 2008 by six months to June 30, 2010, as in some states the condition of farmers was very bad due to drought and in some other parts of the country there was severe floods.

According to State Bank of India, country’s largest lender official, it is expecting its agricultural NPA to come down by in the last quarter. As on March 2010, agricultural loans accounted for nearly 10 per cent of the bank’s loan book. While it’s gross NPA ratio declined to 3.05% from 2.86% last year because of fresh loans turning bad.

Another public sector bank, Bank of India outstanding of agricultural loan stood at about Rs 388 crore under the debt relief scheme is expecting 60% recovery of the loan amount. M Narendra, executive director of Bank of India said, "We deployed special officers for farm loan recovery under the debt waiver scheme. The harvest has also been much better."

United Bank of India is also expecting more than 50 per cent recovery of farm dues in the last quarter. K R Kamath, chairman and managing director, Punjab National Bank said, "There had been significant recovery under the debt relief scheme, as the recovery mechanism was intensified."

Earlier under the debt relief scheme the farmers who have more than 2 hectares of land were given time up to December 31, 2009 to pay 75 per cent of their over dues. Also banks and lending institutions were allowed to recover less than 75% of the debt amount as one-time settlement (OTS) system, provided they bore the difference, as government announced to compensate only 25 per cent of the amount under debt relief.

At this most of the banks waived another 25% of dues, as a result borrower had to return only 50% of the dues.

However the government said it will not pay interest for the six month extension and only reimburse the 25 per cent amount to lending institutions as per the delayed reimbursement scheme.

A bank executive told, last year the farm loan recovery was very low due to factors like drought and anticipation of further relief in farm loans. The recovery dropped by 50% as compared to the previous year.