BackFM wrinkles give pause to loan waivers
FM wrinkles give pause to loan waivers
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New Delhi: Last-minute clarifications issued by the finance ministry have created complications ahead of an imminent roll-out of India’s massive Rs71,700 crore farm loan waiver package, just as most banks had finalized the list of beneficiaries.
Some 34 such clarifications came on 18 June, the same day when the banks were actually supposed to display in various branches a list of eligible farmers. Most banks were already behind on that exercise.
Despite the new clarifications, bankers that Mint spoke to on Thursday were putting on a brave face, saying that they have been asked by the government to make sure they complete the exercise in time for a highly symbolic 30 June roll-out.
The populist waiver scheme, announced end-February, is a central plank of the Congress-led United Progressive Alliance (UPA) government and any significant delays in its actual roll-out are likely to provide political fodder to the opposition parties at a time when there is growing uncertainity over the longevity of the current government.
There are 30,500 rural bank branches and the waiver is aimed at bailing out some 43 million farmers.
It is unclear how the banks, which now have at least one significant additional check to perform, plan to meet the deadline, while still maintaining the integrity of the list of eligible farmers, something that the finance ministry is keen to ensure. Indeed, some of the clarifications are aimed at making such lists foolproof.
Many banks, for instance, have extended agricultural loans through so-called self- help groups. Now, as part of the list of clarifications, they have all been instructed to also check the books of such self- help groups to make sure the original loans had been for agriculture.
Other clarifications finalize the way in which overdue interest on loans has to be calculated. According a banker from a large public sector bank, who didn’t want to be identified, reconfiguring the calculations could push up the cost of the relief package for some banks by up to 15% more than they had anticipated.
Mint couldn’t ascertain the full details of all the clarifications.
One of them calls for banks to remove sole proprietorships from the list of potential beneficiaries, a decision that could also leave branch managers to deal with angry customers. Also, working capital loans taken by dairy and poultry farmers will not be covered under the loan waiver package.
“We may just be mobbed once the list is put up in our branches," says the branch head of a public sector bank in Rajasthan, who didn’t want to be identified.
Another clarification, said a person familiar with the list, could actually bring down the relief package for some banks though Mint couldn’t ascertain any details.
The finance ministry’s clarifications come after some banks asked the Reserve Bank of India (RBI) to sort out lingering grey areas in interpreting the package. Another banker, who also didn’t want to be identified, said various banks had informal discussions on the interpretation of the package, and realized that their individual methodologies were different, leading them to ask RBI.
sangeeta.s@livemint.com
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