Mumbai: Some public sector banks are considering offering additional discounts to farmers who own land in excess of 5 acres and are eligible to receive a write-off of 25% of overdue loans from the government, provided they pay the remaining 75% of the amount by 31 December.
Under the Rs71,680 crore farm debt waiver programme announced in the 2008-09 budget, banks were asked to waive the entire loan amount, outstanding as of 29 February 2008 of “small and marginal” farmers—those holding up to 5 acres.
For farmers with more than 5 acres, the government proposed to waive 25% of their dues, provided they paid the remaining 75% in three instalments by March 2009, a deadline that has since been extended to December-end.
The size of the farm debt waiver was around Rs65,000 crore with 36.9 million “small and marginal” farmers and 5.97 million “other” farmers benefiting.
Sigh of relief: A file photo of a farmer ploughing a rice field on the outskirts of Mumbai. Most public sector banks, including SBI and Bank of India, are in the process of formulating a discount policy that they will apply on a case-by-case basis. Prashanth Vishwanathan / Bloomberg
While most public sector banks are yet to formulate a policy to extend a discount to the farmers and are instead handling the issue on a “case-by-case” basis, at least one big public sector bank, Punjab National Bank (PNB), has officially declared an additional discount to help the “other” farmers clear off their loans.
“We have notified our rural branches to give as much as 15% discount over and above the 25% offered by the government,” said Gobinda Banerjee, a general manager at PNB who oversees so-called priority sector lending that includes loans to farmers and small industries.
That would mean that a farmer with more than 5 acres of land and banking with PNB would have to pay 60% of his dues, instead of 75%.
However, Banerjee clarified that the bank was not offering a flat 15% discount on the amount owed by all “other” farmers; the bank will try to recover as much of the loan as possible before extending the full discount.
The Reserve Bank of India, on 26 June, released a notification stating that if banks want to give additional discounts to farmers, they can do so, provided the banks “bear the difference themselves”.
This effectively encouraged banks to settle the loans, even after incurring losses, if they were doubtful about recovering them, according to bankers.
The country’s largest lender, State Bank of India (SBI), is in the process of formulating a discount policy that it will apply on a case-by-case basis, said a senior SBI official, who didn’t want to be named because he isn’t authorized to speak to the media.
“Why 15% only, we are ready to give 50% discount if the situation warrants. We have to check the cash flow of the borrower before we can offer him any discount,” said the executive. But he said the issue is still under discussion at the bank.
Union Bank of India sees no need to offer an additional discount as of now because its loan recoveries are proceeding smoothly, said L.N.V. Rao, general manager for the priority sector.
“As of now we have not taken any view. We would be as practical as possible and try to recover whatever is due,” Rao said.
“The response (loan recoveries) so far has been good, may be in a few weeks’ time, we will take a call on this.”
Another large lender, Bank of India, has advised its branches to consider offering discounts to farmers on a case-by-case basis, said a bank official who didn’t want to be named.
Bank of Baroda is in no hurry to extend such a facility as of now.
“What is the need for offering such a discount when our recovery has been good? If the farmer says he can’t pay, we are always ready to consider him as a special case. At the end of the day we all want to recover our money and settle the books,” said a senior Bank of Baroda official who did not want to be named.
According to Gobinda Banerjee of PNB, banks may not have to worry too much about offering a discount because farmers will get one more crop to reap before the 31 December deadline.
The kharif, or summer, crop is sown from June to mid-July and reaped in mid-September and sometimes up to the end of November.
“They will be able to pay off their dues after that if the monsoon remains okay. We are already offering them crop loans for their kharif products,” Banerjee said.