Banks to get $6.25 Bn against farm loan waiver

New Delhi: The coming session of parliament beginning Oct 17 will see the government releasing $6.25 billion (250 billion) to the banks to help them make up the loss incurred on account of farm loan waiver, said a senior finance ministry official Wednesday.

"25,000 crore will be released to the lending institutions (against the debt waiver) when parliament meets to approve the supplementary budget," said financial sector secretary Arun Ramanathan.

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Ramanathan, who briefed the media after Finance Minister P. Chidambaram reviewed the performance of regional rural banks (RRBs) in a closed door meeting, said the government was yet to take a decision on the suggestion by the banks that payment be made against interest from March 1.

Sources said RRBs officials raised the issue of liquidity crunch arising out of the delay in releasing the relief package.

"It is the farmers who are going to suffer if the relief package is not released soon. The banks are faced with liquidity crunch to meet farmers' fresh loan demands," an RRB official, who did not wish to be identified, told IANS.

"The finance minister assured us that the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (Nabard) will look into the matter," he added.

"The banks have requested the government to pay interests arising out of the delay in releasing funds for the loan waiver scheme," said Ramanathan.

The government initially announced a total farm loan waiver of 60,000 crore (600 billion), but subsequently increased it to 71,680 crore (716.8 billion) to cover nearly 43 million small and marginal farmers.

About Chidambaram's brief to the RRBs, Ramanathan said he emphasised the need for computerisation of RRB branches and providing better training to the employees.

"The finance minister was satisfied with the performance of the RRBs," Ramanathan said, adding the number of RRBs would come down to 79 from the existing 88 after 12 RRBs were merged and reduced to five.

"The average net non-productive assets of all RRBs has come down from 3.4 percent as of March 31, 2007 to 2.96 percent on March 31, 2008," said Ramanathan.

The RRBs cater to the rural financial needs, and are sponsored by the public sector banks like the United Commercial Bank. Other stakeholders are the state and central banks.
Source: IANS