The Hindu Business Line : Banks rescheduling farm loans

BANKS have begun work on restructuring and rescheduling agricultural advances in regions affected by the current drought. This is in line with Reserve Bank of India's (RBI) directives.

Banking sources said here that this move would now mean that defaults on agricultural advances would not be treated as sub-standard assets. Delays and defaults on loans were anticipated by the farm sector given the severity of the drought conditions, they added. About two-thirds of the country has already been declared as affected regions, implying a severe shortfall in kharif output. This is consequently expected to have a severe impact on agriculture loan repayments.

Normally debt service defaults beyond the 90-day period would qualify the assets to be treated as sub-standard and provisions would have to be made under the prudential norms. Further, under the new Securitisation Ordinance, lenders are also empowered to initiate recovery proceedings against such assets. Instead, agriculture advances would be rolled over so as to provide a reprieve to the farm sector to overcome the impact of the drought, sources said.

RBI has already called for a review meeting next week of all the banks to work out the modalities of this restructuring exercise. The meeting is also expected to work out the modalities for additional crop loans to farmers. But RBI has advised its regional offices to initiate the rephasing/restructuring exercise through all the State Level Bankers Committees.

Among the measures expected to be taken up for alleviating the debt burden of the farm sector are conversion of some of the short-term production loans into term loans and sanction of fresh short-term loans. The sources said that the continued treatment of these agricultural advances/loans as standard assets would obviate the need for making provisions this year, thereby eliminate any negative impact on the bottomlines of the banks. The restructuring would involve complete rephasing of the repayments with or without moratorium periods for repayments of principal and interest or for both. These finer details were still in the process of being worked out, they added.

The bankers also said that the rescheduling due to these natural calamities was likely to have a negligible impact on the borrowers' costs. This was because such loans are to be treated as current dues, which is provided under the RBI guidelines and also due to the current soft rate regime prevailing in the country. On the contrary, for some categories of borrowers, the costs are actually likely to come down, since the rescheduling packages are expected to be worked on the basis of the minimum lending rates prevailing in the financial markets.

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