The Hindu Business Line : IBA seeks new NPA norms for farm loans

Since farmers have defaulted for no fault of their own, banks suggest that the rescheduled asset should be considered as a `standard' asset and no provisions need be made for it.

Mumbai , July 2

THE Indian Banks' Association has written to the Reserve Bank of India asking for some leeway in non-performing asset (NPA) recognition of agricultural loans as part of the new farm finance package announced by the Finance Minister.

"The IBA has written to the Reserve Bank of India and is awaiting regulatory clarity on NPA recognition," said sources.

Hitherto, if a bank decides to reschedule a farmer's loan after perhaps two instalments are missed, the asset is categorised as an NPA and provisions have to be made for the same. This is the case when banks voluntarily decide to reschedule a loan for a farmer, unlike in the case of a natural calamity, when the rescheduled assets are not considered an NPA. Since farmers have defaulted for no fault of their own, banks suggest that the rescheduled asset should be considered as a `standard' asset and no provisions need be made for it.

The banks' argument is that as the asset is rescheduled and it still remains an NPA, the downsides are multiple with moratorium granted, allocation for provisioning needs and higher NPA numbers. "Why should we give extension and also set aside cash to provide for it every year," said a public sector banker.

In order to meet the Finance Minister's target of 30 per cent growth through various schemes for distressed farmers and farmers in arrears, IBA, along with Nabard has finalised a clutch of agri finance schemes. "These guidelines will be sent to the various commercial banks as soon as RBI gives clarity on the NPA recognition issue. Meanwhile, Nabard has already started distributing the schemes to regional rural banks and co-operative banks, which comes under its gamut," said sources.

These schemes, which prescribe no specific rates of interest, have been devised in order to ensure uniformity in the practice of banks in restructuring of farmers' loans, fresh credit to borrowers, who have settled accounts through a settlement process, and to widen the usage of the kisan credit cards.

The new Government ever since it took charge has been keen on increasing and broadening agricultural credit. For over the last three decades, the short-term bank/institutional credit to agriculture has stagnated with the average growth rate has been at around 15 per cent, while that of long-term credit has declined to 12 per cent in 1990s from over 20 per cent in the 1970s.

The Government is particularly keen to increase the universe of farmers availing bank loans by about 50 lakh in the current year.

More Stories on : Farm credit | Non-Performing Assets | Trade & Labour Unions

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