What changed
RBI provided detailed prudential norms for UCBs implementing the Agricultural Debt Waiver and Debt Relief Scheme 2008. For small/marginal farmers, the waived amount must be transferred to a separate receivable account and treated as a performing asset, with provisions for present value loss based on government installment schedule. For other farmers, a one-time settlement with 25% rebate applies.
What it means for you
UCBs can now treat debt-waived farmer loans as performing assets, easing NPA classification pressure, but must provision for present value loss using a 9.56% discount rate. The phased reversal of excess prudential provisions aligns with government installment receipts, impacting liquidity and capital adequacy planning.
What you must do
- Transfer eligible waived amounts for small/marginal farmers to 'Amount receivable from Government of India' account and reflect under advances.
- Compute and hold provision for present value loss using 9.56% discount rate based on government installment schedule (32% by Sep 2008, 19% by Jul 2009, 39% by Jul 2010, 10% by Jul 2011).
- Reverse excess prudential provisions in phased manner (32%, 19%, 39%, 10%) only after receiving corresponding government installments.
- Reclassify accounts as NPA with original NPA date if farmer claim is rejected, and adjust provisions accordingly, counting PV-based provisions against NPA provisions.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Small and marginal farmers eligible for debt waiver, Other farmers eligible for one-time settlement
How should UCBs treat the waived amount for small/marginal farmers?
Transfer the eligible waived amount to a separate account named 'Amount receivable from Government of India under Agricultural Debt Waiver Scheme 2008' and reflect it under advances in the balance sheet.
What discount rate should UCBs use for present value loss provisioning?
Use 9.56%, which is the yield to maturity on the 364-day Government of India Treasury Bill prevailing as of July 30, 2008.
What happens if a farmer's claim is rejected?
The account must be reclassified as NPA with reference to the original NPA date, and provisions should be made accordingly, with PV-based provisions counted against NPA provisions.