What changed
The last date for 'other farmers' to pay their 75% share under the Debt Relief Scheme is extended from June 30, 2009 to December 31, 2009. Banks are now allowed to accept less than 75% of the eligible amount under OTS, provided they absorb the shortfall themselves without claiming from the government or farmer. The government will only pay 25% of the actual eligible amount.
What it means for you
Banks must adjust their provisioning and asset classification for accounts where farmers have given undertakings to pay under OTS. Accounts can be treated as 'standard' if adequate provision for loss in present value is made and payment is made by Dec 31, 2009. Delayed payments beyond this date will revert to NPA status with original NPA date, requiring additional provisions.
What you must do
- Update internal systems to reflect the extended deadline of December 31, 2009 for 'other farmers' under ADWDR 2008.
- Ensure adequate provisioning for loss in present value for accounts treated as 'standard' based on farmer undertakings.
- Monitor payments from 'other farmers' closely; if not received by Dec 31, 2009, downgrade accounts to NPA with original NPA date and make additional provisions.
- Open a separate account 'Amount receivable from Government of India under Agricultural Debt Relief Scheme 2008' for eligible 'other farmers' after they pay their 75% share, and reflect it in Schedule 9 (Advances).
- Do not charge interest on eligible amount from Feb 29, 2008 to June 30, 2009; charge normal interest from July 1, 2009 to settlement date.
Who it affects
All Scheduled Commercial Banks (including Local Area Banks, excluding RRBs), Other farmers eligible for debt relief under ADWDR 2008, Lending institutions handling agricultural loans
What happens if a farmer pays less than 75% of the eligible amount under OTS?
Banks can accept less than 75% only if they bear the difference themselves. The government will still pay only 25% of the actual eligible amount, and the bank cannot claim the shortfall from either the government or the farmer.
How should banks treat accounts of farmers who have given undertakings but delay payment beyond December 31, 2009?
Such accounts must be classified as NPA, with the asset classification determined based on the original NPA date (as if the account had not been treated as performing). Additional provisions as per extant prudential norms must be made.
What is the accounting treatment for the amount receivable from the government under the Debt Relief Scheme?
After the 'other farmer' pays their 75% share, banks should open a separate account named 'Amount receivable from Government of India under Agricultural Debt Relief Scheme 2008' and reflect it in Schedule 9 (Advances) of the Balance Sheet.