What changed
The last date for 'other farmers' to pay 75% of overdue under the Debt Relief Scheme is extended by six months to June 30, 2010. Banks may now accept less than 75% under OTS, but must absorb the shortfall themselves. The interest-free period on eligible amounts remains unchanged, but no government interest reimbursement for the extension period.
What it means for you
RRBs get more time to settle eligible 'other farmer' accounts, reducing immediate NPA pressure. However, accepting less than 75% under OTS hits bank profitability directly. Banks must carefully track payment deadlines and make present value loss provisions to keep accounts standard. Delays beyond June 30, 2010 will revert accounts to original NPA status with additional provisioning.
What you must do
- Update internal systems to reflect the new June 30, 2010 deadline for 'other farmer' debt relief payments.
- If accepting less than 75% under OTS, ensure the shortfall is booked as bank expense and not claimed from government or farmer.
- Compute present value loss provisions for accounts with undertakings, discounting cash flows at original loan rate including subsidy.
- Extend grievance redressal deadline to July 31, 2010 for affected farmers.
- Monitor accounts closely; any payment delay beyond June 30, 2010 must trigger NPA classification and additional provisioning.
Who it affects
Regional Rural Banks (RRBs), Other farmers eligible under ADWDRS 2008, Lending institutions handling agricultural debt relief
What happens if a farmer pays after June 30, 2010?
The account will be treated as NPA, and asset classification will revert to the original NPA date as if it had never been treated as performing. Additional provisions as per prudential norms must be made.
Can we accept less than 75% from the farmer under OTS?
Yes, but only if the bank bears the difference itself. 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.
Is interest charged on the eligible amount during the extension?
No interest is charged from February 29, 2008 to June 30, 2009. Normal interest applies from July 1, 2009 up to settlement date. The government will not reimburse interest for the six-month extension period.