What changed
The last date for 'other farmers' to pay 75% of the overdue amount under the Debt Relief Scheme has been extended from December 31, 2009 to June 30, 2010. Banks may now accept less than 75% under OTS, provided they absorb the shortfall themselves and do not claim it from the government or farmer. The government will pay only 25% of the actual eligible amount.
What it means for you
Urban cooperative banks must adjust their provisioning and asset classification for accounts of 'other farmers' who give undertakings to pay by June 30, 2010. Banks need to compute present value loss on receivables and treat such accounts as 'standard' only if adequate provisions are made. No interest will be reimbursed by the government for the six-month extension.
What you must do
- Update internal systems to reflect the new deadline of June 30, 2010 for 'other farmers' under the Debt Relief Scheme.
- Compute present value loss on all receivables due from farmers who have given undertakings, using the loan interest rate including any subsidy.
- Ensure accounts of farmers who pay by June 30, 2010 are classified as 'standard' only if adequate provisions for PV loss are made.
- If accepting less than 75% from farmers, bear the difference yourself and do not claim it from the government or farmer.
- Monitor accounts where payments are delayed beyond June 30, 2010 and downgrade them to NPA with reference to the original NPA date.
Who it affects
All Primary (Urban) Cooperative Banks, Other farmers eligible under the Agricultural Debt Waiver and Debt Relief Scheme, 2008
What is the new deadline for 'other farmers' to pay their 75% share?
The deadline has been extended from December 31, 2009 to June 30, 2010. Farmers can pay in one or more instalments up to this date.
Can banks accept less than 75% from farmers under OTS?
Yes, banks may accept less than 75% provided they bear the difference themselves and do not claim it from the government or the farmer. The government will pay only 25% of the actual eligible amount.
What happens if a farmer fails to pay by June 30, 2010?
The account will be treated as NPA, and asset classification will be determined with reference to the original NPA date as if the account had not been treated as performing. Additional provisions as per prudential norms must be made.