The Hindu : New Delhi News : Cabinet nod for payment of interest to banks

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Cabinet nod for payment of interest to banks

Special Correspondent

For loan waiver and debt relief scheme

Payment of interest of Rs. 3,872 crore on the the second, third and fourth instalments
Banks have written off loans of 3 crore farmers; government yet to disburse amount to banks

NEW DELHI: The Union Cabinet has approved the payment of Rs. 3,872 crore interest to banks and lending institutions for the farmer loan waiver and debt relief scheme. This amount will cover three instalments of the reimbursable claims of banks and other lending institutions. Banks are said to have written off loans of an estimated over 3 crore farmers but the government is yet to disburse the amount to banks.

Although the final figure of the debts settled by banks and cooperative credit institutions would be available only after the audit by June next year, the government said a provisional number of 3.01 crore small and marginal farmers and 0.67 crore “other farmers” had benefited from the scheme involving debt waiver and debt relief.

(Against the initial estimate of the scheme costing the government around Rs. 72,000, the banks and co-operative credit institutions are now expected to get over Rs. 55,000 crore in four instalments as reimbursement from the government, excluding interest, for their outgo on the debt waiver scheme. )

“The Union Cabinet gave its approval for granting the payment of interest amounting to Rs. 3,872 crore on the balance amount, i.e. the second, third and fourth instalments of the reimbursable claims of the lending institutions pertaining to the agricultural debt waiver and debt relief scheme, 2008, to be paid in July 2009, July 2010 and July 2011 respectively,” Information and Broadcasting Minister Priyaranjan Dasmunsi told journalists after the Cabinet meeting.

Banks and lending institutions were likely to get the first tranche of reimbursement instalment amounting to Rs. 25,000 crore by November this year.

The other instalments, on which interest is approved by the government, is slated to be given from July 2009.

The second instalment would be of Rs. 15,000 crore and the third instalment Rs. 12,000 crore is scheduled to be given in July 2010. The balance amount would be given in July 2011, as per the schedule drawn by the government in consultation with RBI.

The RBI has asked banks to make adequate provision for the loss in present value terms on the amount receivable from the government under the scheme as they would get reimbursement in phases.

The discount rate for arriving at such loss, as per RBI, is 9.56 per cent which is the same as the rate of yield to maturity on 364 days government treasury bills.

The government acceded to the request of the banks for payment of interest on the staggered reimbursement amount in view of a tangible loss to the banks in present value terms, sources said.

The interest on the reimbursement amount has been calculated at the rate of 9.56 per cent which is the rate of prudential provisioning required by the RBI.

In another decision, the Cabinet gave its nod for payment of Rs. 4,311 crore as interest subvention to public sector banks, Regional Rural Banks and to NABARD for providing re-finance to RRBs and cooperative banks at a concessional interest rate of seven per cent for short-term loans up to Rs. 3 lakh during 2008-09. This was a 2008-09 budget proposal that had not been implemented so far.

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