Loan Waiver Manjunath

8/2/2019 Loan Waiver Manjunath

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Presented by: Manjunath .S. KerurID NO:PAL0087



INTRODUCTION The finance minister in his budget speech for 2008 –

2009 announced the agricultural loan waiver scheme.

The scheme cover direct agril loans extended tomarginal and small farmers and other farmers by scheduled commercial banks, RRBs, Cooperativecredit institutions.



This scheme was implemented because many farmerssuicided and also our Indian agril is facing a crisiskeeping the above perspective the union budget of 2008 – 2009 has included the loan waiver scheme.

This scheme was designed to provide relief to therural economy and bring some respite to the distress

farmers.



Problems of farmers Stagnant productivity and production

Terms of trade not favourable

Weather risks, natural calamities Market risks – of unremunerative prices

Limited technology solutions

Lack of access to inputs - finance

Loan defaults are a result – not a cause



STATE WITH HIGHER DEBT INCIDENCE(2007)

State % of indebted farm

households Average debt per farmer

household (Rs) All India 48.4 12585 AP 82 23965 Gujarat 52 15526 Haryana 53 26007 Karnataka 61.4 18135 Kerala 64.4 33097 MP 50.8 14218 Maharashtra 54.8 16973 Punjab 65.4 41576 Rajasthan 52.4 18372 Tamil Nadu 74.5 23963 West Bengal 50.8 5230



FEATURES Marginal farmers are those cultivating an agril land up

to 1 hectare.

A small farmer is one who cultivating between 1 to 2hectare.

These small and marginal farmers will going to get fulldebt waiver of their short term crop loans as well as all

the overdue installments on the investment credit.



Cont… The other farmers like who owning over 2 hectares

will get one time relief.

In most of the states the small and marginal farmersaccount for between 70 to 94 percent of all farmers.

RBI is the nodal agency for the purpose of theimplementing the scheme.



ELIGIBLE AMOUNT The amount eligible for loan waiver scheme comprises

of:

1. In case of short term production loan the amount of such loan

(a)Disbursed up to March 31, 2007 and overdue as onDecember 31, 2007 and remaining unpaid until

February 29, 2008.



Cont… (b)Restructured and rescheduled by banks in 2004 and

in 2006 through the special packages announced by the Central Government, whether overdue or not.

(c)Restructured and rescheduled in the normal courseup to March 31, 2007 as per applicable RBI guidelineson account of natural calamities, whether overdue ornot.



Cont..2.In case of investment loan the amount of such loan:

(a)Disbursed up to March 31, 2007 and overdue as on

December 31, 2007 and remaining unpaid untilFebruary 29, 2008.

(b) Restructured and rescheduled by banks in 2004and in 2006 through the special packages announced

by the Central Government.



Cont..

(c)Restructured and rescheduled in the normal courseup to March 31, 2007 as per applicable RBI guidelineson account of natural calamities.



The following loans shall not be included in theeligible amount:

(a) Advances against pledge or hypothecation of agricultural produce other than standing crop.

(b) Agricultural finance to corporates, partnershipfirms, societies other than cooperative credit

institutions and any similar institution.



Debt Waiver:

In the case of a small or marginal farmer, the entire

‘eligible amount’ shall be waived. Debt Relief:

In the case of ‘other farmers’ there will be a one timesettlement (OTS) Scheme under which the farmer will

be given a rebate of 25 per cent of the ‘eligible amount’subject to the condition that the farmer pays thebalance of 75 per cent of the ‘eligible amount’.



BENEFICIARY’S AND COST OF

SCHEME Initial estimates of beneficiary's is 30 million small

and marginal farmers and 10 million other farmers.

This scheme was implemented by June 30 2008. The cost of scheme is likely to be in the order of about

Rs 71,680 cr (estimated), but real cost of the scheme was 60,000 cr.



Cont… AP is the biggest beneficiary in the amount waived

with Rs 11,353cr followed by Uttar Pradesh Rs 9,095cr,Maharashtra Rs 8,951cr.

These 3 states account for 45% of loan waived.



IMPLEMENTATION Each bank has to prepare the list of the borrowers in

that bank who are entitled to get either debt waiver ordebt relief.

The bank manager has to prepare two lists for eachsmall and marginal farmers who will get full debt waiver.

The name of the farmer, the amount of loan that isoutstanding against him and the full debt waiver willbe put in that list.



Cont… The second list consist of other farmers, OTS relief

25% and in some distristics 25% or Rs 20,000 whichever is higher.

These lists will be announced in the notice board of the bank branches so one can check their names andclaim for debt waiver or debt relief so that bank willissue certificate of debt waiver mentioning the amountof debt that has been waived and take anacknowledgement from him.



CERTIFICATE OF LOAN WAIVER In the case of small and marginal farmers, upon

waiver of the eligible amount, the lendinginstitution shall issue a certificate to the effect that

the loan has been waived and specifically mentionthe eligible amount that has been waived. In the case of ‘other farmers’, upon granting OTS

relief, the lending institution shall issue a certificateto the effect that the loan account has been settled to

the satisfaction of the lending institution andspecially mention the eligible amount.



OBLIGATIONS OF THE LENDING

INSTITIUTIONS Every lending institution shall be responsible for the

correctness and integrity of the lists of farmers eligibleunder this Scheme and the particulars the debt waiveror debt relief in respect of each farmer.

Every lending institution shall appoint one or moreGrievance Redressal Officers for each State . The nameand address of the Grievance Redressal officerconcerned shall be displayed in each branch of thelending institution.



MONITORING There shall be constituted a National Level Monitoring

Committee consisting of:

(i) Secretary, Department of Financial Services,Ministry of Finance – Chairperson(ii) Secretary, Department of Agriculture andCooperation, Ministry of Agriculture.

(iii) Deputy Governor, Reserve Bank of India;(iv) Chairman, NABARD.



Cont…. (v) Chairman and Managing Director of two publicsector banks.

(vi) Chairman of two Regional Rural Banks. (vii)Managing Director of two State Level CooperativeBanks.



Impact on farmers:

The scheme has created a positive impact on

the farmers and decreased the farmers suicide cases.Only 199 farmers committed suicide in 2009,8 farmers up to march 2010, as against 411 farmersuicides in 2008.



Impact on Banking Sector:

The loan waiver scheme has certainly created

a moral hazard situation in the banking sector, withincreasing rate of non repayment.



PROBLEMS WITH A LOAN WAIVER

SCHEME Identifying a target group:

Identifying a target group by measuring thesize of land holding having is having very littleeconomic significance because in rain fed, arid, andsemi arid areas, income from agril is very uncertainand they depend upon monsoon.



Cont… Disappointing for the farmers:

It is discouraging for honest famers who havetaken desperate measures to pay back theirinstallments.

It disappointed the farmers who had no money to repay the bank loans due to monsoon failure, but

rather then default, they borrowed from local money lenders at very high cost.



Cont… Politically unsound:

This scheme has created a discontent amongthe non-beneficiary group of farmers and amongstmost of the urban people, even if they are not awareabout the details of this scheme. Only a part of the27% of the farmers indebted to formal sources willbenefit, and around 80% of the farmers will not behappy with the government’s effort for the agriculturesector.

F B k f I di



Don’t be hasty;You can take aLoan; it is just

like loot. NoNeed to repay;We’ll waive it ands

up

Free Bank of India…..Branch



REFERANCES Loan waiver scheme and Indian agril

Ujjawal Gaur BA(Economics)

CCS Working paper no 195Submitted to center for civil society on 14th July 2008.

Farm loan waivers – are they effective instrument

seminar at IMFR, chenni on 6 may 2008by N. Shrinivasan.



Documents

Loan Waiver Manjunath