Clarifications on queries raised by Lending Institutions on Agricultural Debt Waiver and Debt Relief Scheme, 2008

 Sr.No.

Queries

Clarifications

1.

Interest on NPA

(i) In case of NPA accounts, where the interest has not been applied since the date of NPA/or otherwise,  whether interest upto 29th February 2008 can be included  for determining the eligible amount for Debt Relief/Debt Waiver (DWDR).

(ii) The eligible amount as stated in the guideline dated 23.05.08 is inclusive of applicable interest.  However, subsequently the supplemental instructions dated 28.05.08 mentioned about exclusion of unapplied interest, which may kindly be clarified.

(iii) Once an account is classified as NPA, the interest is not being applied.  However, the unapplied interest upto the cut of date is recoverable as long as it does not exceed the principal amount. The clarification is required whether to include unapplied portion of interest in eligible amount, if it satisfies the condition of fallen due (overdue as on the cut of date) and not exceeding the principal amount.

In the case of NPA loans, no interest will be applied from the date when the loan account was classified as NPA. Hence, interest on loans classified as NPA for any period after it is so classified can neither be claimed from the Government nor from the farmer. Unapplied interest on NPA loans are neither to be claimed from the Government nor from the farmer

2.

(i) It is stated in the Scheme that in the case of an investment loan, the installments of such loan that are overdue (together with applicable interest on such installments) will be the eligible amount for debt relief.  Please clarify  in case of accounts which are not NPA but irregular,  whether for determining the eligible amount,  the interest on overdue installments  which included principal as well as interest  as on 31.12.07  may be included till 29th February 08.

(ii)  In case of term loans, as interest is charged on entire outstandings, the claim amount should cover entire interest overdue (not interest on overdue installments only) plus overdue installments (principal).

The entire applicable interest on the investment loan that is overdue as on December 31, 2007 and remains unpaid as on February 29, 2008 in the account of the farmer shall be included in the calculation of "eligible amount". However, paragraph 8.3 of the Scheme will apply and the amount of interest that may be claimed shall not, in any case, exceed the principal amount of the loan.

3.

Whether Lift Irrigation Societies financing to farmers, financed directly by branches are eligible under the Scheme. Whether functional societies such as dairy, Fishermen's cooperative, lift irrigation society, etc. can be treated as CCI.

Lift Irrigation Societies and Functional Societies are not Cooperative Credit Institutions as defined under the Scheme. Loans given to and by these   Societies are not covered under the Scheme.

4.

Whether Harvesting and Transport advances granted to Individuals SF/MF/AI for Sugarcane crop given in the State of Maharashtra, where individual records are available with the branches are eligible under the Scheme.

Not covered, since these loans are not short term production loans.

5.

Whether Backend Subsidy is to be adjusted from the principal loan amount to reckon the loan quantum (upto Rs. 50,000/- and above Rs. 50,000/-)?

The original loan amount, without adjusting the back- ended subsidy, will be the amount for reckoning the loan quantum for the purpose of calculating the 'eligible amount'. 

6.

Whether Backend Subsidy is to be notionally adjusted for calculating the overdue amount in case of Govt. Sponsored Schemes?

The overdue amount in case of Government sponsored schemes,   eligible under the Scheme, will be calculated after adjusting the back- ended subsidy.

7.

Whether proprietors are covered i.e. Dairy Units in the name of a proprietorship firm.

As per item no. (xiii) of the Implementation Circular 1 / 2008 dated May 28, 2008, loans to farmers for purposes other than agriculture and loans for agricultural purposes to companies or other legal persons like registered societies, trusts, partnerships etc. are not covered under the Scheme. What would be the status of sole proprietary firms and Hindu Undivided Families (HUFs)? 

Proprietary firms are not covered under the Scheme. HUFs are included in the Scheme. 

8.

(i) Whether Motorcycle/Jeep/Truck/ Harvester/JCB financed under Agriculture Finance schemes are covered under the Scheme.

(ii)  Finance to transport vehicles for transportation of agri produce to a farmer- Corporate Centre has made a reference to RBI as to whether such advances are covered not, under the Scheme.

Harvesters and Combines, if financed as a Direct Agricultural Investment Loan will be included.  Motor Cycles, Jeeps, Trucks are not included.

9.

"Our bank has financed to farmers service societies in Rajasthan. These Societies provide finance to member farmers for short term production credit and investment credit and are eligible for 2% interest subvention".

The Agriculture Debt Waiver & Debt Relief Scheme 2008 clause 3.4 covers the cooperative societies which provide short term credit to farmers and are eligible for interest subvention.  

We request you to clarify whether such farmer service society will lodge the claim through our bank or directly to NABARD.

Since the interest subvention has been provided through the Bank, the claim should also be lodged through the Bank.

10.

Whether the short term finance for cultivation of Banana and Sugarcane crops will be considered under plantation crops or other short term crops.

Loans to sugarcane and banana crops are covered under Short Term Production Credit with the repayment schedule varying from 12 to 18 months.  

11.

(i) Whether the amount debited as crop insurance premium paid to AICL is to be considered for debt relief while arriving at eligible amount.

(ii) Whether insurance premium debited in the loan accounts are eligible for coverage.

(iii) Whether Crop Insurance premium amount and premium under PAIS debited to the eligible loan accounts are to be treated as Misc. charges and excluded from the claims?

(iv) Whether Crop Insurance claims received after 29.02.2008 are to be adjusted to eligible claims and only the net amount submitted to RBI for reimbursement?

Insurance premium debited in the loan accounts can be included in the 'eligible amount'. Yes, the amount of crop insurance claims received  are to be adjusted before claiming reimbursement from the Central Govt.

12.

Loans provided directly to the groups of individual farmers (for example SHGs) provided banks maintain disaggregated data of the loan extended to each farmer belonging to that group.  Whether the debt waiver and debt relief scheme is applicable, in such cases if the banks have not maintained disaggregated data but built up the same subsequently by obtaining required documents from the SHGs.

Disaggregated data of the agri loan extended to each farmer in respect of SHGs may not be available with branches since loans are given to SHGs as Group loan. Therefore, disaggregated data (borrower-wise) may not be available at the branch. But such data may be available with the SHGs. Will such loans qualify for benefits?

Disaggregated data of the agri loan extended to each farmer in respect of SHGs may not be available with branches since loans are given to SHGs as Group loan. Therefore, disaggregated data (borrower-wise) may not be insisted upon.  All overdues in SHGs should qualify under 'loans to SF/MF' and Scheme benefits made available.  Overdue percentage is also very low in case of SHGs.

Direct Agricultural Loan as defined in paragraph 3.1 of the Scheme would also include loans extended to SHGs of individual farmers even if the disaggregated data is maintained at the level of the SHG and reflected on the books of accounts of the SHG. However, it must be ensured that the disaggregated data is maintained to the satisfaction of the lending institution concerned.

13.

(i) Whether the scheme is applicable for short term credit extended to agriculture and allied activities for dairy, poultry, fishery etc. Or is it restricted to only investment credit for allied activities.

(ii) Whether term loan for purchase of fodder for dairy units during the period of drought to be classified as investment loan/allied activities?

(iii) Whether working capital loan given for allied activities like poultry, dairy etc. are eligible.

(iv) Whether the Scheme is applicable for short-term credit extended to allied activities for dairy, poultry, fishery etc. or is it restricted to only investment credit for allied activities.

Dairy, poultry, fisheries etc are treated as allied activities. Investment credit for allied activities is governed by paragraph 3.3 of the Guidelines. Paragraph 3.3(b) makes it clear that the loan must be extended for "acquiring assets". Hence, only investment credit for allied activities intended for acquiring assets in respect of such allied activities will be covered.

14.

There are 12 societies which are under various stages of liquidation.  Whether claims of these societies would be eligible for reimbursement from GoI.

If these societies are lending institutions as defined under the Scheme, they would be eligible for reimbursement irrespective of the stage of liquidation.  

15.

Small farmers having meager land holding of less than 2.5 acres form Samithis of 100 to 150 farmers for taking cultivation of paddy of large scale.  However, of the total number of famers, a few farmers may be having land holding of more than 5 acres.  In such case, as per the scheme, the size of the largest land holding in the pool will be the basis for the classification of all farmers.  As such, these accounts will be treated as "Other Farmers", consequently a large number of small farmers would be denied benefit of waiver of agricultural loan.

Only direct agricultural loans given to farmers by lending institutions as defined in the Scheme are covered.  If   'Samithis' is not a lending institution as defined in the Scheme and the loans are not direct agricultural loans to each farmer, this does not fall within the scope of the Scheme.

16.

The adoption of EMI system of repayment by LT Cooperative Structure results in higher quantum of interest in the EMI during first two or three years of loan repayment.  Insistence of interest claim not exceeding principal amount claimed may result in many of the SCARDBS being affected adversely. Reimbursement of claim of interest shall not exceed the principal amount of loan (item No.8-3).

This clause may prove disastrous for Co-op. Banks and PACS, because the loans which are overdue are of earlier years when the normal lending rates were high.   Now, restricting its re-imbursement of interest upto principal amount of loan will give rise to the following situations:

(i) PACS/Banks have to recover from the borrowers otherwise they cannot be certified as debt-free.  Hence remains ineligible for fresh finance.

(ii) PACS/Banks have to write off which is normally not allowed under the Co-op. Societies Act.

Interest claims should not be excess of   the original amount of principal disbursed. The amount of interest in excess of the principal disbursed will be borne by the lending institutions.

17.

(i) A farmer who has availed OTS benefit and fails to honour the commitment of paying in 3 installments whether banks can charge interest at contracted rate on loan account with effect from 1st March, 2007?

(ii) The lending institutions have been asked not to charge any interest on 'other farmers' from 29.02.2008 to 30.06.2009. Whether the interest for this period would be reimbursed to the banks in case of default by such farmers?

Paragraph 8.1 of the Guidelines is clear. No interest shall be charged on the eligible amount for any period between February 29, 2008 and June 30, 2009.  In the case of a farmer who defaults on the OTS commitment, he will not be entitled to debt relief and, in the case of that farmer, the lending institution may charge interest for the period after June 30, 2009.

18.

(i) Working capital loan not exceeding Rs.1 lakh, for traditional plantations and horticulture is eligible.  If the limit exceeds one lakh, whether the amount in excess of one lakh may be considered as investment loan as discussed in the SLBC conveners meeting held on 27.05.2008

(ii) We are of the view that short-term credits provided to farmers for traditional and non-traditional horticulture field crops (not orchard crops) like vegetables, potato, jasmine and other annual crops (up to 18 months) will have the upper ceiling of Rs. 1 lac prescribed under clause no. (xiv) of circular no RPCD. NO. PLFS. BC. 73 / 05.04.02/ 2007-08 dated 30th May 2008. Beyond Rs 1 lac for such horticulture (vegetable crops) is a kind of commercial activity.

(iii) Please clarify, whether Rs. 1 lac is the Limit sanctioned or loan amount outstanding. Most farmers availing short-term production credit have limits above Rs. 1 lac. Whether such farmers are eligible for relief.

Short-term production loans are dealt with in paragraph 3.2 of the Scheme and the investment loans are dealt with in paragraph 3.3 of the Scheme. There is another kind of loan, namely, working capital loan. Paragraph 3.2 deals with working capital loan for traditional and non-traditional plantations and horticulture. In such cases, the working capital loan account could become an irregular account and some amount may have become overdue as on December 31, 2007. That overdue amount of working capital loan qualifies for debt waiver or debt relief, subject to the condition that the amount is limited to Rs.100,000. If the working capital loan is in excess of Rs.100,000, debt waiver or debt relief will not apply to any amount in excess of Rs.100,000.

19

(i) Whether loans eligible under the scheme but repaid partly or closed after 29.02.2008 are eligible.

(ii) What treatment is to be given to those accounts (where disbursements took place prior to March 31, 2007, which were overdue as on Dec 31, 2007 and remained unpaid as on Feb 29, 2008), but were paid in full or in part after Feb 29, 2008? Whether, they are to be made eligible for the benefits of the Scheme.

(iii) What treatment is to be given to those accounts (where disbursements took place prior to March 31, 2007, which were overdue as on Dec 31, 2007 and remained unpaid as on Feb 29, 2008), but were written - off after Feb 29, 2008? Whether, they are to be made eligible for the benefits of the Scheme.

The debt waiver/debt relief admissible on the eligible amount paid after 29.02.2008 should be credited to the account of the borrower by September 30, 2008.

The eligible amount outstanding as on 29.02.2008 qualifies for debt waiver/debt relief.  Hence, any amount written off after 29.2.2008 which would, otherwise, have been eligible for reimbursement     under the Scheme, will qualify for reimbursement.

20.

Whether loans disbursed on 31.03.1997 are eligible as the scheme says prior to 31.03.1997.

While declaring the guidelines for implementation of the scheme, it is incorporated as item 4.3 as under :
"Nothing contained in this scheme shall apply to any loan disbursed by a lending institution prior to March 31,
1997".

GSCB Ltd. has further viewed that most of the PACS under liquidation are having overdues on the period before 31st March, 1997.  Problem is further aggravated by no further finance by such PACS.  These has put the borrowers of such PACS in a critical situation that -

(i) They are not able to repay the loan

(ii) They are not able to renew it as PACS has stopped financing because of liquidation proceedings

(iii) They are not able to get other loan from other banking institution as they considered as defaulters.

As such it has been requested for removal of item No.4.3 of the ADWDR Scheme 2008, restricting the loans disbursed before March 1997 and give the unqualified effect to the budget speech.

The Scheme does not apply to any loan disbursed by lending institutions prior to close of business on 31.03.1997.

21.

Para 4.1.(ii) of the Scheme says that loans restructured and rescheduled by banks in 2004 and 2006 through special packages by Central Government, whether overdue or not, are eligible for the benefits under the present Scheme. Para 4.3 of the Scheme also says that nothing contained in the Scheme shall apply to any loan disbursed prior to 31.03.1997.  Since, under the PM's package in 2006, loans were rescheduled irrespective of age, what treatment is to be given to loans which were originally disbursed prior to 31.03.1997?

The cut-off date of 31.03.1997 will not apply to loans restructured and rescheduled by lending institutions in 2004 and 2006 through special packages and in the normal course as per RBI guidelines.

22.

Gold (Jewel) Loans for Investment Credit under agriculture should also qualify under the Scheme.

Yes, short-term loans for investment credit for agricultural purposes sanctioned against pledge of gold jewels are covered under the Scheme. However, the applicable interest will not be in excess of what is normally charged for agricultural loans by the lending institution in the corresponding year. 

23.

In case of NPA accounts (other farmers), where suit has been filed, whether suit has to be withdrawn without payment of their entire 75% share.

No.  An adjournment of the case beyond 30.06.2009 may be taken in view of the farmers undertaking.  However, the 'other farmer' will be eligible for fresh crop loan on payment of his first installment.

24.

In case of 'other farmers', they are eligible for fresh production credit once they pay 1/3rd share of eligible amount of overdue production credit and fresh investment credit once they pay the full share of the eligible amount of overdue investment credit. However, in case the other farmer pays only his 1/3rd share of production credit but does not pay his share in investment loan, whether he would be eligible for fresh production credit.

A short-term production loan and an investment loan taken by a farmer shall be counted as two distinct loans and the Scheme will apply to the two loans separately as such the farmers will be eligible for fresh production loan.

25.

Item 4.1 (a) and (b) of the Scheme, indicate that the benefit would include applicable interest. As per item 8 of the Scheme, lending institutions were asked not to charge interest on the eligible amounts beyond 29.02.2008.  Item no.(ix) of the Implementation Circular 1 / 2008 dated May 28, 2008 prohibits the lending institutions from claiming unapplied interest. Now banks mostly charge interest on a half yearly basis in September and March. Therefore, are the banks eligible to charge and claim interest on the eligible amounts in the standard accounts from October 2007 to 29.02.2008, which has not been applied so far.

In the standard accounts, lending institutions are eligible to charge and claim interest on the eligible amount from Oct. 2007 to February 29, 2008. However, no interest shall be applied in NPA accounts from the date of classification of these accounts as NPA.

26.

(i) It has been stated  in Para 6 of the Scheme that in the case of 237 revenue districts listed in Annex-I, 'other farmers' will be given OTS rebate of 25 per cent of the 'eligible amount' or Rs.20,000, whichever is higher, subject to the condition that the farmer pays the balance of the 'eligible amount'.

(ii) What happens when the outstanding in such cases is less than Rs. 20, 000/-

(iii) In case 25% of the eligible amount for 'other farmers' is less than Rs.20,000 per account/facility, exact amount for each of the accounts/facility will be reckoned so that there is no profit made on account of the Scheme.  Each account of 'other farmer' will be treated separate for the claim.

The proviso to paragraph 6.1 of the Scheme applies in the Annexure-I districts. The debt relief will be 25 per cent of the 'eligible amount' or Rs.20,000, whichever is higher. However, if the 'eligible amount' is, say, Rs.12,000, while 25 per cent of the 'eligible amount' will result in Rs.3,000, the debt relief will be Rs.12,000. It is obvious that the amount of debt relief cannot be more than the 'eligible amount' itself.

27.

(i) As per item (ix) (b) of the Implementation Circular 1 / 2008 dated May 28, 2008, interest on crop loans disbursed after April 1, 2006 will be calculated at a rate not exceeding 7% per annum.   The amount of interest in excess of 7% per annum on crop loans will be borne by the lending institutions. However, in order to make credit available at a reasonable cost to the farmers, the Union Finance Minister, in his budget speech for 2006-07 announced the Government's decision to ensure that the farmer receives short term credit at an interest rate of 7 per cent per annum, with an upper limit of Rs.3,00,000 on the principal amount. Accordingly, only Public Sector Banks, RRBs and co-operatives have been implementing this ever since.  The above Scheme was not applicable to Private Sector Banks. Therefore, in the present Scheme, is it that the Public Sector Banks, RRBs and co-operatives would be required to bear the interest burden in respect of the amount beyond Rs. 3 lakh and private sector banks would be required to bear the entire interest burden in excess of 7%. 

(ii) Clarification is required whether the Scheme instructions to claim interest upto 7% on crop loans disbursed after April 1, 2006 will be applicable to all the crop loans, irrespective of the limit.  As the interest at applicable rates have already been applied and booked by the Banks.  Any changes in these instructions will lead to reversal of interest booked/applied and involves accounting issues.  We suggest that charging of interest up to 7% may be applicable to the crop loans upto Rs. 3 lakh limit as per the extent instructions.

The cap on the rate of interest @ 7% per annum is applicable only on Crop Loans up to Rs.3 lakhs for all lending institutions.   For other loans, the rate of interest charged by the banking institutions would be applicable.

28.

If a farmer owns less than 2.5 acres and has taken 10 acres on lease, whether he should be treated as a small farmer or 'other' farmer. In other words, is it the land ownership or the area of cultivation that need to be reckoned?

Paragraphs 3.5, 3.6 and 3.7 describe the status of the farmer, namely, marginal or small or other farmer. That status is determined on the basis of the agricultural land that is in the possession of the farmer as owner or tenant or sharecropper. Hence, all land in the possession of the farmer as owner or tenant or sharecropper should be taken into account for determining whether he is a marginal or small or other farmer.

29.

Whether Crop Insurance claims received after 29.02.2008 are to be adjusted to eligible claims and only the net amount submitted to RBI for reimbursement?

Yes, the amount of crop insurance claims received  are to be adjusted before claiming reimbursement from the Central Govt.

30.

As fresh crop loans are to be given to 'other farmers' on payment of first installment under OTS by September, 2008, the RBI may allow banks to classify such accounts as Standard Assets (even though the account remains overdue as on September, 2008)  Otherwise, it will tantamount to financing to overdue borrowers. Further, in the event of such farmers given fresh loans, however, fail to honour their commitment under OTS to pay the balance amount by June 2009 - the asset classification issue may be further clarified.

It is the intention of the Government that once the debt waiver or debt relief has been granted, the account should be treated as a standard account with effect from June 30, 2008. Government has promised to reimburse the banks the loan amount that has been waived or accorded relief in accordance with the Scheme. Hence, the issue of classification will be suitably addressed by the RBI.

31.

Corporate Centre has also referred to RBI that Agri Clinics and Agri Business Centres, which are treated as Direct Agri Advances as per RBI guidelines under Agri Priority Sector, should also be brought under the ambit of the Scheme.  RBI is yet to clarify on the issue.

Since, these loans are not provided directly to farmers for agricultural purposes, these are not included under the Scheme.

32.

(i) Whether in case of written off accounts, the suit / RCs filed are to be withdrawn. If so, who will pay the recovery charges be payable to revenue authorities?

(ii) Revenue authorities may demand recovery charges hence we feel necessary instructions for waiver of such charges should be issued to Govt. Authorities in case of written off cases and banks may be permitted to include such charges in the eligible amount claimed in cases other than written off cases.

No charges of any kind may be included in the computation of 'eligible amount'. Paragraph 8 of the Scheme is clear. Supplemental instructions in this behalf have also clarified the position. Lending institutions may apply to the revenue authorities for refund of charges if there is a provision for such refund.

33.

In horticulture, poultry and dairy advances, construction of shed financing are included in the composite scheme. There is no separate repayment for these items and hence cannot be bifurcated / separated while eligible amount is calculated.  Please clarify whether above loans can be exempt from the clause (xii) of is RPCD. NO. PLFS. BC. 73 / 05.04.02/ 2007-08 dated 30th May 2008.

The 'eligible amount' will be calculated after excluding the amounts of loan advanced for construction of shed, farm house, fencing etc. which are not included under the Scheme.

34.

(i)  whether all the items mentioned in para 2(ix)(a) of Implementation Circular 1/2008 put together should not exceed the principal amount or the only interest-applied portion. Alternatively, interest applied & accrued / unapplied interest (which has fallen due) should not exceed the principal amount (excluding other charges).

(ii) Whether to include unapplied portion of interest in 'eligible amount', if it satisfies the condition of fallen due (overdue as on the cutoff date) and not exceeding principal amount.

Paragraph 4 of the Scheme defines what would be the 'eligible amount'. A difficulty arising in respect of paragraph 4.1(b) has been removed by an order issued today. Hence, the principal and the applicable interest alone would qualify for inclusion in the calculation of 'eligible amount'. The 'eligible amount' will be the basis for determining the amount of debt waiver or debt relief. The amount so waived or accorded relief may be claimed as reimbursement from the Central Government, subject to the stipulation (paragraph 8.3) that in no case shall the interest claimed exceed the principal amount of the loan.

Para 2(ix)(a) of the Implementation Circular 1/2008 clearly states that lending institutions shall neither claim from the Central Government, nor recover from the farmer,

(i) interest in excess of the principal amount,

(ii) unapplied interest,

(iii) penal interest,

(iv) legal charges,

(v) inspection charges and

(vi) miscellaneous charges, etc. All such interest/charges will be borne by the lending institutions.