FinMin writes to RBI to ease NPA farm loan norms

Mentions stress in the agricultural sector; Relaxation is a prerequisite for the interest rate subsidy

Mentions stress in the agricultural sector; Relaxation is a prerequisite for the interest rate subsidy

The Ministry of Finance has asked the Reserve Bank of India (RBI) to relax asset classification norms for bank-issued agricultural loans according to the burden on the agricultural sector.

In a letter to RBI Governor Shaktikanta Das, the ministry said: “It is requested to consider an appropriate relaxation of asset classification norms in relation to short-term loans for agricultural crops for a period up to June 30, 2020.”

The letter reviewed by
The Hindu , quoted a statement from the Department of Agriculture, which is considering expanding the interest subsidy scheme for the farm sector, which in turn would require a relaxation of NPA norms. According to RBI’s asset classification standards, banks classify a loan as non-performing if the loan is more than 90 days due.

“The Government of India’s Department of Agriculture, Cooperation and Farmer Welfare has [said that] Given the unprecedented situation prevailing in the country due to the rising incidence of COVID-19 infection and the consequent lockdown across the country, they are actively considering the possibility of extending the benefit of the interest subsidy and prompt repayment incentive to short-term arable farming Loans maturing between March 29, 2020 and June 30, 2020 if the loans are repaid by June 30, 2020,” the letter reads.

“They further stated that extending the repayment date would require relaxation of asset qualification by RBI,” she added.

The spread of COVID-19 has led to a lockdown across the country, with economic and other activities coming to a halt. As a result, industry and bankers have called for a relaxation of bad loan norms alongside economic stimulus from the government. A task force led by Finance Minister Nirmala Sithararam was formed to finalize an economic package.

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