The Hindu Business Line : Banks to get interest for delayed return of farm debt waiver sums

New Delhi, Oct. 3 The Centre has decided to pay interest of Rs 3,872 crore to banks and other lending institutions for staggered settlement of their reimbursement claims under the farm debt waiver and debt relief scheme. This was stated by the Information & Broadcasting Minister, Mr Priyaranjan Dasmunshi, after a meeting of the Union Cabinet here on Friday.

Banking industry sources, however, pointed out this amount covers only a little over 50 per cent of the total interest payment of Rs 7,377 crore, which lending institutions would have otherwise been entitled to if the interest period had been from February 29, 2008.

It is estimated that lending institutions would now have to forego interest income of Rs 3,505 crore, at interest rate of 9.56 per cent, as the Government has decided not to pay interest for the period February 29, 2008 to November 1, 2008. Under the reimbursement roadmap, the Centre plans to release the first instalment amounting to Rs 25,000 crore on November 1.

The interest on the reimbursement claims of the lending institutions has been calculated at the rate of 9.56 per cent, which is the rate of prudential provisioning required by the Reserve Bank of India.

“The total amount of interest on the reimbursement claims from February 29, 2008 to the dates of reimbursement works out to Rs 7,377 crore. Since an amount of Rs 25,000 crore is being reimbursed this financial year itself and the RBI has also not indicated any provisioning requirements on the amount, no interest would be paid on the claims for the period from February 29, 2008 to the date of release of the first instalment. This works out to Rs 3,505 crore on estimated eligible reimbursement amount of Rs 55,000 crore,” official sources said.

Payment of interest on the balance amount – the 2nd, 3rd and 4th instalments in July 2009, July 2010 and July 2011 respectively – will be sufficient to enable the banks to avoid the provisioning requirement prescribed by RBI, sources added.

The RBI had on July 30 issued a circular asking the scheduled commercial banks to make adequate provision for loss in present value terms on the amount receivable from the Government under the scheme.