The farm loan waiver scheme may not trigger a tendency among farmers to default intentionally, Amarendra Sahoo, chief general manager, rural planning and credit department, Reserve Bank of India , said on Thursday. “The farm loan waiver may not impact. Some farmers may wilfully default. But genuine people will repay loans,” Sahoo said. Many bankers have been expressing concern that the farm loan waiver scheme announced in Union Budget for 2008-09 would have an impact on farmers’ credit discipline.

The government announced an ambitious Rs 71,000-crore (Rs 710 billion) loan waiver package for farmers. The entire sum will be reimbursed to banks over a period of four years. The first tranche comprising Rs 25,000 crore (Rs 250 billion) has already been reimbursed in the current financial year. About 36 million farmers have benefited from the loan waiver scheme. Sahoo said the loans to SME sector grew 45 per cent in 2007-08, and banks are expected to double their exposure to SME and rural sectors by 2009-10. Banks were extending loans at a growth rate of 20 per cent since 2005-06 to these sectors. Following the farm loan waiver, many banks have decided to go slow and co-operatives have even approached the Reserve Bank seeking changes to the non-performing asset (NPA) classification norms. At present, banks have to treat any loan overdue for 90 days as an NPA. State co-operative banks want RBI to change the specification to 180 days. RBI is, however, yet to take a call on the demand. They said that the default rates in recent months had gone up to 25 per cent, from around 10 per cent earlier as many farmers were expecting another package.

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