CIRCULAR No.: HO/27/2008-09/Recovery/

Date : 04.06.2008

CIRCULAR FOR ALL BRANCH MANAGER, OFFICERS AND ALL STAFF MEMBERS OF BRANCHES/OFFICES

Dear Sir,

Re: Union Budget 2008-09-Agriculture Debt Waiver and Debt Relief Scheme-2008

Detailed guidelines of scheme for implementation by the branches

The Finance Minister in his Budget speech for 2008-09 had announced a Debt Waiver & Debt Relief Scheme for farmers.

Now we have received the detailed scheme notified by Govt. of India alongwith necessary explanations, from NABARD vide their Circular No.NB RRO/Debt Waiver/2008-09 dated 23.05.2008 for implementation by the branches. We have also received certain clarifications from Govt. of India vide their Circular dated 28.05.2008.

In view of the above, we are enclosing a copy of the scheme both in English & Hindi, as notified by Govt. of India for implementation by the branches marked as Annexure-A. The implementation of the scheme has to be completed in a time bound manner before 30.06.2008. The salient features of the scheme are given below:

Ø The scheme covers Direct Agriculture Loans [Short Term Production Loans including MT(C)/MT(CR) Loans, Investment Credit for Direct Agriculture activities including Loans to activities Allied to Agriculture] provided to farmers for Agriculture purposes.

Illustrations:,

(i) An instalment of investment credit for allied activity overdue on December 31, 2007 will not be eligible if it has been disbursed after March 31, 2007.

(ii) A short-term production loan disbursed up to March 31, 2007 for raising crops with repayment period of 18 months will not be eligible for debt waiver/debt relief if it has not become overdue on December 31, 2007.

Ø Classification of eligible farmers would be based on the total extent of land owned by the farmers either singly or as joint holder (in case of an Owner Farmer) or the total extent of land cultivated by the farmer (as Tenant or Share Cropper) at the time of sanction of the loan.

1. For the purpose of the Scheme

1.1 Marginal Farmer means a Farmer cultivating (as owner or Tenant or Share Cropper) agricultural land upto 1 hectare (2.5 acres).

1.2 Small Farmer means a Farmer cultivating (as Owner or Tenant or Share Cropper) agricultural land of more than 1 hectare and upto 2 hectares (5 acres).

1.3 Other Farmer means a Farmer cultivating (as Owner or Tenant or Share Cropper) agricultural land of more than 2 hectares (more than 5 acres).

1.4 In case of borrowing by more than one Farmer by pooling their land holdings, the size of the largest land holding in the pool shall be the basis of classification.

1.5 In case of investment credit for Allied Activities where the principal amount does not exceed Rs.50000/- the Farmer would be classified as Small and Marginal Farmer and where the principal amount exceeds Rs.50000/-, he would be classified as Other Farmer irrespective of the size of the land holding.

Contd..... 2

(2)

1.6 Short-term production credit will include working capital loan up to Rs.1 lakh for traditional and non-traditional plantations and horticulture. This means that working capital loans for these categories will be reckoned only up to Rs. 1 lakh and of this reckoned sum, only the irregular amounts (overdues) as on December 31, 2007 will be eligible for waiver or OTS relief (and not the entire sum of Rs.1 lakh).

2. Eligible Accounts

2.1 Only loans disbursed upto March 31, 2007 and overdue as on December 31, 2007 and remaining unpaid until February 29, 2008.

2.2 The scheme shall not apply to any loan disbursed prior to 31.03.1997 i.e., loan disbursed prior to 31st March, 1997 are not eligible under the Scheme.

2.3 In partially disbursed loan accounts, the ‘eligible amount’ shall be restricted to the overdues in respect of the portion/instalments of the loan actually disbursed up to March 31, 2007 and overdue on December 31, 2007 and unpaid until February 29, 2008.

2.4 Advance against pledge or hypothecation of agriculture produce other than standing crop are not covered under the scheme.

2.5 Loans for construction of storage facilities are not covered under the Scheme. Loans for purchase of land, construction of farmhouses, sheds, fencing, etc. are also not covered under the Scheme.

2.6 Only direct agricultural loans to farmers are covered under the Scheme. Loans to farmers for purposes other than agriculture and loans for agricultural purposes to companies or other legal persons like registered societies, trusts, partnership etc. are not covered under the Scheme.

3. Eligible Amount

3.1 In case of short term loans, amount of such loan (together with applicable interest).

3.2 In case of short term restructured/rescheduled accounts (together with applicable interest) on account of natural calamities/special packages upto 31.03.2007 whether overdue or not, amount of such loan.

3.3 In case of investment loans, instalment of such loan that are overdue (together with applicable interest on such instalment).

3.4 Loans granted by banks to such agricultural credit co-operative societies which are lending institutions (as defined in the Scheme) for advancing direct agricultural loans to farmers are covered under the Scheme.

3.5 The accounting norms provide that in case of NPA accounts, ‘suit-filed’ accounts and ‘recalled’ loans, the whole loan will be classified as such. However, for the purposes of the Scheme, only instalments of such loans that were disbursed up to March 31, 2007 and overdue on December 31, 2007 and remain unpaid until February 29, 2008 will be eligible for debt waiver/debt relief.

4. Debt Waiver

Small and Marginal farmers are eligible for full waiver of eligible amount.

5. Debt Relief

5.1 Other farmers are eligible for OTS (One Time Settlement) and will be given rebate of 25% of eligible amount subject to the condition that farmer pays the remaining 75% balance. Further the Other Farmer eligible for OTS shall give an undertaking (in the prescribed format) agreeing to pay his share (i.e. eligible amount minus the OTS relief) in not more than 3 instalments and the first two instalments shall for an amount not less than one third of his share. The last date of payment in the case of 3 instalments will be 30.09.2008, 31.03.2009 and 30.06.2009. The Govt. share of OTS will be credited to the account of other farmers after the farmer paying his share in full.

Contd..... 3

(3)

5.2 In case of branches in revenue districts (DPAP, DDP, PMs Special Relief Packages) other farmers will be given OTS rebate of 25% of eligible amount or Rs.20000/- whichever is higher, subject to the condition that the farmer pays the balance of the eligible amount.

6. Eligibility for fresh Loans

6.1 Small & Marginal Farmers are eligible for fresh agriculture loan upon the eligible amount being waived.

6.2 In case of short-term production loan, the other farmers are eligible for fresh short-term production loan upon paying his one third share. Whereas in case of investment loan, the other farmer will be eligible for fresh investment credit upon paying his share in full.

We reiterate that other farmers will be eligible for Debt Relief after paying his share in full as explained above.

6.3 The amount of loans written off (prudentially or actually) by the Bank will not be covered under the Scheme. Such written-off loans shall neither be claimed from the Central Government nor will they be recovered from the farmer. However, the farmers whose loans have been written off (prudentially or actually) by the lending institutions will be eligible for fresh finance from the lending institutions.

7. Interest and other charges

7.1 The branch shall not charge any interest on eligible amount for any period after 29.02.2008. However, in the case of other farmer who defaults in paying his share of eligible amount on or before 30.06.2009 and becomes ineligible for OTS relief, the branch will charge interest for the period after 30.06.2009.

7.2 Instalments of investment credit which fall overdue after 31.12.2007 is to be recovered by the branch alongwith the applicable interest.

7.3 The Bank shall claim interest as reimbursement from Central Government under this scheme. The branch must ensure that the interest amount so claimed shall not, in any case exceeds the principal amount of the loan. While calculating the un-applied interest in NPA accounts, this aspect may be examined carefully as under:

(a) Bank shall neither claim from the Central Government, nor recover from the farmer, interest in excess of the principal amount, unapplied interest, penal interest, legal charges, inspection charges and miscellaneous charges, etc. All such interest/charges will be borne by the lending institutions.

(b) 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.

(c) Normal interest will continue to accrue on the amount of loan, not eligible for debt waiver/debt relief.

8. Action points for the Branches

8.1 The Branch should identify the eligible farmer borrowers strictly in accordance with the guidelines notified by Govt. of India as explained in the scheme.

Contd....... 4

(4)

8.2 The Branch shall prepare two lists, one consisting of Small and Marginal Farmers who are eligible for Debt Waiver and second consisting of other Farmers who are eligible for Debt Relief by way of OTS and submit the list alongwith consolidated figure to the Regional Office before 15.06.2008.

We are enclosing the operative instructions together with the Formats for preparation of the lists and claims as per Annexure - B. There are 14 formats indicated as Annexure-I {Form-IA, IB, IIA, IIB, IIIA, IIIB, IVA, IVB, VIA, VIB}, Annexure-II, Annexure-III, Annexure-IV & Annexure-V.

However the format of undertaking required in terms of para 7.3 of the scheme for other farmer is being finalized by NABARD and shall be sent to you shortly.

8.3 The list shall include particulars of borrower i.e., name, village, size of land holding, balance outstanding as on 29.02.2008 including unapplied interest upto 29.02.2008 if any, the eligible amount and amount of waiver/relief.

8.4 A short term production loan and an investment loan taken by the same farmer shall be counted as two distinct loans and the scheme will apply to the two loans separately. Likewise, in case of a farmer who has taken two investment loans for two separate purposes under agriculture, the two loans shall be counted as two distinct loans and the scheme will apply to the two loans separately. For example a farmer who has taken a crop loan and owns land less than 2 hectare will be classified as a small/marginal farmer. If the same farmer has also taken an investment loan for allied activity such as dairy where the loan amount is above Rs.50000/- will be classified as "other farmer". In other words each loan account will be treated separately and the farmer will be given the benefit of debt waiver or debt relief as applicable. In this case, in the crop loan he will be classified as small farmer and given debt waiver and in the investment loan, he will be treated as other farmer and given the benefit of debt relief.

8.5 It is clarified by the Govt. that a single eligible borrower may have more than one agricultural loan account. The overdue loans in all these accounts will be independently covered under the Scheme. The OTS Relief of 25% (relief upto Rs.20,000/- or 25%, whichever is higher, in distressed districts) is also to be separately applied in the case of crop loans and investment loans.

8.6 The Regional Offices are also being advised separately to introduce a mechanism to verify the claims prepared by the branches under the scheme.

9. Other important points

9.1 Please note that Branch Manager should verify the correctness and integrity of the list of farmers eligible under the scheme. Therefore, Branch Manager should take utmost care in identification of beneficiaries, the preparation of records, certificate of relief, etc. while implementing the scheme. The list should be signed after careful verification by the Branch Manager, which shall be supercheck by an Officer identified by the Regional Office. Every effort must be made to eliminate errors of inclusion as well as errors of exclusion. The two officers shall be responsible for the correctness and integrity of the lists of beneficiaries.

9.2. The list of eligible borrowers farmers must be displayed on the notice board of the branch, on or before 25.06.2008.

9.3 Branch Manager has been designated as Authorised Officer. Therefore, every document maintained, every list prepared, any certificate issued for the purpose of the scheme shall bear the signature and designation of the Authorised Officer i.e. the Branch Manager.

Contd...... 5

(5)

9.4 It has been decided to nominate a Nodal Officer in each District, who would be required to co-ordinate, guide and monitor the progress in the implementation of the scheme. The name of the Nodal Officer would be advised by the Regional Manager.

9.5 The scheme provides a Grievance Redressal Mechanism for redressal of grievances of farmers. All the Regional Heads have been appointed as "Grievance Redressal Officer" for their Region. All branches are advised to display the name of the Grievance Redressal Officer concerned, alongwith complete address and telephone no. on notice board. Branch Managers are advised to forward the representations made by grieved farmers under the scheme to their Grievance Redressal Officers within 24 hours of the receipt of representation from the grieved farmers.

9.6 A copy of the scheme in Hindi and English must be displayed, immediately in each branch without fail.

9.7 The RBI/NABARD have advised us to put in place a system for monitoring the progress in the implementation of the Debt Waiver and Debt Relief Scheme on a daily basis, upto July 31, 2008 and thereafter, on a weekly basis. Accordingly, Branch Managers are advised to work in a manner, so that the progress in the implementation of the Scheme may be made available accordingly.

9.8 Para 11 of the Scheme deals with Audit. Branches must note carefully that since the claims of the Bank upon the Central Government will be processed on the basis of the audited books of accounts, it is important that due care is taken while preparing the lists of beneficiaries.

9.9 RBI, in consultation with NABARD, may prescribe necessary formats including that of the OTS undertaking to be obtained from the ‘other farmer’ and the certificate of waiver or relief to be given to a farmer together with a provision for obtaining his/her acknowledgement of receipt of the certificate. As soon as we receive the formats we shall forward to you.

9.10 We have been advised by NABARD that separate circular on Income Recognition and Asset Classification (IRAC) norms from Reserve Bank of India will be issued shortly.

We reiterate that the Branch Managers should go through the Scheme, meticulously and initiate the necessary steps, so that the entire exercise is completed in a time bound manner, before 25th June, 2008.

This is an important exercise. Therefore, Branch Managers are advised to ensure that the classification of farmers "Small and Marginal" and "Other Farmer" is done diligently, keeping in view the size of the land holding or in case of allied activities keeping in view the quantum of loan. Branch Manager may also note that the debt waiver is applicable only to the small and marginal farmers, where the overdue amount in respect of short term loans and the instalments overdue in respect of investment loans would be fully waived and corresponding amount would be receivable from the Govt. of India under the scheme. In respect of other farmers, they would be covered under the debt relief, where 25% of the overdue amount as determined above would be eligible for relief, provided the farmer is willing to pay the balance 75% of the overdue amount.

We have listed few important points requiring your immediate attention but the Branch Managers and other officials should take utmost care, in identification of beneficiaries, the preparation of the records, calculation of relief, etc. while implementing the scheme.

Further guidelines and/or clarifications if received in this regard shall be communicated.

Yours faithfully,

Chairman