Government to fully bear Rs 60000 crore farm loan waiver, but over three financial years

The estimated farm loan waiver is about Rs 60314 crore, inclusive of total waiver amounting to Rs 50524 crore to small and marginal farmers and Rs 9790 crore as OTS to other farmers. Of the total, 55% will be for borrowings through cooperatives, 35% for borrowers from scheduled commercial banks (SCB) and 10% for borrowers from Regional Rural Banks (RRB).

The government will provide funds to the lending institutions over a period of 36 months from July 2008 to June 2011. Between July 2008 and June 2009, the government will provide Rs 25000 crore. The balance Rs 35000 crore will be provided in the next three budgets at Rs 15000 crore in Budget 2009-10, Rs 12000 crore in Budget 2010-11 and Rs 8000 crore in Budget 2011-02.

The Government will disburse Rs 25000 crore to lending institutions in July-August 2008 and another Rs 15000 crore in June-July 2009. In the process, about Rs 40000 crore, representing two third of the relief package will be released by August 2009. But the payment package would frontloaded in favour of cooperative institutions and RRBs that are typically more liquidity constrained than scheduled commercial banks. The amount will be funded by government from Tax revenues, non tax revenues, non debt capital receipts and additional borrowing, in the same order. Banks may actually stand to gain, atleast on books, to the extent of NPAs provided, as these can now be written back, as it will be paid by the government.