State Bank of India is to benefit the most from the government's decision to give more time to farmers to repay their loans.
The Finance Minister during budget presentation said that the repayment period under one-time settlement scheme (OTS) would be extended by six months till June 2010. The scheme had expired in December 2009.
In the third quarter results posted by SBI in December 2209, it had not provided for a sum of Rs. 1530 crore farm loan. The bank had not made this provision on expectation that government may extend the one-time settlement scheme.
If the government had not extended this scheme, then the bank would have had to deduct this amount from this quarter pre tax profits.
The provision framed by the government earlier implied that if a farmer was able to pay 75 % of the loan taken under OTS scheme, then the remaining 25% of the loan would be waived by the bank. And if the farmer was unable to do so, then this amount would have to be considered as bad debt. This provision was valid till December 2009.
While banks like Bank of Baroda had made full provisions on this account will also benefit from this extension as any amount if returned by the farmer till June 2010 would bring in profits in the books of the bank.
Rating agency ICRA has also forecasted that a part of the delinquent agricultural portfolio would have to be considered as bad debt by banks if the government or RBI does not come out with some sort of relaxation in the banks' favor.