The Finance Ministry has asked the Reserve Bank of India (RBI) to relax asset classification norms for farm loans extended by banks following the stress faced by the agriculture sector.

In a letter addressed to RBI Governor Shaktikanta Das, the Ministry said, “it is requested to consider making appropriate relaxation in asset classification norms in respect of short-term agricultural crop loans for a period up to 30th June 2020.”

The letter, reviewed by The Hindu, cited a communication from the Agriculture Ministry which is considering an extension of the interest subvention scheme for the farm sector which, in turn, would require relaxation of NPA norms. As per the RBI’s asset classification norms, a loan is classified as non-performing by banks if repayment is due for more than 90 days.

“The Department of Agriculture, Cooperation and Farmers’ Welfare, Government of India, has [said that] in view of the unprecedented situation prevailing in the country on account of increasing incidence of COVID-19 infection and consequent lockdown across the country, they are actively considering the possibility of extending the benefit of interest subvention and prompt repayment incentive to short-term crop agriculture loans falling due between 29th March 2020 and 30th June 2020, if the loans are repaid by 30th June 2020,” the letter said.

“They have further stated the extension of the repayment date would require relaxation in asset qualification by RBI,” it added.

The spread of COVID-19 has resulted in a lockdown across the country with economic and other activities coming to a grinding halt. As a result, industry and bankers have demanded a relaxation in bad loan norms, apart from economic stimulus from the government. A task force headed by finance minister Nirmala Sithararam has been formed to finalise an economic relied package. #casansaar (Source - The Hindu)