India proposes to waive $15 bln of farm loans

NEW DELHI (Reuters) - India proposes to waive 600 billion rupees of bank loans to farmers, the finance minister said on Friday in his annual budget for the fiscal year that begins in April.

Palaniappan Chidambaram said the write-off would be completed by June 30, with 500 billion rupees going toward farmers holding up to two hectares of land.

For bigger farmers, the budget proposed a waiver of 100 billion rupees as one-time settlement, provided the farmers repaid 75 percent of their loan that was overdue on Dec. 31, 2007.

"All agricultural loans disbursed by scheduled commercial banks... up to March 31, 2007 and overdue as on Dec. 31, 2007, will be covered in the scheme," he said.

Shares in Indian banks initially fell sharply on the announcement, but later trimmed losses as there was uncertainty about how much the government would compensate the banks.

"The waiver of small farm loans is not a negative thing entirely as these were the most stubborn NPAs, on banks' loan books," said Rupa Rege Nitsure, chief economist, Bank of Baroda, referring to non-performing assets.

"There is comfort that the government will partially bear the burden for banks."

Chidambaram said the farmers covered under the scheme would be eligible for fresh loans after the waiver.

Loans rescheduled earlier will also be eligible for relief under the new scheme, Chidambaram said.