The urban co-operative banks have been directed by the Reserve Bank of India to extend debt relief schemes given to farmers till June 2010. The banks have been instructed not to consider the debts of farmers under this scheme as bad if they agree to repay the debt by June 30, 2010.

This instruction by the apex bank comes as a follow up of the Government's decision in the Union Budget 2010-11 to extend the debt waiver schemes of farmers by six months if they agree to repay 75% of the debt amount within this period till June 30, 2010.

"Where the farmers covered under the Debt Relief Scheme have given the undertaking, agreeing to pay their share under the OTS (one time settlement), their relevant accounts may be treated by banks as standard/performing...," a statement from the Reserve Bank read.

The statement said that the banks must make appropriate provisions for loss in present value terms for all receivables from borrowers.

The scheme has been extended by the Government owing to severe natural calamities in the form of drought and floods in various regions of the country last year.

It was earlier directed by the Government that if the farmer repays 75% of the loan, then the remaining 25% will be borne by the bank. On this note, the RBI had said that the banks can receive repayments below 75% only if they agree to bear the differences as the compensation would be received to the extent of only 25%.

The RBI directive says that if the farmers are unable to pay back by 30th June 2010 then the amount receivable should be treated as NPA.

"The asset classification of such accounts shall be determined with reference to the original date of NPA (as if the account had not been treated as performing in the interregnum based on the aforesaid undertaking)," the directive said.