RBI rejects proposal of leasing mortgaged land to recover dues

CHANDIGARH: The Reserve Bank has turned down the Haryana government's proposal that mortgaged land of farmers, who have defaulted on their loans, be managed under lease arrangements instead of auctioning it for recovery.

Describing the Haryana government's proposal as non-feasible and non-viable, the RBI observed that if the proposed system is implemented, it will "vitiate the credit atmosphere" and will also cause diversion of banks' resources without any substantial gain on recovery front.

A senior official of Punjab National Bank, which is the convener bank of State Level Bankers' Committee (SLBC) in Haryana, today said the Reserve Bank of India (RBI) has examined the proposal of the Haryana government.

"Such a scheme of lease arrangement will neither be feasible nor viable in the state," he added.

The RBI, in its latest communication to the convener bank, further observed, "The scheme may invite legal complications for banks and credit to farm sector might be adversely affected."

Haryana Chief Minister Bhupinder Singh Hooda had asked the RBI Governor D Subbarao in October last year that in case of loan default, land of a farmers held as collateral security by commercial banks should not be auctioned and instead it should be managed under lease arrangement.

Under the lease arrangement proposal, fifty per cent of the income generated from lease arrangement should be used for realisation of bank dues, while 50 per cent should be given to the defaulting farmer.

In addition, the land should be restored to the farmers once the full amount is recovered.

After this proposal, SLBC constituted a sub-committee under the chairmanship of Secretary (Agriculture), Haryana, which decided to test the efficacy of the lease arrangement scheme, though bankers and NABARD opposed the same.

The matter was then referred to the RBI by SLBC Haryana in June and September this year for its nod.