The Reserve Bank Friday gave the farming community much to cheer about when it said banks can extend loan repayment period up to 5 years in case 50 percent crop is damaged due to natural calamities like drought and flood.

However, if crop damage is 33 percent, the loan repayment period can be extended up to 2 years, including one year of moratorium.

"It has been decided to allow state-level bankers' committees/district level consultative committees/banks to take a view on rescheduling of loans if the crop loss is 33 percent or more," RBI said in a notification.

"Banks may allow a maximum period of repayment of up to 2 years (including the moratorium period of 1 year) if the loss is between 33 percent and 50 percent. If the crop loss is 50 percent or more, the restructured period for repayment may be extended to a maximum of 5 years (including the moratorium period of one year)," it said.

In all cases of restructuring, the central bank said, the moratorium period of at least one year should be considered. Moreover, the banks should not insist on additional collateral security for such restructured loans, it added.

The notification follows the government's decision in April to reduce the criteria of crop loss from 50 percent to 33 percent for providing input subsidy (compensation) to farmers.

Source - http://www.moneycontrol.com