Demonetisation: Breather for borrowers, cash rules tweaked for farmers

The government provided on Monday a breather for borrowers saddled with the cash crunch in the country, giving additional 60 days to repay home, car, farm and other loans worth up to Rs 1 crore.

The Reserve Bank of India (RBI) relaxed norms temporarily to provide added time beyond what is applicable for classifying a loan account as bad or sub-standard. Tens of thousands of small borrowers are struggling to get money because of restrictions on cash withdrawals.

The rule applies to dues payable between November 1 and December 31.

Also, the government further eased cash withdrawal norms for small traders and farmers, who are among the hardest hit by a shock recall of high-value banknotes — Rs 500 and Rs 1,000 — about two weeks ago.

The finance ministry decided to allow farmers to purchase seeds with the scrapped 500-rupee notes from the centres, units or outlets belonging to the central or state governments or public sector undertakings.

Another measure that may be adopted to help people beat the cash crunch is to pay all central government employees a portion of their salary in notes next month, instead of putting the entire amount in their bank accounts, as is the norm.

The move could cushion the country’s stressed banks, labouring to meet the demand for new notes.

Part payment in cash is likely to stop the government’s 3 million-strong civilian employees from dashing to banks and ATMs soon after payday for banknotes to meet immediate expenses such as paying salaries to domestic helps or grocery bills.

For small businesses, the RBI said they can withdraw up to Rs 50,000 in cash every week from their overdraft and cash-credit accounts that have been active for at least three months. This facility was earlier allowed only for current accounts of traders.

But the facility will not be applicable for personal overdraft accounts, a statement issued by the central bank said.

The government had already relaxed the norms for farmers, allowing them to draw up to Rs 25,000 a week against crop loans.

Experts welcomed the additional 60 days for small borrowers, saying the relaxation will help them maintain a good loan account even if they fail to pay their monthly instalments, with most due dates falling in a month’s first half.

Borrowers’ credit score will not be impacted negatively because of non-payment and financial institutions don’t have to make additional provisions for sub-standard accounts.

Besides, the RBI said people can withdraw up to Rs 250,000 for wedding-related expenses, provided they submit adequate proof and the ceremony is on or before December 30.

“Withdrawals can be made by either of the parents or the person getting married. (Only one of them will be permitted to withdraw)…” a circular said.

Withdrawals will be allowed only from balance available before the government’s November 8 to demonetisation decision.

The proposal to pay employees partly in cash comes on a day the Centre started disbursing Rs 10,000 in cash as salary advance for its non-gazetted staff, who accounts for nearly 95% of its civilian employee strength.

Several state governments too were planning to pay up to 50% of their staff salary in cash.

These are part of steps either taken or proposed to ease the hardship of the people — especially the poor, farmers and traders — after the surprise recall of high-value notes.

Banks and ATM kiosks continued to register long queues of people waiting for hours to exchange old notes for new or withdraw money with their debit cards.