Bankers: Govt. might issue SLR bonds to compensate PSU Banks

Government is thinking of an option of issuing Statutory Liquidity Ratio (SLR) bonds to public sector banks for waiving off Rs 60,000-crore worth farm loans, a Government instrument for meeting financial commitments.

"We (public sector bankers) have received some strong indications that the government might opt for SLR bonds to compensate public sector banks. The decision may be announced in one week," Uco Bank Chairman and Managing Director S K Goel told PTI here.

As banks will no longer have any bad farm loan on their books, the exact mode of how they would get their money back is still not clear.

There are possibilities that might utilize a mix of options, including the SLR Bond route to provide sufficient liquidity to the PSU banks.

Another option might be a direct payment of cash but bankers feel that the Government might avoid this route as it would impose a tremendous burden on the exchequer.

In the budget for year 2008-09 Chidambaram announced that farm loans to marginal and small farmers owning up to two hectares will be waived off amounting Rs 50,000-crore.

For other farmers, he said a one-time settlement in which 25 per cent of their loans would be waived off if they pay the 75 per cent balance of the amount. This waiver would cost a further Rs 10,000-crore.

Chidambaram in his budget speech had stated that the Government will find a way of providing liquidity to the public sector banks, which bankers, have interpreted to mean that they would not be allowed to suffer a loss.