06 March 2013

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Important Facts CAG Report Performance Audit on Implementation of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008

Important Facts CAG Report Performance Audit on Implementation of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008

In 2008-09, the Government of India announced a debt waiver and debt relief scheme for farmers, for implementation by all Scheduled Commercial Banks, besides Regional Rural Banks and Co-operative Credit Institutions.

Reason for Audit - Audit was undertaken by CAG to get an assurance that the objectives of the scheme were achieved.

The Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008 was
launched in May 2008 to address the problems and difficulties faced by the farming
community in repayment of loans taken by them and in helping them qualify for
fresh loans.

Under the scheme, complete waiver of 'eligible amount' was to be
provided to Marginal2 /Small3 farmers while a one-time relief of 25 per cent of the
`eligible amount' was to be provided to Other4 farmers subject to payment of the
balance 75 per cent of the 'eligible amount' by the farmer.

Agricultural loans meeting the following set of conditions were to be covered under the scheme:

Loans disbursed between 1 April 1997 and 31 March 2007 and,

Overdue as on 31 December 2007 and,

Remaining unpaid up to 29 February 2008.

The scheme was to be implemented by 30 June 2010.

At the Government of India (GoI) level, the Department of Financial Services (DFS),
Ministry of Finance, was the apex authority responsible for administration and
implementation of the scheme.

This included preparation of guidelines, release of funds and overall monitoring. Reserve Bank of India (RBI) was the nodal agency for implementation and monitoring of the scheme for Scheduled Commercial Banks, Urban Cooperative Banks, and Local Area Banks. National Bank for Agriculture and Rural Development (NABARD) was similarly responsible for Cooperative Credit Institutions and Regional Rural Banks.

The Government of India estimated in May 2008 that about 3.69 crore Marginal /
Small farmers' accounts and about 0.60 crore Other farmers' accounts would be
covered under the scheme. Over the last four financial years, the GoI has waived
more than Z 52000 crore related to approximately 3.45 crore Small / Marginal and
Other farmers.
Since debt, relief and waiver mechanisms involved a huge amount, Performance
Audit was undertaken to assess whether the management of claims for debt waiver
and relief under the scheme was in accordance with relevant guidelines and

The review, carried out from April 2011 to March 2012, covered 25
states involving field audit of 90,576 beneficiaries /farmers' accounts in
715 branches of lending institutions situated in 92 districts.

The sample included 80,299 accounts of such farmers who were extended benefit under the scheme, 9,334 accounts of such farmers who were not selected as beneficiaries even though they
had received agricultural loans between 1 April 1997 to 31 March 2007 and 943
cases where complaints were received.

Errors of inclusion and exclusion at the beneficiary level were noticed. It was found
Out of 9,334 accounts test checked in audit across nine states, 1,257 accounts
(13.46 per cent) were those, which were found in audit to be eligible for benefit
under the scheme, but were not considered by the lending institutions while
preparing the list of eligible farmers.

ii. Out of 80,299 accounts granted debt waiver or debt relief, in 8.5 per cent of
cases, the beneficiaries were not eligible for either the debt waiver or the debt
relief. A proportion of such claims, amounting toZ 20.50 crore, was on account of
claims being admitted for ineligible purposes or claims pertaining to periods not
eligible for scheme benefits.

A Private Scheduled Commercial Bank have received reimbursement for loans,
amounting to Z 164.60 crore extended to Micro Finance Institutions (MFIs) in
violation of the guidelines.

Maintenance of proper and complete documentation with respect to each claim was
critical to efficient management of the scheme. Audit noted that in 2,824 cases, with
claims amounting to Z 8.64 crore, there was prima facie evidence of tampering, over-writing, and alteration of records.

Audit scrutiny revealed that in 4,826 accounts, i.e. almost six per cent of the test
checked accounts, farmers were not extended the benefits according to entitlements.
In 3,262 cases, undue benefit totaling Z13.35 crore was extended. On the other hand,
in the remaining 1,564 cases, farmers were deprived of their rightful benefits of
Z 1.91 crores.

In violation of guidelines, lending institutions claimed amounts related to
interest/charges, which was not allowed under the scheme. In 6,392 cases across 22
states, although the lending institutions had not borne interest/charges of Z 5.33 crore
themselves, they were still reimbursed these amounts by the GoI.

DFS accepted the reimbursement claims of RBI in respect of Urban Cooperative
Banks amounting to Z 335.62 crore despite the fact that even the total number of
beneficiaries' accounts was not indicated.

Debt waiver / relief certificates were not issued in many cases to eligible
beneficiaries. In 21,182 accounts (out of 61,793 test checked accounts), i.e. 34.28 per
cent, there was no acknowledgement from farmers or any other proof of issue of debt
waiver or debt relief certificates to the beneficiaries. Such certificates entitle the
farmers to fresh loans.

The monitoring of the scheme was also found to be deficient. The DFS was
completely dependent upon the nodal agencies for monitoring the compliance of its
instructions issued from time to time in implementation of the scheme. But, Audit
found that the nodal agencies themselves were relying on certificates and data of
lending institutions without conducting independent verification of such data and
certificates to confirm the veracity of claims.

Subsequent to the issue of draft audit report to the Ministry and Exit Conference held at
the level of Secretary, DFS, the DFS advised RBI and NABARD in January 2013
requesting them to issue instructions to Scheduled Commercial Banks/Cooperative
Banks/RRBs/LABs for taking immediate corrective measures in respect of major audit
observations. DFS instructed that institutions need to take action like recovery of money
paid to  ineligible  beneficiaries  and  loans extended  to  MFIs,  action  under  Banking
Regulations against erring  banks,  fixing  of  responsibility  of  bank officials  as  well  as
bank auditors, filing of FIRs5  in cases of tampering of records, issue of debt waiver and
debt relief certificates to beneficiaries and monitoring the outcome relating to fresh
loans. RBI and NABARD accordingly issued instructions to the implementing
institutions on 14 and 11 January 2013.
Audit appreciates the prompt remedial action taken by the DFS, RBI and NABARD.


Based on the audit observations, the following recommendations have been made to
improve implementation of such schemes.

As the ADWDRS is, a welfare scheme aimed at benefitting poor farmers, DFS
may like to take steps to review beneficiary lists in selected banks by focusing
on those States where indebtedness was high.

Bank officials, internal auditors and central statutory auditors, who certified
the information for passing the claims, ought to be made accountable for
lapses in performing their duties.

The issue relating to reimbursement of claims of MFIs may be examined to
ensure that the benefit of the scheme has actually reached the farmers and
was not restricted to MFIs only.

The specific cases of tampering of records/alteration of loanee details should
be reviewed by DFS and stringent action taken against errant officials as also
lending institutions.

Ministry, on its own part, may verb
(1) high-value claims of re-imbursement,
(2) high-risk areas like inadmissible charges and (3) at least a sample of
claims of lending institutions to ensure that the financial interests of the
government are protected.

Government may like to issue directions to banks to launch a drive of issuing
debt waiver/debt relief certificate and keep records of such farmers getting
fresh loans.

Nodal agencies ought to be tasked with specific responsibilities for
supervision and should be held accountable for lapses.

Follow-up action in response to complaints or inspections should be properly

Background –

As part of its budget proposals for the financial year (2008-09), the Government of India
(GoI), in February 2008, announced a debt waiver and relief package for farmers. The cost of
the scheme was estimated at Z 71,680 crore. Agricultural Debt Waiver and Debt Relief
Scheme (ADWDRS),  2008 was approved by the Cabinet on 23 May 2008. The scheme in
respect of debt waiver was to be completed by 30 June 2008 while the date for debt relief was
extended up to 30 June 2010. The scheme sought to lighten the debt burden of the farming
community to enable such farmers to qualify for fresh loans. The wide-ranging package
targeted waiver of loans to over 3.69 crore Small and Marginal farmers and a One-Time
Settlement (OTS) of loans for another 0.6 crore 'Other farmers', i.e. other than Small and
Marginal Farmers.

Salient Features –

Guidelines of the scheme were circulated by the Department of Financial Services, (DFS)
Ministry of Finance in May 2008. These guidelines specified the condition of eligibility, type
of loans covered under the scheme etc. Subsequently, clarifications were issued on 18 June
2008 regarding implementation of the scheme.

Types of loans covered under the scheme

The scheme covered 'Direct Agricultural Loans' comprising Short Term Production Loans
for agricultural purposes and Investment Loans availed by farmers for agricultural and allied

Short  Term Production Loans  - These loans were given in connection with the raising of
crops and were to be repaid within 18 months. They included working capital loans not
exceeding Z 1 lakh for traditional and non-traditional plantations and horticulture.

Investment Loans  - These loans comprised investment credit for both direct agricultural
activities and allied activities. The former included credit extended for meeting outlays
relating to the replacement and maintenance of wasting assets and for capital investment
designed to increase the output from the land, e.g. deepening of wells, sinking of new wells,
installation of pump sets, purchase of tractor / pair of bullocks, land development and term
loan for traditional and non-traditional plantations and horticulture.

The latter included credit extended for acquiring assets in respect of activities allied to agriculture like dairy, poultry farming, goatery, sheep rearing, piggery, fisheries, bee-keeping, green houses and biogas.

These loans were disbursed to farmers through Scheduled Commercial Banks and
Cooperative Credit Institutions. Loans provided directly to groups of individual farmers (e.g.
Self Help Groups and Joint Liability Groups) were also included in the scheme, provided that
the lending institutions maintained disaggregated data of the loan extended to each farmer
belonging to that group. Direct agricultural loans disbursed under Kisan Credit Cards were
also eligible for debt waiver / debt relief.

Categorization of beneficiaries

Farmers who had taken  Short  Term  Production  Loans or Investment Loans for agricultural
activities  - Such farmers qualified for the scheme and were categorized according to the
following parameters:

Marginal farmer: A farmer cultivating (as owner or tenant or sharecropper)
agricultural land up to 1 hectare (2.5 acres).

Small farmer: A farmer cultivating (as owner or tenant or sharecropper)
agricultural land more than 1 hectare and up to 2 hectares (5 acres).

Other farmer: A farmer cultivating (as owner or tenant or sharecropper)
agricultural land more than 2 hectares (more than 5 acres).
Farmers who had taken Investment Loan for allied activities  - Land holding was not the
criteria for categorization of farmers for investment loan for allied activities. The
categorization of farmers under this category was based on the amount of loan obtained for
allied activities.

Marginal farmer: Farmer obtaining loan up to Z 50,000.

Small farmer: Farmer obtaining loan up to Z 50,000.

Other farmer: Farmer obtaining loan above Z 50,000.

Eligible amounts and cut-off dates

The amount eligible for debt waiver or debt relief, as the case may be, would qualify only
subject to certain conditions. These conditions were:
In the case of a short-term production loan,  the amount of such loan (together with applicable

disbursed up to 31 March 2007 and overdue as on 31 December 2007 and
remaining unpaid until 29 February 2008; or

restructured and rescheduled by banks in 2004 and in 2006 through the special
packages announced by the Central Government, whether overdue or not; or

restructured and rescheduled in the normal course up to 31 March 2007 as per
applicable RBI  guidelines on account of natural calamities, whether overdue
or not.

In the case of an investment loan,  the installments of such loan that were overdue (together
with applicable interest on such installments) if the loan was:

disbursed up to 31 March 2007 and overdue as on 31 December 2007 and
remaining unpaid until 29 February 2008;

restructured and rescheduled by banks in 2004 and in 2006 through the
special packages announced by the Central Government; and

restructured and rescheduled in the normal course up to 31 March 2007 as
per applicable RBI guidelines on account of natural calamities.

In the case of an investment loan disbursed up to March 31, 2007 and
classified as non-performing asset or suit filed account, only the installments
that were overdue as on December 31, 2007 shall be the eligible amount.

Benefits under debt waiver and debt relief

Debt waiver essentially signified 100 per cent  waiver of the 'eligible amount' while debt
relief signified waiver of 25 per cent of the 'eligible amount' under a One-Time Settlement
(OTS) scheme. Debt waiver or debt relief were to be applicable as follows:

Marginal and Small farmer:  The entire 'eligible amount' was to be waived.
Other farmer:  The farmer would be given a rebate of 25 per cent  of the
`eligible amount' subject to the condition that the farmer paid the remaining
75 per cent of the 'eligible amount'. In the case of 237 revenue districts falling
under Drought Prone Areas Programme or Desert Development Programme
or Prime Minister's Special Relief Package mentioned in the scheme, Other
farmer would be given rebate of  20,000 or 25 per cent  of the 'eligible
amount', whichever was higher, provided the farmer paid the balance of the
`eligible amount'. The rebate, in both cases, would be indicated as debt relief
under ADWDRS and would be claimed by the lending institution from the
GoI after receipt of balance of 75 per cent of the 'eligible amount' from the
farmer willing to avail the benefit under the scheme.

As per the guidelines of the scheme, the payment of the balance of 75  per cent  of the
`eligible amount' was to be made by the beneficiary in three installments falling on 30
September 2008, 31 March 2009 and 30 June 2009, with the condition that at least one-third
amount be paid in each of the first and second installments. The due dates for payment of
installments were extended successively during the course of implementation of scheme as
mentioned below:

Date of payment of 1st  installment was extended to 31 March 2009 (vide DFS circular dated 14 January 2009).

Date of payment of lump sum 1st  and 2nd  installment extended to 30 June 2009 (vide DFS circular dated 12 June 2009).

Date of payment of full share of 75 per cent  (all the three installments) was extended to 31 December 2009 (vide DFS circular dated 8 July 2009.)

Date of payment of full share of 75 per cent  (all the three installments) was finally extended to 30 June 2010 (vide DFS circular dated 26 March 2010).

Reality views by sm –

Wednesday, March 06, 2013

Tags – CAG Report 2008


rudraprayaga March 06, 2013  

There is an adage in Malayalam which says-May there be Onam or be a child born, Koren(symbol of worker category) gets porridge inleaf-vessel only.And that is India.Good one.

MEcoy March 06, 2013  

very interesting facts

BK Chowla, March 09, 2013  

Will ever anyone be penalised for all the corruption in india?