ISSUE 3-August 2015

Impact of Audit: Farm Loan Waiver Scheme

By Shri A. M. Bajaj, Director General of Audit (Economic and Services Ministries) & Shri Naveen Singhvi, Deputy Director, Office of the Director General of Audit (Economic and Services Ministries)

Abstract of the Article

Performance Audit of ADWDRS 2008 was carried out in 25 states involving checking of 90,576 bank accounts in 715 branches situated in 92 districts. Audit observations were found in 20,756 accounts i.e. 22.915 per cent of the cases test checked. Government had contested the audit findings strongly at the draft report stage thereby presenting a massive challenge before the auditors in finalizing the Audit Report. Final report was prepared after a detailed reverification exercise with the Government representatives whereby 97.52 per cent of the audit findings were found correct. Government accepted the audit report in toto and took immediate corrective measures including disciplinary proceedings and prosecution.

This was an All India Audit carried out from April 2011 to March 2012 in 25 states involving checking of 90,576 bank accounts in 715 branches situated in 92 districts in respect of total farm loan waiver amounting to 52000 crore.

The Government had contested the audit findings strongly at the draft report stage thereby presenting a massive challenge before the auditors in finalizing the Audit Report. The following paragraphs will tell the story what made the same Government not only to accept all the findings but also to take immediate corrective measures including disciplinary proceedings and prosecution.

The Scheme

The Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008 was launched in May 2008 to address the problems faced by the farming community in repayment of loans taken by them and to help them qualify for fresh loans. Under the scheme, complete waiver of ‘eligible amount’ was to be provided to Marginal1 and Small2 farmers while a one-time relief of 25 per cent of the ‘eligible amount’ was to be provided to Other3 farmers subject to payment of the balance 75 per cent of the ‘eligible amount’ by the farmer. Agricultural loans meeting the specified conditions were to be covered under the scheme. The scheme was to be implemented by 30 June 2010.

Ministry of FinanceApex authority responsible for administration and implementation of the scheme
RBI and NABARDRBI was nodal agency for implementation and monitoring of the scheme for Scheduled Commercial Banks, Urban Cooperative Banks and Local Area Banks and NABARD was for Cooperative Credit Institutions and Regional Rural Banks
State Level Bankers CommitteeResponsible for consolidating and sending district-wise and state-wise data, of each bank in the state
Lending InstitutionsActual point of interaction with the beneficiaries for the purpose of implementation of the scheme

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. The GoI has waived more than 52000 crore related to approximately 3.45 crore Small / Marginal and Other farmers.

Audit Efforts

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 requirements. The audit was carried out from April 2011 to March 2012 both at the Central and State levels and it covered 25 states involving field audit of a total of 90,576 beneficiaries/farmers accounts in 715 branches of lending institutions situated in 92 districts. Advertisements were published in the local newspapers of the district selected for audit for inviting complaints relating to the scheme giving details of audit schedule. These complaints along with the complaints received at Central and State levels were also examined in audit. The audit 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.

Major Audit Findings

Errors of Inclusion at the Beneficiary Level Out of 9,334 accounts test checked in audit, 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.
Errors of Exclusion at the Beneficiary Level 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.
Irregular Reimbursement A Private Scheduled Commercial Bank received reimbursement for loans, amounting to 164.60 crore extended to Micro Finance Institutions (MFIs) in violation of the guidelines.
Lack of Proper Documentation 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 8.64 crore, there was prima facie evidence of tampering, over-writing and alteration of records.
Errors in Calculation of Entitlements 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 13.35 crore was extended. On the other hand, in the remaining 1,564 cases, farmers were deprived of their rightful benefits of 1.91 crores.
Irregular Claims 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 5.33 crore themselves, they were still reimbursed these amounts by the GoI.
Issue of Debt Waiver/Relief Certificates 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.
Deficient Monitoring 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. This raised the issue of conflict of interest, since in effect, the lending institutions were performing a dual role, first implementing and then monitoring their own work.

Impact of Audit: The Journey

There were audit observations relating to 20,756 accounts out of the 90,576 accounts test checked. Based on these audit findings, a draft audit report was issued to the Department of Financial Services (DFS), Ministry of Finance (MoF) in May 2012. MoF stated (June 2012), that 7,242 observations were verified by them and the banks had contested the audit observations in 2,515 cases.

In that scenario, Auditors had no option but to re-verify their findings by going back to original records in the presence of Government Officers. The re- verification was a detailed exercise which took almost four months during which initial records and documents submitted by banks relating to 6,371 cases (including the 2,515 cases contested in the MoF reply) were examined and discussed in detail with the representatives of the banks.

The result was that 97.52 percent of Audit Observations were found correct and acceptable by the Government.


Bank Number of Cases seen Number of cases objected by audit No. of cases disagreed by banks and re-verification done
Results of re-verification
Audit objections sustained out of (4) Audit objections dropped out of (4)
Final number of audit objections sustained Percentage where audit objections sustained {(7) ÷(3)} x 100
-(1)- -(2)- -(3)- -(4)- -(5)- -(6)- -(7)- -(8)-
Banks under RBI 44285 9703 2643 2447 196 9507 97.98
Banks under NABARD 46291 11053 3728 3410 318 10735 97.12
Total 90576 20756 6371 5857 514 20242 97.52

In fact, immediately after the Exit Conference the MoF advised RBI and NABARD for taking immediate corrective measures in respect of major audit observations, which included:

  • 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 FIRs in cases of tampering of records,
  • Issue of debt waiver and debt relief certificates to beneficiaries and monitoring the outcome relating to fresh loans.

The performance audit report was laid before the Parliament on 05th March 2013. The report was picked by the Public Accounts Committee (PAC) for detailed examination. Meeting of the PAC was held on 14th June 2013 and the report of the PAC on this report was adopted on 30th January 2014. DFS accepted all the observations of the CAG in this performance audit report.

The Public Accounts Committee noted in its report to the Parliament as follows:

“When asked if the DFS was in concurrence with the Audit Observations contained in the Audit Report on the subject, the Secretary, DFS inter-alia deposed before the Committee as:

“.... .... the issues largely raised by the C&AG were correct. I do not think that the Department has any intention of disputing the veracity of the kind of points raised by the C&AG."

The action taken on the audit observations included:

  • An amount of 627.68 crore recovered against 666.72 crore,
  • In 458 cases, benefits released by lending institutions, where benefits were not given to eligible persons,
  • In 5411 cases, disciplinary action taken against the staff by the lending institutions,
  • In 757 cases, responsibility of auditors fixed by the lending institutions,
  • In 4030 cases of tempering of records, 22 FIRs filed,
  • 164.60 crore recovered from the private bank along with penal interest of 54.80 crore,
  • 149.79 crore recovered from NABARD on the ground that the interest for the first installment was not covered in the scheme.

Audit of ADWRDRS was a massive exercise carried out at 715 branches of various banks situated in 25 states, which resulted in a quick and effective action taken by the Government largely owing to professional work done by the auditors which stood the test of scrutiny carried out subsequently by the Government. The impact of this audit was applauded by the Public Accounts Committee of the Parliament.

  1. 1. Farmers cultivating agricultural land upto 1 hectare or whose loan amount in respect of allied activities was less than 50,000.
  2. 2. Farmers cultivating agricultural land between 1-2 hectare or whose loan amount in respect of allied activities was less than 50,000.
  3. 3. Farmers cultivating agricultural land more than 2 hectare or whose loan amount in respect of allied activities was more than 50,000.

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