New Delhi, Dec 31: As election time approaches, the government is set to announce a mega farm loan restructuring package covering bad and doubtful debt of at least Rs 30,000 crore.

The proposal, which is close to finalisation by the agriculture and finance ministries, is expected to be announced in the Budget; the details are being thrashed out.

The agriculture ministry has suggested that farm loans worth around Rs 100,000 crore - classified non-performing and overdue - be set aside for five years and defaulting farmers, who are in debt with no fresh assistance forthcoming, be given more credit.

Over the next five years, 20% of the loan would be written off every year if the farmer paid his instalments on time. At the end of five years, the farmer would have cleared all his previous dues and also be eligible to start on a fresh note.

The proposal, however, requires that the government provide banks with Rs 100,000 crore since the move would amount to writing off debt, if not immediately, then over a five-year period. But to carry forward the process, the government, which is pushing a fiscal prudence agenda, might have to levy some sort of cess.

Instead, the finance ministry has suggested that the government take up cases which have been termed non-performing assets, estimated to be worth Rs 30,000 crore. On this amount, the banks have already provided at least 20% to write off a part of the debt. They have to make another round of provisions this year.

North Block has suggested that banks be allowed to negotiate with farmers to seek a repayment of a portion of the remaining loan. So, if a farmer had borrowed, say Rs 10,000, and the bank has already provided for a loss of 20% or Rs 2,000 and is going to provide another 20% this year, then it can settle the loan for Rs 3,000.

By doing so, it hopes that not only would banks take a smaller hit, but the immediate problem of finding money would also be dealt with. Once the outstanding is cleared, farmers can get fresh credit on their Kisan Cards.