Ministry to look into a proposal of Agri credit at 7% interest

New Delhi, Sep 8 (UNI) The Ministry of Agriculture will be working out a proposal for making available credit to farm sector at 7 per cent interest rate involving public sector commercial banks and Regional Rural Banks (RRBs).

Earlier in the budget for 2006-07, the Central Government announced to provide a certain level of subvention to NABARD so that the short term agricultural credit is made available to farmers at 7 per cent rate of interest with an upper limit of Rs 3 lakh on the principal amount.

Now the Government proposes to provide subvention also to the public sector commercial banks and RRBs on their own funds used for short-term credit, said Mr Sharad Pawar, Minister of Agriculture and Food today while addressing a meeting of Chief Ministers from various states to discuss the modalities for operationalisation of the scheme on short term credit to farmers by NABARD.

The proposal discussed was subvention of 2 per cent per annum to public sector banks and RRBs on their own funds used for short-term credit.

NABARD will provide refinance to RRBs at 4.5 per cent in order to enable them to lend at 7 per cent to the farmers. Also, it will provide refinance to the cooperative banks at 2.5 per cent in 2006-07. This will be increased annually by 50 basis points to a level of 4 per cent by 2009-10.

A 20 basis point administrative charge will be given to NABARD over and above the rate at which NABARD borrows funds from the market for refinance.

Mr Pawar pointed out that the cooperative banks are expected to lend Rs 36,000 crore for short-term agricultural credit in 2006-07 of which Rs. 22,000 crore will be on their own resources.

Some states like Uttaranchal, Karnataka and Maharashtra have taken the initiatives to announce lending by cooperative banks at an interest rate of 4.5 to 6.5 per cent by providing subvention to the cooperative banks on their own funds.

Chief Ministers of some of States suggested that the central government should provide realistic interest subvention to short-term credit structure on its own funds or direct NABARD to enhance the share to refinance 75 to 85 per cent.

The quantum of assistance required from the state governments to enable the cooperatives to lend at 7 per cent is estimated at Rs 881.79 crore, he said.

Mr Pawar asked the states to make available loans to farmers at 7 per cent rate of interest.

Cooperative Banks provide 23 per cent of the agricultural credit to farmers and that too in remote and inaccessible areas.

The state governments, who participated in the discussion suggested that cooperative banks should be treated at par with commercial banks and RRBs as far as the level of subvention is concerned, enabling them to extend credit to the farm sector.

UNI/JSS VJ KP2040