New Delhi: Amid hardening interest rates, the government has ruled out hike in subsidy to crop loans and instead asked PSU banks to share the burden of 1-2% rise in interest rates.
“There is no proposal to raise interest subsidy of 2% on short term crop loans. We have asked the banks to share the burden and provide crop loans up to Rs3 lakh at 7%,” a senior official in the Finance Ministry said.
The target for total agriculture loans, including crop loans, has been raised to Rs2,25,000 crore for 2007-08 as against estimated Rs1,90,000 crore farm lending during last fiscal.
Short term crop loans are provided to farmers for undertaking farm activities like fertilisers, seeds, plantation and harvesting for up to six months.
The sources said the banks had recently urged the Finance Ministry to raise interest subsidy on farm loans, but without any success so far.
They pointed out that deposit rates have gone up from 6 per cent to about 9.5% over the past one-and-a-half years, and prime lending rate (PLR) is moving between 12.25% and 12.75%.
“PSU banks are today taking a hit of 1-2% interest rate on farm loans, while private banks are lending for housing and personal loans at 13-17% interest rate,” an official of the public sector bank said.
Government would provide subvention money on crop loans amounting to around Rs1,06,067 crore this fiscal.
Replying to the debate on Budget 2007-08, Finance Minister P Chidambaram told Parliament PSU banks would continue to provide farm loans at 7% interest rate.
Finance Ministry sources said banks have been told that with net profits touching new heights, they could partially subsidise lending to farm sector on the pattern of public sector oil companies.
However, banking sources said a large number of banks are now granting farm loans for over Rs3 lakh, which are also taken into account for agriculture loans and there is no interest cap on them as well.
In fact, the rural regional banks sponsored by the public sector banks are also lending personal loans to farmers at much higher rate but show them as farm loans.
They said the government has asked banks to add more accounts for farm lending and provide information on short-term and long-term loans. Banks have been asked to open up to 6 million new farm accounts this fiscal, the Finance Ministry official added.