Classifying jewel loans as crop loans will not improve agriculture: TN govt

Refinance provided by NABARD for seasonal agricultural operations should be increased to 100%: state FM

Tamil Nadu Government today said that classifying jewel loans as crop loans will not help to improve agriculture. Besides, the state Finance Minister also said suggested that the refinance provided by NABARD for seasonal agricultural operations should be increased to 100% or the interest subvention support to co-operatives need to be increased to meet the gap between cost and actual lending rate and for investment credit is also increased to 9.9% by NABARD.

In his Speech at meeting of Union Finance Minister with Chief Ministers of South Zone States, Union Territories and CEOs of Public Sector Banks and Financial Institutions at Bengalauru today Tamil Nadu's Minister for Finance O Panneerselvam said that lending to the farm sector by banks showing a remarkable increase over the years. However, the bulk of this lending is dominated by crop loans and there are instances where jewel loans are being classified as crop loans and diverted to non-agricultural purposes.

“This is not giving to improve our productivity. Therefore, efforts need to be taken by financial institutions to strengthen post-sanction monitoring mechanisms to prevent such diversions”.

The credit flow for investment purposes, allied sector activities and micro level soil and water conservation projects need to be steeped up substantially to address productivity issues. I hope the banks will address these issues in future.

He added, NABARD has raised the interest rates for refinance to seasonal agricultural loans from 2.5% in 2006-07 to 4.5%. At present, this refinance is available only upto 50% of the total credit requirement.

These changes have led to “tremendous” strain on co-operative banks' finance due to the reduce interest spread. Further two% interest subvention support to co-operatives remains unchanged, since 2006-07, though the co-operatives have to apply their high cost own funds or deposits for low yielding agricultural loans.

While the commercial banks apply only 18% of their total credit of agriculture, co-operatives involve 75% of their resources to unremunerative agricultural credit. This has affected the financial viability of the co-operatives. Therefore that either the refinance provided by NABARD for seasonal agricultural operations should be increased to 100% or the interest subvention support to co-operatives needs to be increased to meet the gap between cost and actual lending rate. Further, the interest rate for investment credit is also increased to 9.9% by NABARD, said the Tamil Nadu's Finance Minister.


He added, investment credit with such a high interest rate becomes unattractive to farmers for taking up investment projects. Therefore, the investment credit may be disbursed at a reduced rate of seven% with an appropriate interest subvention programme from the Central Government.