Co-op banks seek rate cut to boost farm lending

In spite of the government’s efforts to help cooperative banks post the farm loan relief scheme, through the liquidity support fund, the banks are facing huge cash deficits.

Cooperative banks, which account for more than 50 per cent of farm loans, are unable to utilise the fund, where they can borrow from Nabard, due to the high interest rate of 9 per cent, sources said.

Nabard has initiated talks with the Centre to reduce the rate of interest for loans from the fund, a senior Nabard executive said.

Cooperative banks are able to meet only 40 per cent of the total loan requirements this rabi season (winter crop), lending for which starts from September. This comes even as the demand for bank credit has increased post the debt relief scheme, sources said.

“Poor recovery of farm loans disbursed last year has added to the cash crunch faced by the cooperative banks. Also, there is an increase in demand for fresh loans after the debt relief scheme. Moreover, it is difficult for the banks to borrow funds at the interest rate of 9 per cent, and lend at 7 per cent, as stipulated by the government,” said Samir Ghosh, Chairman, West Bengal State Co-operative.

He saidthe state, none of the cooperative banks have borrowed from the liquidity support fund.

However, the regional rural banks, which roughly account for 15 per cent of farm lending, are better off, having more access to public deposits and enjoying the sponsorship of commercial banks.

Ambarisha Nanda, chairman of Bangiya Gramin Vikash Bank, said that an increase in deposit base by 9 per cent over the last year, has enabled the bank to increase credit offtake by 6 per cent over the last year, even in the lean season. In the coming months, Nanda said, lending from the RRBs was likely to rise by 25 per cent over last year.

Normally, Nabard charges 3.5 per cent interest rate for seasonal agriculture loans, which directs funds to primary agricultural credit societies (PACs), which in turn lend roughly at 7 per cent interest rate to farmers.

However, in view of the liquidity crunch faced by banks, Nabard had created a special liquidity support fund of more than Rs 5,000 crore corpus.

Of the Rs 66,000 crore loan write-off and settlement, RRBs and cooperatives accounted for nearly 50 per cent share.