RBI keeps farm loan, export credit out of regime

The Reserve Bank of India (RBI) has said that loans for which banks avail of subvention from the government will be out of the base rate regime.

As a result, agricultural and export loans can be given below the base rate. Viable re-structured loans could be also below the base rate, the regulator said.

The base rate guidelines, issued in April, had barred lending below the rate, except for three categories: loans to banks’ own employees, loans against deposits and loans to small-ticket borrowers under the differential interest rate scheme. In a letter to the Indian Banks’ Association (IBA) this evening, the regulator said lending below the base rate would not amount to violation of base rate guidelines if banks availed of subvention for those products. IBA will now inform about RBI’s clarification to its member banks.

According to government rules, a bank is eligible to avail of a 2 per cent interest rate subvention if it lends to the farm sector at seven per cent. For example, if a bank’s base rate is eight per cent, it will not be able to lend at seven per cent to the farm sector and hence will not be eligible for subvention. The base rate regime comes into effect from July 1.

On the issue of invoking a sunset clause for loans related to the existing benchmark prime lending rate, the central bank said it would separately issue a clarification on the issue. Banks have requested RBI to set a deadline after which existing BPLR linked loans will become linked to the base rate.