PSU banks seek 2.5% subsidy for farm lending at 7%

Public sector banks (PSBs) today made a strong pitch for a minimum 2.5%interest subsidy for providing short-term farm credit at 7% as announced in Budget 2006-07.

State Bank of India Chairman A K Purwar, Punjab National Bank Chairman S C Gupta, Bank of Baroda Chairman A K Khandelwal and Bank of India Chairman M Balachandran today met Finance Minister P Chidambaram in New Delhi, and told him very categorically that lending to farmers at the concessional rate was unviable without the subsidy.

Usha Thorat, Deputy Governor of the Reserve Bank of India (RBI), and Nabard chairman YSP Thorat were also present at the meeting where ways and means of lending to farmers at 7% were discussed.

The bank chairmen said they will be able to lend at 7% if the government pays them 2.5% subsidy as lending to farmers can become viable if the interest income is in the range of 9.5-10%.

Another meeting will be held next month to decide on the extent and method of assistance to be provided to PSBs based on the modalities that would be worked out by the government and the RBI.

The government will be paying Rs 1,700 crore as interest subsidy directly to farmers who availed of loans in 2005-06.

The meeting also discussed the possibility of policy incentives to banks for
growing their low-cost deposits base, and also for designing new savings
products for rural areas.