The Hindu Business Line : Farmers switching over to low interest loans — Rural banks fail to pass benefit of falling rates

Agri-Biz & Commodities - Farm credit
Money & Banking - Regional Rural Banks

Farmers switching over to low interest loans — Rural banks fail to pass benefit of falling rates

C.R. Sukumar

Nabard has to consider revision of interest on refinance on a concurrent basis in tune with the market trend so as to enable the cooperatives to extend the benefit of falling interest rate regime to farmers.

HYDERABAD, May 17

THE Agriculture and Rural Development Banks across the country are unable to extend the benefits of a falling interest rate regime to their borrowers, which have resulted in farmers opting for premature closure of loans by obtaining loans at cheaper rates from other banks.

According to the Chairman of National Co-operative Agriculture and Rural Development Banks' Federation Ltd (NCARDBF), Mr T.D. Janardhan Rao, the National Bank for Agriculture and Rural Development (Nabard) has been revising the rate of interest on refinance in respect of investment credit in the last couple of years, which has brought down the rates by about 0.75 percentage points in the first and second slabs and by 2 percentage points in the third slab.

As a result, the average cost of refinance has come down from about 8.5 per cent to 7.5 per cent, Mr Rao said in his address at the board meeting of NCARDBF held here on Saturday.

"But the average interest of 7.5 per cent is too high in the present scenario. When the bank rate is brought down to 6 per cent and commercial banks are able to lend at less than 10 per cent, there is a need for further reduction of at least one percentage point in the average cost of refinance from the present level of 7.5 per cent," Mr Rao opined.

According to him, Nabard has to consider revision of interest on refinance on a concurrent basis in tune with the market trend so as to enable the cooperatives to extend the benefit of falling interest rate regime to farmers.

The NCARDBF board stressed the need for revising interest in respect of loans issued in the past at rates as high as 16 per cent when the refinance was costing 12 per cent. "Borrowers are resorting to closing of high cost loans taken in the past by availing loans at the current interest rate from other banks," Mr Rao said.

The National Housing Bank has recently brought down the rate of interest on refinance outstanding with the primary lenders in tune with the current market trend. This, Mr Rao said, has enabled primary lenders of housing loans including Agriculture and Rural Development Banks to substantially reduce interest on outstanding housing loans.

The NCARDBF was of the view that Nabard should also consider bringing down the interest on outstanding refinance as was done by National Housing Bank.

"This will enable the cooperatives to effect reduction in the rate of interest on their outstanding loans and to arrest the trend of large scale premature closing of such loans by availing a loan at a lower rate from a different bank," the Federation Chairman said.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Farmers switching over to low interest loans — Rural banks fail to pass benefit of falling rates

Palm oil futures to head lower