The Hindu Business Line : Banks agree to reduce interest on food credit

FOLLOWING the Food Corporation of India's (FCI) threat to mobilise funds directly from the market and the Finance Ministry's endorsement of the same, the consortium of banks led by State Bank of India (SBI) has decided to reduce the interest on food credit by 150 basis points.

Currently, FCI is availing of credit to finance its operations through a special arrangement made by the Reserve Bank of India (RBI) through a 61 bank-consortium, with the lending rate being 10.95 per cent.

This, in turn, has been fixed based on the average prime lending rate (PLR) of five leading banks in the consortium - SBI, Canara Bank, Punjab National Bank, Bank of Baroda and Bank of India.

Taking into account FCI's average annual borrowings of around Rs 20,000 crore, the 150 basis points cut is expected to result in interest savings of Rs 300 crore per year, with the Centre's food subsidy outgo also coming down by the same amount.

"Further reduction in the interest rate to bring it on part with the market-driven rate has been taken up with SBI," an FCI statement said.

SBI, after consulting with the member banks, has also agreed to allow FCI to undertake market borrowings of Rs 5,000 crore in stages, the statement added.