The Hindu Business Line : Nabard doubles crop loan refinance to co-ops

The National Bank for Agriculture and Rural Development (Nabard) will more than double its share of refinance for crop loans extended by the co-operative banks in Kerala.

The refinance will be increased from an estimated Rs 300 crore to Rs 650 crore at an interest rate of 2.5 per cent, according to Mr B.S. Shekhawat, Chief Regional Manager, Nabard.

The arrangement is on the condition that the co-operatives will extend the loan to the farmers at no more than 7 per cent interest. Currently, the interest rates for crop loans ranges between 8.5 and 10.5 per cent.

Mr Shekhawat said that Nabard refinance is a supplementary resource for the co-operative banks to recoup their finances and to cross-subsidise their crop loan operations. This makes it imperative for the co-operative banks to raise their share in crop loans to fully avail themselves of the enhanced refinance allocation.

He said that the Nabard has also asked the Government to refund the treasury deposits of Ernakulam and Palakkad district co-operative banks, amounting to Rs 67 crore and Rs 88 crore, respectively. This will make them eligible for Nabard refinance and also free the funds for lending to the farmers.

Besides, the Government will have to streamline the functioning of the Kerala State Co-operative Bank and improve its credit absorption capacity for the enhanced amount of refinance.

REDUCED INTEREST RATES

During the current year, the commercial banks and regional rural banks (RRBs) have also agreed to make available crop loans at 7 per cent interest. In the circumstances, the co-operative banks will lose their borrower base substantially if they do not bring down their interest rates to comparable levels, Mr Shekhawat said. However, the co-operative banks will be able to further reduce the interest rates below the 7 per cent level only if the State Government provides upfront an interest subvention to the former, he added.

He pointed out that the farms loans provided by the co-operatives are dearer because the cost of funds for them is high. This, again, is the result of the unrealistically high interest rates they pay for deposits. The Reserve Bank and Nabard have long ago granted freedom to the co-operatives to fix their interest rates on deposits.

In Kerala, the district co-operative banks' conference, chaired by the Minister for Co-operation, has been determining the interest rates without going into individual bank's portfolio analysis or affordability. In effect, the State Government has continued to regulate interest rates on deposits of co-operatives. However, this is not a sustainable option. The co-operatives cannot continue to pay higher interest rates on deposits and charge lower rates on loans. In addition, the management costs of the co-operatives have gone up with the recently increased salary structure.

REVISED ESTIMATES

As per the revised estimates, the total crop loans disbursed in Kerala during 2005-06 were approximately to the tune of Rs 7,900 crore, including the share of Service Co-operative Banks. Out of the total amount, the commercial banks provided Rs 3,595 crore, while the share of the RRBs was Rs 1,211 crore and that of district co-operative banks Rs 990 crore.

The total flow of crop loans during the current year is estimated at more than Rs 10,000 crore, shared by commercial banks (54 per cent), co-operatives (32 per cent) and RRBs (14 per cent). Nabard will extend refinance of Rs 325 crore to RRBs in the State at an interest rate of 4.5 per cent.

More Stories on : Farm credit | Agricultural Institutions | Kerala | Co-operatives

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