Govt. offer incentive for farmers of 1% rate cut for timely payment

To control the rising bad loans in banks in agriculture portfolio the government has announced incentives for farmers who have been repaying their dues on time. According to this the reliable borrowers will now pay an interest of 6% instead of 7% on short-term crop loans up to Rs 3 lakh.

Up till now the government had offered an interest rate financial support of 3% on short-term crop loans to farmers. This means it paid banks the difference between the actual loan rate of (10%) and the rate offered to the farmer. Now in the budget this subsidy has been increased to 4%, for which the government has set aside Rs 411 crore

MV Nair, CMD of Union Bank of India and chairman of IBA said, “This was one of the proposals made by the Indian Banks’ Association to incentives farmers who made payments on time, but did not get benefits of the FY09 Budget because the farm loan waiver was mainly aimed at those farmers who had not paid their dues to banks”. However last year Union Bank of India by itself had reduced interest rate by 50 bps to 6.5% for those farmers who repaid loans on time.

On the other hand country’s largest lender, the State Bank of India (SBI), witnessed rise of Rs 3,079 crore in the bad loans in the agriculture sector because of the Rs 71,000-crore loan waiver announced in last year’s Budget. As a result of this even those farmers who were not entitled to the waiver, stopped repaying loans, due to which NPAs for many banks moved up sharply.

AC Mahajan, CMD of Canara Bank, pointed out, “This move will bring more discipline among farmers to pay on time and will also reward prompt payment. This will also send out a message that they should not be misled by vested interests who lead them to believe in gains by non-payment of dues.”

Besides from the increased financial support, the government has also taken decision of extending the deadline for one-time settlement of farmers’ dues. In the last Budget, farmers with over two hectares of land were allotted a time period up to June 30, 2009, to repay 75% of their dues and an exemption for the rest. Now this period has been extended by six months to December 31, 2009.

Moreover to make possible for the students from economically weaker sections to take up higher education, the government has decided to provide full interest subsidy during the period of freeze. Under this loans will be covered taken by these students to pursue approved courses from recognized institutions in India.