Banks to pay for farm package

Putting pressure on the banks8217; balance sheets, Finance Minister Jaswant Singh has announced a host of populist measures for the farm sector. Bank stocks plummeted across the board after the announcement. He has asked banks to extend crop loans at softer rates and announced restructuring of loans of industries like tea and sugar. The FM has urged banks 8212; which are already reeling under Rs 1,10,000 crore NPAs 8212; to provide credit support at below 9 per cent rate of interest with a soft collateral 8212; which basically means free loans. 8220;The Government should not try to micro-manage banks,8221; said Ila Patnaik of NCAER. 8220;This is bad for the banking sector. They government are using the public sector banks to please various sectors of the society,8221; says Patnaik. Bankers have already cautioned about the new proposal. 8220;There is a possibility that interest rates for big borrowers, who have been getting loans at fine rates, could now go up to offset the impact of reduction in rates to farm sector,8221; says K. Cherian Varghese, CMD, Corporation Bank.

A special tea term loan repayable in five years has been announced. 8220;Banks will have to suffer from this bailout of the tea sector. Some of these loans may end up as NPAs,8221; said a banker. Meanwhile, it was a bad day for bank stocks. PSU banking stocks Canara Bank down 10.94 to Rs 121.35, Bank of India down 10.70 to Rs 57.60, UCO Bank down 8.77 to Rs 20.80, Union Bank of India down 8.76 to Rs 45.30 and Andhra Bank down 7.56 to Rs 44.05 lost ground.