Jaswant gets lesson from Rajnath on interest rates

With interest rates on loans for every imaginable item plummeting, Minister for Agriculture Rajnath Singh today presented Finance Minister J...

With interest rates on loans for every imaginable item plummeting, Minister for Agriculture Rajnath Singh today presented Finance Minister Jaswant Singh a detailed note on how to reduce interests on agricultural loans. Interest on agricultural loans is higher than the interest charged on any other item at present. According to Singh, this is responsible for the slow rate of private sector investments in the agricultural sector.

‘‘It all began in 1994 when interest rates were deregulated. Before that, interest on agricultural loans used to much lower than industrial, housing and consumption loans. Now the situation has reversed. While the interest rate on housing loans ranges between 8.5 to 10 pc, the interest charged on agro loans is between 11 and 14 pc,’’ Rajnath said.

Though the RBI has pushed the bank rates down from 11 to 6 pc over the past five years, the average lending rate of commercial banks for agricultural loans have not been reflected this fall, his note said.

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Among the steps that he has suggested:
• A separate Agricultural Lending Rate on the pattern of Prime Lending Rate.

• The rate of interest on agricultural loans at least one per cent less than the lowest rate of rate charged on loans advanced for industrial transport, commercial or consumption purposes.

• Charges other than the rate of interest such as folio charge, inspection charge and service charge on agricultural loans should be done away with.

• Banks can reduce transaction costs by better fund management and by adopting innovative cost effective measures for credit delivery.

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• The RBI should resume providing funds to cooperative banks directly and at a lower rate of interest as it used to do some years ago at an interest rate of 3 pc below the bank rate.

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