Bankers worry over lending to farmers & exporters in the base rate system
By Vaibhav Aggarwal
Jun 17, 2010
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Bankers seem to have a reason to worry with base rate coming into play. Bankers are apprehensive about handling credit to farmers and exporters in the base rate regime.

As of now, the Governmnet had been bearing a part of the cost of such loans which banks fear might stop soon. It has been mandated that no state owned bank can lend to farmers at more than 7% rate of interest even if the cost of funds of the bank is more than 9%. But this has so far been possible because Government paid the remaining 2% as subsidy.

"Banks receive the 2% subsidy on grounds that the cost of lending to farmers is much higher than the mandated interest rate of 7%. But there is every possibility that finance ministry may argue that since the floor interest rate is 8%, the subsidy will be 1% , and not 2%," said a senior official of a PSU bank.

"Since the government has been talking about fiscal consolidation, it will look at ways to lower interest subsidy," said another banker.

The Indian Banks' Association (IBA) will meet RBI to discuss this concern of theirs.


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