Short term crop loans to farmers will now be offered at reduced rates owing to the subsidy offered by Government on the same. This move will put a burden on banks as they have recently hiked deposit rates too.
Credit flow to the agriculture sector will not be hampered as it is mandated to banks to lend out 18% of their total loan portfolio to agriculture.
The interest subvention scheme on crop loans has been increased by the Government by 50 bps for loans less than Rs 3 lakhs.
The banks are expected to provide Rs 2,00,000 crore in short-term crop loans this year.
"The lower interest subvention has been given after taking into account the current interest rate regime and inputs from National Bank for Agriculture and Rural Development (Nabard)," said a senior finance ministry official.
"We have no option but to lend as we have to meet the priority sector targets," said a senior official of State Bank of India.
A senior offficial with PNB said that banks are following RBI guidelines regarding NPAs.