Govt plans to set up Rs 5,000-cr fund for RRBs, co-operatives

NEW DELHI: The government is considering setting up a Rs 5,000-crore fund for meeting the short-term financing needs of co-operatives and regional rural banks (RRBs), enabling them to provide timely funds to the farm sector.

According to a finance ministry official, an announcement regarding the fund is likely to be made in the up coming Budget on February 26. The corpus will be built from the shortfall in priority sector lending targets by the commercial banks.

“A separate fund will ensure that there is no liquidity crunch in agriculture lending,” the finance ministry official told ET. The fund will be administered by the National Bank for Rural and Agriculture Development (Nabard) and is expected to lessen the interest subvention burden for providing cheaper loans to the farmers.
Nabard expects the credit growth to rise as the winter harvest will be good. “Cheaper credit will ensure the momentum going and will absorb the lagging affect of the past year drought,” said a Nabard official, requesting anonymity.

Nabard has set a lending target of Rs 33,000 crore of which Rs 21,000 crore is for short-term loans and Rs 12,000 crore for long-term loans. Currently, Nabard gives loan to RRBs at around 4.5%, while the interest rate for co-operative banks is around 4%. The cost of raising funds for NABARD is 6% so the government has to every year provide interest subvention to the nodal agency.

“Creating a separate corpus will give Nabard the leeway to raise resources at a cheaper rate,” the official said.
The farm credit target for banks this fiscal is Rs 3,25,000 crore, of which Rs 1,85,000 crore is for short-term credit. “It is expected banks may go slow on farm loans given the poor recovery under agricultural relief schemes,” said the finance ministry official.

The government may extend further monetary support from the Rs 14,000 crore corpus under Rural Infrastructure Development Fund (RIDF) towards agriculture loans in such a scenario.