Cheaper loans for vote bank

With an eye on the vote bank, Finance Minister Jaswant Singh showered benefits upon rural consumers, senior citizens, students and farmers by announcing concessional interest rates on loans to them.

He continued to please the growing grey population by announcing a Dada-Dadi bond to be launched by April 1, 2004. This will carry a higher than the market rate of interest.

While the details are being worked out, finance ministry officials said the interest rate could be in the 8-8.5 per cent bracket as against the 8 per cent rate offered on the government of India's taxable savings bonds. Singh had only yesterday exempted pensioners from filing income tax returns.

To please the 650-million strong rural population, Singh has created a Rs 50,000 crore agricultural infrastructure and credit fund to be made operational within a month. Nabard has been asked to finalise the details of the programme that will be spread over the next three years.

He has assured Nabard that the money will be made available to it through an appropriate mix of funds raised from the capital markets and through budgetary resources.

Singh also made it more easy for rural consumers to avail of housing loans. Not only will the newly announced Atal Grameen Griha Yojana provide incentives for rural finance, it will compensate commercial banks, regional rural banks and housing finance institutions for higher incidence of non-performing assets by exempting them from tax on the entire income received from such advances.

He also targeted the student community by liberalising the existing education loan scheme and allowing access to bigger loans at 200 basis points below the prime lending rate. The banks will be provided with necessary support.

According to finance ministry officials, Nabard will be provided with a government guarantee on bonds to raise funds for agricultural infrastructure. The fund will be in addition to the existing unutilised Rural Infrastructure Development Fund.

Singh had during the course of this fiscal asked nationalised banks to extend farm loans up to Rs 50,000 at 9 per cent a year. Today's announcement removes the Rs 50,000 cap.

The new rural housing scheme, Atal Grameen Griha Yojana, provides a mechanism for insurance cover against defaults arising from any non-enforceability of the security because of defects in the title or title disputes. This means that rural borrowers need not worry about defaults as the government will pick the tab for insurance against defaults.

Singh said the rural borrowers would have the flexibility on repayments in line with harvesting seasons and other conditions specific to the rural economy. The details will be worked out by the National Housing Bank in consultation with the Reserve Bank of India.

The finance minister has also approved a scheme to reduce the government's food subsidy by allowing the Food Corporation of India to raise funds through market borrowings backed by the Centre's guarantee instead of approaching commercial banks. It will reduce the food subsidy bill by Rs 2,000 crore and at the same time ensure that procurement of foodgrain is not affected.

Luring the voters

• Dada-Dadi bonds to pay senior citizens more than the market rate
• Tax exemption for bank loans to rural housing schemes, repayment to be flexible
• Rs 50,000 crore agri-infra and credit fund planned, to offer loans at 2% discount to PLR
• Student loans to be cheaper by 2 percentage points