Banks to get rate sop on handloom loans

After providing subsidy for cheap farm loans, the government is set to extend similar support to the ailing handloom sector. Accordingly, public sector banks are likely to be given interest subvention of 2-2.5 per cent for providing loans at 7 per cent interest rate to the handloom sector.

T K A Nair, principal secretary to the prime minister, is understood to have held a meeting today in this regard. The Indian Banks' Association has demanded 2.5 per cent subvention to cover the cost of funds and risk premium for extending such loans.

A revival package of Rs 1,295 crore has been prepared for the handloom sector by a committee headed by K G Karmakar, managing director , National Bank for Agriculture and Rural Development.

The panel also included representatives of state directorates of handlooms of major states, the Reserve Bank of India, the Indian Banks' Association, the National Association of State Cooperative Banks and the National Institute of Fashion Technology. Of the revival package of Rs 1,295 crore, the share of the central government could be Rs 1,155 crore, states' share Rs 130 crore and the contribution of Nabard would be Rs 10 crore.

The proposed package is intended mainly to write off overdue interest and overdue loans of weavers and apex handlooms societies as on March 31, 2006, and also to provide subvention to all lenders including commercial banks.

The government has been giving interest subvention of 2 per cent to lenders for extending short term credit up to Rs 3 lakh to farmers, for which Rs 1,677 crore provision has been made in 2007-08. Interest subvention in agriculture was introduced from 2005-06.

Keeping in mind cost of funds and risk premium, the IBA has sought interest subvention of 2.5 per cent for lending at 7 per cent to weavers. It has also asked similar support for other banks and financial institutions as is being provided for loans to farm sector.