This will help finance all the credit needs in the agricultural sector, chairman and managing director of Syndicate Bank and an expert on RRBs, N K Thingalaya said. It is a positive step and will increase the profitability of the banks. It goes a long way in the deregulation of the interest rate structure in the financial sector, Thingalaya told Business Standard. He added that the banks will now be in a position to charge a competitive rate of interest which will help in maintaining its spreads. The borrower in the agricultural sector was willing to pay upto 36 per cent to the village money-lender. Now, with the RRBs being allowed to fix their own lending rates they can charge a competitive rate of interest from the borrower, he said.
Another banker said Bangladesh's Gramin Bank became a success as it charged a minimum interest rate of 20 per cent on their lendings and this helped it maintain spreads.
In a press release on Saturday, the RBI freed lending rates of the Regional Rural Banks (RRBs). This measure has been taken to ensure greater manoeuvarablity and to ensure the flow of adequate credit into the rural sector.
This move by the central bank comes in the wake of several measures initiated by the Centre to maintain a steady flow of agricultural credit to the rural sector.