Banks finalise farm credit sop

Seek 2.5 percentage points interest subsidy for providing short-term agriculture credit.

Public sector banks (PSBs) today made a strong pitch for a minimum 2.5 percentage point interest subsidy for providing short-term farm credit at 7 per cent as announced in the 2006-07 Budget.

State Bank of India chairman A K Purwar, Punjab National Bank chairman S C Gupta, Bank of Baroda chairman A K Khandelwal and Bank of India chairman M Balachandran today met finance minister, P Chidambaram, in New Delhi and told him very categorically that lending to farmers at concessional rate was unviable without the subsidy.

The Reserve Bank of India (RBI) deputy governor, Usha Thorat and Nabard chairman, Y S P Thorat, were also present at the meeting where ways and means of lending to farmers at 7 per cent was discussed.

The bank chairmen said they wound be able to lend at 7 per cent if the government pays them 2.5 percentage point subsidy as lending to farmers can become viable if the interest income is in the range of 9.5 per cent to 10 per cent.

Another meeting will be held next month to decide on the extent and method of assistance to be provided to PSBs, based on the modalities that would be worked out by the government and the RBI.

The government will be paying Rs 1,700 crore as interest subsidy directly to farmers who availed of loans in 2005-06.

The meeting also discussed possibility of policy incentives to banks for growing their low cost deposits base and also for designing new savings products for rural areas.

The government has set a farm loan target of Rs 1,75,000 crore for 2006-07. The commercial banks' share, of this, is expected to be Rs 1,24,000 crore.

SBI to hike home loan rates:State Bank of India may hike home loan rates by 25-50 basis points, Chairman AK Purwar said Monday. He said SBI was reviewing home loan rates but no time frame has been decided on hiking them.

"We are reviewing our home loan portfolio, and both fixed and floating rates will be looked into," Purwar said after a meeting with Finance Minister P Chidambaram.

"It is difficult to give a timeframe (on increasing home loan rates) or the quantum, but looking at market conditions it may be 25-50 basis points," he said.

In its annual policy on April 18, the Reserve Bank of India had raised risk weight on commercial property loans to 150 per cent from 125 per cent and provisioning on housing loans above Rs 2 million to 1 per cent from 0.4 per cent.

This is likely to force banks, including SBI, to raise home loan rates. India's largest housing finance company, Housing Development Finance Corp, would take a decision this week on hiking interest rates on retail and bulk home loans.