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Six public sector banks have incurred a loss of around Rs 1,900 crore up to June 2014 because of credit granted towards crop loans, Parliament was informed today.
"According to the information received from six Public Sector Banks (PSBs), a loss of around Rs 1,900 crore in this regard during the years 2011-12, 2012-13, 2013-14 and 2014-15 (up to June, 2014) has been indicated," Finance Minister Arun Jaitley said in a written reply in the Lok Sabha.
To provide affordable credit to farmers, the government since 2006-07 has started the interest subvention scheme, whereby crop loans of up to Rs 3 lakh are given to farmers at 7% rate of interest and banks are given a subvention of 2% by the government.
In case of a prompt repayment of loan, a further subvention of 3% is given which reduces the effective cost of borrowing for farmers to 4%.
Jaitley said earlier banks were lending with reference to benchmark prime lending rate (BPLR) which was replaced with base rate from July 2010.
Banks are not allowed to lend below the base rate.
However, certain exemptions have been given to banks to lend below the base rate due to provisioning of the interest subvention scheme on crop loans.
The current base rate of banks range between 10% or more, Jaitley said.
He said cost of funds and operating cost vary from bank to bank and it is possible that some banks may be lending below the cost by around 1% or more less than the base rate as far as crop loans are concerned.
"However, this loss gets cross-subsidised through other profitable loans above base rates," he said.
Also, cooperative and regional rural banks (RRBs) get short term refinance from NABARD at the rate of 4.5%.
"Thus, in cases where the short-term crop loan disbursement by cooperative banks or RRBs is covered by NABARD's refinance, they get a margin of 2.5%.
