Lower refinance rates in the works for Regional Rural Banks
The government is looking at lowering the refinance rates for regional rural banks, or RRBs, as these rates have increased by 200 basis points, or two percentage points, in the last two years, people aware of the development said.A suggestion in this regard was made by banks to finance ministry officials during a course of discussion on measures needed to further strengthen the regional lenders last month, they said.
The existing rate of refinance for RRBs is 6.6%. This, industry insiders said, was impacting RRBs' capacity to lend.
"Lower refinance rates will help RRBs to bring down their rates, give more loans and expand credit to rural areas," an official said.
In the ongoing review of RRBs, bankers have suggested linking their refinance rates to prevailing market rates, he added.
The government has directed banks to formulate a clear roadmap in a time-bound manner to strengthen the RRBs to support the post-pandemic economic recovery and make technological advancement.
In April this year, State Bank of India chief economist Soumya Kanti Ghosh in a report on RRBs had suggested that refinance to regional lenders may be rationalised at reasonable rates and prepayment should be allowed in case of old loans, wherein the refinance rate is higher, without penalty.
National Bank for Agriculture and Rural Development (Nabard) extends refinance at a concessional rate of interest to RRBs for supplementing their resources for short-term and long-term lending.
Refinance at a cheaper rate is expected to increase ground-level credit and boost capital formation in agriculture.
During 2020-21, Nabard had disbursed total refinance of ₹44,975 crore to RRBs.
"Nabard is also aware of the issue. It is being examined if there can be any measures that can be taken to bring down the refinance rates," said the official quoted above.
A senior bank executive said another suggestion that is being examined is 'One nation, one scale of finance'. "It is at a very early stage," he added.
Scale of finance (SoF) is the money required for growing a crop per one acre, or hectare, or any other unit, of cultivated area, and it forms the basis for determining the eligible credit for each crop and farmer. The limit for Kisan Credit Card, or KCC, is also decided based on SoF, crop grown, and area cultivated.
SoF is fixed for every crop at the district level by a district-level technical committee.
"There are various issues in having a single SoF as various conditions such as irrigation facilities and different climatic conditions need to be taken into account," said the executive cited above.
This story originally appeared on: India Times - Author:Tax Cognition
