| Finance minister Jaswant Singh at the Nabard Award Function in New Delhi on Wednesday. (PTI)
New Delhi, Nov. 6: Finance minister Jaswant Singh today urged regional rural banks and co-operatives to reduce transaction costs to pass on the benefits of lower interest rates to farmers and thus boost rural credit offtake.
“Even though interest rates have softened, we are unable to transfer the benefits to the agriculture sector as our transaction costs remain high,” Singh said at an awards function hosted by National Agricultural Bank for Rural Development (Nabard).
“If provisioning of credit is not easy, the costs keep increasing,” he added.
The Reserve Bank of India, in its credit and monetary policy, slashed the bank rate by 25 basis points to 6.25 per cent while reducing the repo rate by the same margin to 5.5 per cent.
“India is basically an agricultural country where 80 per cent of the population is engaged in the agriculture and rural sectors,” Singh said. “If the cost of credit to 80 per cent of the population is higher, then we have to correct it. Otherwise the entire process is defeated,” he said
Referring to the sickness and high incidence of non-performing assets in the cooperative sector, the minister said, “Why has the cooperative sector become sick' Why weren’t remedial measures taken'”
While assuring the government's support to the ailing sector, he said the Centre has initiated legislative changes but the reform movement in the cooperative sector has not been spread evenly among all states.
Nabard, a subsidiary of the Reserve Bank of India, provides refinance facilities to cooperative and rural banks at 5.5-7 per cent for short term loans, 7-10 per cent for term loans and 8.5 per cent on Rural Infrastructure Development Fund (RIDF).
The minister of state for finance Anand Rao Adsul also reiterated Singh’s stand. “The overall development of the country is possible only when banks reach out to the poorest of the poor, grant them easy credit facilities and assist in their development,” he said.
The government had made a provision of Rs 100 crore to reform the ailing co-operative sector in this year’s annual budget. Adsul said, “The sector needs more government assistance. Till now most state help went to the commercial banking sector towards its restructuring.
He said the government is considering restructuring packages worth Rs 8,000 crore for Industrial Bank of India (IDBI) and Rs 12,000 crore for Industrial Finance Corporation of India (IFCI). But the process would take some time as the government is still looking into various options for IDBI, he added.
Singh and Adsul both gave away prizes for the best performing cooperative banks.
Nabard will raise Rs 700 crore through issue of tax-free bonds. This is part of the institution's efforts to raise Rs 2,700 crore to improve farm sector infrastructure.
“We expect to get approval from the government within the next few days,” said Nabard chairman Y. C. Nanda. The institution will raise the rest through capital gains and priority sector bonds, he added.