Pvt banks eye a bigger pie in crop loans

Private sector banks are sensing a business opportunity in rural villages following the government's decision to extend interest subvention scheme to short-term crop loans offered by these lenders. This scheme was so far restricted to public sector banks and allowed state-run lenders to lend crop loans at lower rates than their private sector rivals.

"The move will ensure level playing field among public and private banks. Till now, public sector banks have been enjoying a cost advantage over us. Small and marginal farmers preferred public sector banks because of lower interest rates. The subvention scheme will allow us to compete with them," a senior banker in charge of agri loan business of an old-generation private bank said.

State-run banks currently give short-term crop loans up to Rs 300,000 at an annual interest rate of 7%. Farmers who repay their dues on time are eligible for another 3% subvention. Hence, the effective borrowing rate for them is only 4%. Some state governments also provide subsidies and loans are made available at as low as 2-3% interest.

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