The Tamil Nadu finance minister on Tuesday said that classifying jewel loans as crop loans would not help improve agriculture.
In his speech at a meeting of Union Finance Minister with Chief Ministers of South Zone States, Union Territories and CEOs of Public Sector Banks and Financial Institutions at Bangalore, O Panneerselvam said lending to the farm sector by banks had shown a remarkable increase over the years. However, the bulk of this lending is dominated by crop loans and there are instances where jewel loans are being classified as crop loans and get diverted to non-agricultural purposes.
“This is not going to improve our productivity. Therefore, efforts need to be taken by financial institutions to strengthen post-sanction monitoring mechanisms to prevent such diversions,” the state finance minister said
The credit flow for investment purposes, allied sector activities and micro level soil and water conservation projects needed to be steeped up substantially to address productivity issues.
He added, Nabard had raised the interest rates for refinance to seasonal agricultural loans from 2.5 per cent in 2006-07 to 4.5 per cent. At present, this refinance is available only up to 50 per cent of the total credit requirement.
These changes had led to “tremendous” strain on co-operative banks’ finance due to the reduce interest spread. Further, two per cent interest subvention support to co-operatives remained unchanged since 2006-07, though the co-operatives had to apply their high cost own funds or deposits for low yielding agricultural loans, he said.
While the commercial banks apply only 18 per cent of their total credit of agriculture, co-operatives involve 75 per cent of their resources to unremunerative agricultural credit.
This has affected their financial viability. Therefore, either the refinance provided by Nabard for seasonal agricultural operations be increased to 100 per cent or the interest subvention support be increased to meet the gap between cost and actual lending rate, he said.