Delay in cross subsidy release hits co-op banks | india | Hindustan Times
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Delay in cross subsidy release hits co-op banks

india Updated: Jan 28, 2007 09:35 IST
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THOUGH THE State Government had announced lowering of the interest rate on farm loans charged by district cooperative banks from between 12 and 16 per cent to 7 per cent in November, it has yet to release interest subsidy to cooperative institutions.

Cooperative institutions and primary agriculture credit societies across the State began recovering farm loan interest at the rate of 7 per cent after the announcement, but they are yet to get the cushion of ‘cross subsidy’ as was promised by the State Government.

The result: the condition of institutions has further deteriorated. Sources in the department admitted that the cooperative institutions were facing problems because money was not released. “The State Government had promised to release Rs 90 crore for the current year in two installments of Rs 51 crore and 39 crore, but the money has not been released till date, causing problems to the cooperative institutions,” they added.

Talking to the Hindustan Times, sources said non-release of money adversely affected the fiscal health of cooperative institutions. Lowering of interest rate and delay in financial assistance have affected the liquidity of these institutions, they added.

Some institutions are facing great difficulty in implementing the government’s decision because the ‘interest subsidy’ is provided only for five per cent, the remaining amount has to be borne by the three-tier cooperative institutions. For instance, if a institution was charging 15 per cent interest, the government provided it interest subsidy of 5 per cent and the burden of remaining three per cent had to be borne by cooperative institutions.

Worried over declining credit flow from the cooperative banks and continuous reduction in their market share because of exorbitant interest rates charged by them, the government had decided to give a handsome ‘interest subsidy’ to cooperative institutions. The decision was taken to enable the banks and societies of the ailing cooperative sector to compete with commercial banks and regain its popularity in the agriculture sector.

Apex Bank Advisor L D Pandit admitted that cooperative institutions are facing problems for want of interest subsidy. “We have requested the State Government many times to release the money but no progress has been made in this regard,” said Pandit. He told the Hindustan Times that even circulars and detailed guidelines about interest rates reduction had not been issued.

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