Dist co-op banks to get interest subsidy | india | Hindustan Times
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Dist co-op banks to get interest subsidy

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 Madhya Pradesh Government has decided in principle to give a handsome ?interest subsidy? to the District Central Cooperative Banks. It will enable the banks of ailing cooperative sector to compete with commercial banks and regain its popularity in the agriculture sector.

india Updated: Aug 26, 2006 07:22 IST

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 Madhya Pradesh Government has decided in principle to give a handsome ‘interest subsidy’ to the District Central Cooperative Banks. It will enable the banks of ailing cooperative sector to compete with commercial banks and regain its popularity in the agriculture sector.

At present, the cliental of cooperative banks is eroding at a faster pace because of high interest rates being charged by them. With the cushion of ‘interest subsidy’, the Government feels, cooperative sector banks will be enable to recapture the market.

Against the prevailing interest rates of 7 to 8 per cent, cooperative banks are charging 12 to 16 per cent from farmers. Due to huge difference in the interest rates, the base of cooperative banks is eroding at a faster pace, admitted a senior officer, adding that if corrective measures are not taken soon things may go out of hands.  

The existing gap in the interest charged by cooperative and commercial banks, saw market share of the cooperative banks in the agriculture sector going down from 95 per cent to 48 per cent, said sources in the Cooperative Department. Apart from providing interest subsidy tof cooperative banks, the Government is also contemplating to make major change in their functioning, they added.

As per initial discussions among Chief Minister, top BJP leaders and senior officers, it was decided in principle to provide interest subsidy to cooperative banks to make them cooperative. After getting the interest subsidy, cooperative banks would be able to reduce prevailing gap in the interest rates thus able to recapture their market, was the feeling at the Government level.

When contacted, Co-operative Minister Gopal Bhargava admitted that the State Government is concerned about the future of cooperative banks. Already, rounds of discussions were held on ‘how to make them competitive?’ but no final decision has been taken, revealed the Minister. 

The decision would be taken in the interest of lakhs of farmers associated with the banks of cooperative sector, said Bhargava.