State Bank of India chairman A K Purwar, Punjab National Bank chairman S C Gupta, Bank of Baroda chairman A K Khandelwal and Bank of India chairman M Balachandran met finance minister, P Chidambaram, in New Delhi and told him very categorically that lending to farmers at concessional rate was unviable without the subsidy.
The Reserve Bank of India deputy governor, Usha Thorat and Nabard chairman, Y S P Thorat, were also present at the meeting where ways and means of lending to farmers at 7 per cent was discussed.
The bank chairmen said they wound be able to lend at 7 per cent if the government pays them 2.5 percentage point subsidy as lending to farmers can become viable if the interest income is in the range of 9.5 per cent to 10 per cent.
Another meeting will be held next month to decide on the extent and method of assistance to be provided to PSBs, based on the modalities that would be worked out by the government and the RBI.
The government will be paying Rs 1,700 crore (Rs 17 billion) as interest subsidy directly to farmers who availed of loans in 2005-06.
The meeting also discussed possibility of policy incentives to banks for growing their low cost deposits base and also for designing new savings products for rural areas.
The government has set a farm loan target of Rs 1,75,000 crore (Rs 1750 billion) for 2006-07. The commercial banks' share, of this, is expected to be Rs 1,24,000 crore (Rs 1240 billion).