He said that a suggestion in this regard was made by the banks to the officials of the Finance Ministry during the discussion on measures needed to further strengthen the sectoral lenders last month.
The current rate of refinance for RRBs is 6.6%. Industry insiders said, this was affecting the lending capacity of RRBs.
“The lower refinance rates will help RRBs to reduce their rates, give more credit and expand credit to rural areas,” an official said.
He said that in the ongoing review of RRBs, bankers have suggested linking their refinance rates to the prevailing market rates.
The government has directed banks to prepare a clear roadmap in a time-bound manner so as to strengthen RRBs to support economic recovery post-pandemic and make technological advancements.
In April this year, state Bank of India chief economist Soumya Kanti Ghosh A report on RRBs had suggested that refinancing to sectoral lenders may be rationalized at reasonable rates and prepayment should be allowed in case of old loans, in which the refinance rate is high, without penalty.
National Bank for agriculture and rural development (nabard) provides refinance to RRBs at concessional interest rates to supplement their resources for short term and long term borrowings.
Affordable refinance is expected to increase credit to the grassroots and boost capital formation in agriculture.
During 2020-21, NABARD disbursed total refinance of ₹44,975 crore to RRBs.
“Nabard is also aware of the issue. It is being examined whether any measures can be taken to bring down the refinance rates,” the official said.
A senior bank official said that another suggestion is being examined, that of ‘one nation, one finance scale’. “It is at a very early stage,” he said.
The Scale of Finance (SoF) is the amount of money required to grow per acre, or hectare, or any other unit, of the cultivated area, and forms the basis for determining the eligible loan for each crop and farmer. limit for Kisan credit cardeither KCCSOF is also decided on the basis of crop grown and area under cultivation.
The SOF for each crop is decided at the district level by the District Level Technical Committee.
“There are many issues in having a single SOF as different conditions such as irrigation facilities and different climatic conditions have to be taken into account,” the executive quoted above.