SBI, India’s biggest bank announced on Friday a reduction in lending rates against warehouse receipts to farmers. It is done with the objective to increase credit flow to rural areas and helping farmers to avoid distress sales during the harvest season.
The bank will disburse loans up to Rs 10 lakh against warehouse and cold storage receipts directly to farmers at a fixed rate of 8% against the floating rates of 10.5-14.25%.
The 8% interest announced by the bank on Friday will come into force with immediate effect and be valid for 12 months in respect of loans sanctioned and disbursed across the country till May-end. After May, a farmer will not be able to avail of the package.
The loans will be made available to farmers, irrespective of whether or not they were given crop loans for raising the produce. The presenet outstanding against such loans is Rs.500-600 crores and SBI expects to increase it to Rs.2000 crore by May end.
SBI lends against warehouse receipts issued by public and private sector warehouses which are recognised by the bank. Prices of agri products tend to decline during the harvest season.
A farmer after depositing his produce with a warehouse, could avail of a loan of up to 65-75% of the value of the produce against a warehouse receipt from the bank which holds the goods as collateral. The bank can sell the goods in the event the borrower defaults on repayment of loan or interest.
Prices on an average tend to rise around 40% three months after the harvest season ends. Therefore if a farmer borrows Rs 100 from the bank, under the current package, he will end up paying just Rs 2 to the lender after three months and get a 40% appreciation in price. He thus enjoys the twin benefit of getting his immediate credit needs met and securing a higher price for his product by selling during the lean season.
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