With interest rates heading northward on consumer, auto and housing loans, a Gujarat-based bank is actually mulling to reduce interest rates to as low as 2 per cent on agricultural advances to be offered in the next financial year (2012-13), a bank official said today.
Normally, agricultural advances attract a 7 per cent interest. The Rajkot District Cooperative Bank (RDC) has been reducing interest rates on farm loans by 1 per cent each year for the last few years, which is unique in the Indian banking industry.
The shareholders’ Annual General Meeting (AGM) of RDC, which was held last week, approved the management’s proposal to reduce the rate to 2 per cent, Mr C.N. Tarpara, General Manager, told Business Line. A final decision will be taken at the bank’s Board meeting to be held shortly.
In 2010-11, RDC had advanced farm loans at a 4 per cent interest rate, which was further reduced to 3 per cent in the current financial year (2011-12). If approved by the Board, the bank would reduce the rates further to just 2 per cent, he said.
With each reduction of 1 per cent in interest rate, the bank’s profits reduce by about Rs 10 crore, but the number of beneficiaries and their income goes up, Mr Tarpara said.
Last year, RDC had made a profit of Rs 54 crore. Reducing interest rates benefits the farmers and also boosts the growth of agriculture, he added.
The decision would benefit about two lakh farmers in Rajkot and Junagarh districts of the Saurashtra region of Gujarat, who are increasingly cultivating cash crops like groundnut and cotton.
RDC currently has 133 branches in Rajkot district and plans to open 15 new branches in neighbouring Junagarh district this fiscal. It is one of the 18 district cooperative banks currently operational in Gujarat.
RDC had Rs 1,800 crore deposits and advances worth Rs 1,650 crore, including farm loans for about Rs 1,100 crore as of March 31, 2011.