Cooperative Banks Current Affairs

Union Cabinet approves Interest Subvention on Short-Term Crop Loan to Farmers

The Union cabinet has approved the Interest Subvention Scheme (ISS) for farmers for the year 2017-18. The Government has allocated Rs. 20,339 crore for this scheme.

Salient Highlights

The objective of the scheme is to make available agricultural credit for Short Term crop loans at an affordable rate. The scheme is expected to boost agricultural productivity and production in the country.

Under this scheme, farmers will be given a short term crop loan up to Rs. 3 lakh payable within one year at an interest rate of 4% per annum.

The scheme will be continued for 1 year and will be implemented by NABARD and RBI. 

The interest subvention will be provided to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) and to NABARD for refinancing to RRBs and Cooperative Banks.

Interest subvention of 5% per annum will be provided to those farmers who pay the short term crop loan in time. Farmers will have to effectively pay only 4% as interest. For farmers who do not pay crop loan in time the interest subvention of only 2% will be applicable as against 5% available above.

This institutional credit is expected to demotivate farmers from taking loans from non-institutional sources of credit at high rates of interest.

Background

Interest Subvention Scheme (ISS) has been running since 2006-07. Under this scheme, crop loans are offered at 7% rate of interest for loans up to Rs.3 lakh. Further subvention of 3% will be provided to farmers who prompt repay the loans within a period of one year from the date of advance.

The scheme also offers post-harvest loans for storage in accredited warehouses against Negotiable Warehouse Receipts (NWRs) for a period of 6 months to check distress sale.

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R Gandhi committee of RBI recommends conversion of UCBs into regular banks

A Reserve Bank of India (RBI) committee has recommended conversion of Urban Cooperative Banks (UCBs) with business size of 20,000 crore rupees or more into regular banks.

This recommendation was given by the High Powered Committee on UCBs headed by RBI Deputy Governor R Gandhi in its report.

Recommendations

  • Conversion of UCBs will not be compulsory for large UCBs and they can continue the way they operate currently in terms of asset size and balance sheet.
  • Large UCBs can convert themselves into commercial banks in order to minimise the systemic risk.
  • For conversion, smaller UCBs with business size of less than 20,000 crore rupees who are willing to convert to Small Finance Banks can apply to the RBI.
  • Licenses for conversion to operate as UCBs will be issued to well-managed and financially sound cooperative credit societies having a minimum track record of 5-years.
  • With the conversion, UCBs will be allowed to grow and proliferate further to meet the objective of financial inclusion.

Background

  • The High Powered Committee on UCBs was constituted in January 2015 on the recommendation Malegam Committee (Expert Committee on Licensing of New UCBs).
  • Terms and reference of the committee was to examine and recommend on issues of conversion of UCBs into commercial banks. The committee work was to examine permissible business lines and appropriate size of UCBs for conversion purpose.

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