The Budget has proposed an interest subvention of 2% on crop loans hit by a natural calamity, and a further 3% concession for timely payment
Finance Minister Piyush Goyal has extended an interest subvention of 2% on crop loans to all farmers hit by severe natural calamities, as well as prompt repayment incentive of 3% for the entire period of re-schedulement of their loans.
Similarly, the Interim Budget gives a 2% interest subvention to farmers who are engaged in animal husbandry and fisheries and who obtain loans through the Kisan Credit Card.
Again, in case of timely repayment of loans, they will also get an additional 3% interest subvention.
"Interest subvention announced for farmers pursuing animal husbandry and fishery will provide a fillip to this sector," said Rajnish Kumar, chairman of the State Bank of India (SBI).
In the last five years, the amount of interest subvention — which simply means a subsidy offered on interest rates — has been doubled to provide affordable loans to farmers. The crop loan to farmers increased to Rs 11.68 lakh crore in the fiscal 2018-19.
When natural calamities strike, farmers are generally unable to repay their crop loans. As of now, the loans are rescheduled for farmers thus affected.
"Interest subvention announced for farmers dealing in animal husbandry and fisheries will provide a boost to this sector," said Sunil Mehta, managing director and chief executive officer, Punjab National Bank.
"The announcement of an Assured Income Support Scheme for small and marginal farmers is the most welcome step," he said, adding, "Exemption of tax on a second self-occupied house is likely to give a boost to the housing sector too."
Bank deposits to grow
At the same time, bank deposits growth is likely to improve with the Interim Budget allowing a tax break on the interest earned on bank deposits.
Now, interest earnings of up to Rs 40,000 from bank and postal deposits will be exempt from tax deduction at source (TDS).
This is a relief for the banking sector, especially for the smaller banks who are battling a resource crunch. The year-on-year (YoY) credit growth up to January 2019 was 14.5% while the deposit growth during the same period was 9.9%, which would have created asset liability mismatches (ALM).
"Hiking the ceiling limit for TDS on bank deposits and small savings will act as a catalyst for this deposit segment by attracting new depositors," said Rajnish Kumar of SBI.
Finance Minister Piyush Goyal said, "The Insolvency and Bankruptcy Code has institutionalised a resolution-friendly mechanism, which is helping in the recovery of nonperforming loans while preserving the underlying businesses and jobs. Earlier, only small businessmen used to experience the pressure of repayment of loans, while in the case of big businessmen, it was the headache of banks. But now, defaulting managements are either paying or exiting their businesses."
An amount of close to Rs 3 lakh crore has already been recovered in favour of banks and creditors.
To restore the health of public sector banks, recapitalisation has been done with an investment of Rs 2.6 lakh crore.
Amalgamation of banks has also been done to reap the benefits of economies of scale, improved access to capital, and to cover a larger geographical spread, Minister Goyal added.
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