Date:23/05/2006 URL: http://www.thehindu.com/2006/05/23/stories/2006052321880100.htm

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MFIs' interest rate to be regulated

Special Correspondent

YSR asks SLBC to step up lending to tenant farmers, urban SHGs

KEEN EYE: Chief Minister Y.S. Rajasekhara Reddy watching a multimedia presentation at the 158th State-level Bankers' Committee meeting in Hyderabad on Monday. - Photo: Mohd. Yousuf

HYDERABAD: In a bid to prevent micro-finance institutions from charging usurious interest rates, the State Government is contemplating a proposal to regulate the rates, and constituted a committee to work out the modalities.

Chief Minister Y. S. Rajasekhara Reddy told reporters here on Monday, after launching a Rs.37,000-crore State Credit Plan for 2006-07, that the committee would frame regulations to fix a diminishing rate of interest. It would submit its report in a week.

Stating that MFIs were charging 24-30 per cent flat rate of interest, he said that many problems would be solved if the rate was cut, citing the cap of 12 per cent rate on private money-lenders.

He urged banks to increase lending to the self-help groups and village `samakyas' as it would discourage them from approaching MFIs.

Replying to a question, he urged cotton farmers not to buy Bt cotton seed at exorbitant rate as the Government would soon hold a meeting to solve the problem.

Earlier, launching the credit plan, with focus on lending for agriculture, SHGs and SME sector, he wanted banks to substantially step up lending to tenant farmers and urban SHGs. He urged them to scale up educational loans and increase lending for a new programme under the Rajiv Gruhakalpa under which two types of houses, costing Rs.1.5 lakhs and Rs.2.5 lakhs, are proposed to be taken up. He asked the Housing Board to formulate details.

Referring to SLBC president K. Ramakrishnan's announcement on selecting Srikakulam district for achieving 100 per cent financial inclusion by providing a "no frills" account and a "general purpose credit card", Dr. Reddy wanted two more districts to be taken up this year. Official sources later indicated that Government was planning to suggest Kadapa and Warangal districts to SLBC.

He also agreed to a suggestion of Mr. Ramakrishnan, who is CMD of Andhra Bank, that Government share 25 per cent of the cost for setting up a State-level institute to train SHGs, unemployed youth, farmers, artisans for capacity-building to take up economic activities.

Five lead banks (50 per cent) and NABARD (25 per cent) would share the remaining cost of the institute to be set up with an initial investment of Rs.5 crores.

Mr. Ramakrishnan said the State had achieved 101 per cent target under the annual credit plan for 2005-06 by disbursing Rs.28,899 crores, as against the target of Rs.28,600 crores.