Accordingly, the interest rate on deposits payable to banks under RIDF-IV to VII will be six per cent, down from eight per cent earlier. Under RIDF-VIII and IX, the rates will now be linked with Bank Rate and will vary between the Bank Rate (which is at six per cent currently) and Bank Rate minus 300 bps (see chart). Interest rates offered on RIDF schemes are linked inversely to the proportion of a banks shortfall in lending to agriculture under their priority-sector targets.
Interest rates on loan payable by state governments have also been reduced by 200 bps. Under RIDF-IV and VII, the new rate will be seven per cent (nine per cent) while under RIDF VIII and IX, the rates will be 50 bps above the Bank Rate.
So far, nine tranches of RIDF have been established with aggregate corpus of Rs 34,000 crore. RIDF was set up with the National Bank For Agriculture And Rural Development for assisting state governments and state owned corporations in quick completion of on-going projects relating to minor and medium irrigation, soil conservation, wastershed management and other forms of rural infrastructure.
Domestic scheduled commercial banks, both in public and private sector, are required to contribute to RIDF on the basis of their shortfall in lending to agriculture.
Banks have been taking the easy way out and parking funds in RIDF. Banks can park shortfalls in the agriculture sector in RIDF subject to a ceiling of 1.5 per cent of net bank credit.