Banks agree to lower interest on cash credit limit for FCI

In a move which would reduce the government’s food subsidy expenses, a consortium of banks has agreed to lower the interest rate on the cash credit limit (CCL) to the Food Corporation of India (FCI) to help meet its working capital requirement.  

In a meeting held last week by the Food Credit Consortium Committee of 54 banks headed by State Bank of India, it was agreed to cut annual interest rate on the CCL availed by FCI from 7.71 % to 6.68%, after series of negotiations.

The reduction in interest rate on CCL, applicable from January 1, 2022, would help reduce FCI’s expenses by Rs 750 crore annually. FCI gets the CCL against the grain stocks held and it is currently stands at Rs 9,495 crore.

The rate of interest for FCI for the CCL has been fixed at an average of one month of marginal cost of funds-based lending rate (MCLR) of the top five banks in the Food Credit Consortium as on the last day of the previous month.

Meanwhile, the government has decided to infuse equity worth Rs 1,900 crore to FCI in 2022-23. This infusion of equity will take the government’s equity in FCI to Rs 9936 crore. “Increase in equity would reduce the overall borrowing and interest savings of Rs 130 crore per annum,” a food ministry official said.

The expenditure towards food subsidy has been on the rise due to annual rise in minimum support price (MSP) for paddy and wheat and ‘open-ended’ purchase operations leading to excess grains stocks held by FCI.

The central issue price of Rs 3, Rs 2, Rs 1 for a kg of rice, wheat and coarse grains under the National Food Security Act has not been revised since 2013. On the other hand, FCI’S economic cost (MSP to farmers, storage, transportation and other costs) of rice and wheat for 2021-22 is Rs 35.97 and Rs 24.99 per kg, respectively. The Union Budget (2022-23) has made around 28% less provision for food subsidy allocation of Rs 2.06 lakh crore against the revised estimates of Rs 2.86 lakh crore in 2021-22.

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