This new lending scheme introduced by RMA for farmers and small sectors at reduced interest rate of 8% and 8.5% from Banks will not require collateral or guarantor. Banks will in turn be compensated through tax holiday incentive.
Banks would not have to pay tax on income from interest earned from the loans given under the PSL scheme. So for all practical purpose, the Banks do not suffer income loss from lowering the lending rate as the same is offset from tax holiday.
A better deal would have been Banks charge the normal 10% interest rate for PSL loans as is being done by BDBL. And upon faithful repayment of the loan with interest, the government refund 1.5 % to 2% as applicable to the loanees. That way unscrupulous loanees do not receive subsidy and others would benefit. This method also would ensure that loanees invested the PSL money for the purpose it was taken. And not misused for other activities as RMA has pointed out.
There is, however, a legal hitch to the whole scheme. RMA may have authority to play around with interest rates but when it comes to tax holiday, that is a domain of Finance Ministry. And any financial incentives or tax holiday now falls under Money Bill that has to go through the Parliamentary process.
So now how come RMA is announcing Tax Holiday for Banks without approval from the Parliament?
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