BANKS WANT CAP ON INDIRECT FARM CREDIT HIKED

With over half of the 49 public and private sector banks not meeting the total agriculture credit (comprising direct and indirect credit) target in the financial year ended March 31, 2010, banks have moved the Reserve Bank of India to allow them greater leeway in indirect agriculture credit so that the target can be achieved.

Banks are having a problem meeting the direct agriculture lending target – which among others includes crop loans, advances up to Rs 10 lakh against pledge/ hypothecation of agricultural produce for up to one year, and loans granted for pre- and post-harvest activities – due to a host of factors.

These include the lurking fear among field staff that they could be held accountable if farmers do not repay loans on expectation of the Government announcing a debt waiver and relief scheme, difficulty encountered during recoveries and shortage of specialist agriculture officers.

The total agricultural advances target is linked to Adjusted Net Bank Credit (ANBC) (net bank credit plus investments made by banks in non-Statutory Liquidity Ratio bonds held in the ‘held to maturity' category) or credit equivalent amount of off-balance sheet exposures (OBE), whichever is higher, as on March 31 of the previous year.

This target is currently pegged at 18 per cent of ANBC or OBE, whichever is higher.

Of the total agricultural advances target of 18 per cent, direct agricultural lending is pegged at 13.5 per cent and indirect lending is capped at 4.5 per cent.

So, if a bank's ANBC works out to Rs 1 lakh crore in the previous year, its agriculture credit target in the current year will be Rs 18,000 crore (direct advances: Rs 13,500 crore and indirect advances: Rs 4,500 crore).

The penalty for not achieving the agriculture lending target is that banks have to invest the shortfall in low yielding Rural Infrastructure Development Fund of the National Bank of Agriculture and Rural Development.

Underscoring the fact that indirect agriculture finance creates infrastructure such as warehouses/ cold storages, irrigation facilities, and agro-processing units and that credit to this segment is rising, banks have mooted that the cap of 4.5 per cent for indirect agriculture lending should be upped to six per cent within the overall agricultural lending target of 18 per cent.

Pointing out that production credit being cyclical in nature does not contribute much for increasing the outstanding level under agriculture as of March-end, banks want disbursements under the Special Agriculture Credit Plan to be reckoned for calculation of the benchmark 18 per cent achievement.

Under the SACP banks are required to fix self-set targets for disbursement during a year.

They fix the targets showing an increase of about 20 to 25 per cent over the disbursement made in the previous year.

The laggards

According to the RBI, among the public sector banks that have not met the direct agricultural advances target as of March-end 2010 are: IDBI Bank (6.6 per cent), United Bank of India (7.5 per cent), Corporation Bank (7.8 per cent), State Bank of Travancore (9 per cent), Oriental Bank of Commerce (9.4 per cent), and Bank of Maharashtra (10 per cent).

Among the private sector banks that have not met the direct agricultural advances target as of March-end 2010 are: SBI Commercial & International Bank Ltd (1.1 per cent), HDFC Bank (6.4 per cent), Karnataka Bank (7.1 per cent), ING Vysya Bank (7.5 per cent), Jammu & Kashmir Bank (8.1 per cent), City Union Bank (9.8 per cent) and Axis Bank (10.1 per cent).

SOURCE: http://www.thehindubusinessline.com/2010/11/17/stories/2010111752691000.htm