Banks confident of meeting agriculture lending targets

Take a host of initiatives to ramp up presence in rural markets.

With increased focus on directing funds towards agriculture, banks are confident of meeting their farm sector lending targets this financial year.

“We had 60 rural branches last year and will take it to 125 by next month. This will give a major fillip to the agri lending business,” said S Chakrabarthy, deputy managing director, Axis Bank.

According to the Trend and Progress Report of 2010 published by the Reserve Bank of India (RBI), a host of public and private banks failed to give the mandated 18 per cent of their net bank credit to agriculture.

“The bank has deployed focused departments with specialised personnel who are working on retail agriculture loans. Also, due to the seasonality factor, we normally see a pick-up in agricultural lending in the fourth quarter,” said Chakrabarthy.

Within agricultural lending, banks are supposed to lend 13.5 per cent of net bank credit directly for agriculture, while 4.5 per cent can be given for related activities.

New private sector banks find it difficult to achieve the direct lending target because of lack of good presence in semi-urban and rural areas. Also, RBI has disallowed inclusion of buy-out of gold loans given by non-banking financial companies under agricultural lending, as there was uncertainty on the end use of such funds.

“As a new bank with less penetration in semi-urban and rural areas, we had to rely to some extent on portfolio buy-outs, which included tractor loans as well as loans against gold,” said Saurabh Bhat, group executive vice president, development banking, YES Bank. The bank has 24 rural and 47 semi-urban branches.

Despite this, the bank is confident of achieving the targets this year, with the help of new initiatives. “We have recently started a programme for small and middle-level farmers to finance them so that they can keep their commodities in warehouses. We have done a few disbursements already,” said Bhat.
 

FARM CREDIT FACT-SHEET
Banks	Total agricultural advances		Of which, direct  agricultural  advances		Of which, indirect  agricultural  advances
	Amount (Rs cr)	% to ANBC*	Amount (Rs cr)	% to ANBC*	Amount (Rs cr)	% to ANBC*
PRIVATE SECTOR BANKS
Axis Bank	10,537	14.6	7,299	10.1	3,238	4.5
HDFC Bank Ltd.	17,132	10.9	6,377	6.4	10,755	10.9
Federal Bank Ltd.	3,333	14.9	2,362	10.6	972	4.3
ING Vysya Bank Ltd.	1,954	11.7	1,263	7.5	690	4.1
Karnataka Bank Ltd.	1,590	11.6	856	7.1	735	6.1
PUBLIC SECTOR BANKS
Bank of Baroda	21,617	16.7	13,329	12.2	8,288	7.6
Bank of India	18,256	16.3	13,958	12.4	4,298	3.8
Bank of Maharashtra	6,107	14.5	3,490	10.0	2,617	7.5
Central Bank of India	18,306	17.9	11,468	13.4	6,838	8.0
Corporation Bank	6,586	12.3	3,763	7.8	2,823	5.8
Dena Bank	4,826	15.8	3,308	11.3	1,519	5.2
Indian Overseas Bank	12,008	17.9	9,171	13.7	2,837	4.2
*ANBC - Adjusted net bank credit or credit equivalent amount of off-balance sheet exposures, whichever is higher, with effect from April 30, 2007                                                              SOURCE: Trend and Progress Report-2010, Reserve Bank of India

YES Bank is planning to launch loans against gold in a couple of months. “It is a secure business and can be used for lending towards agricultural activities,” said Bhat.

Even public sector banks have not met the targets. “We stepped up normal agricultural lending and as a result there was growth of 30 per cent. With this, we hope to reduce the gap or meet our agricultural lending target fully this financial year,” said M D Mallya, chairman and managing director, Bank of Baroda.

It depends on the size of the overall net bank credit, as it is relative to this number that priority sector lending targets have to be achieved. For example, Bank of Baroda’s lending to agriculture of Rs 21,617 crore in 2009-10 constituted only 16.7 per cent of the entire net bank credit. Dhanlaxmi Bank overshot the 18 per cent target by lending Rs 759 crore to agriculture.