Farm loan demand set to surge

An increase in the number of eligible farmers for agricultural loans after last year’s debt waiver scheme is likely to put an additional lending pressure of Rs 40,000 crore on banks and credit institutions in 2009-10.

In the 2008-09 Budget, the government had set a target of Rs 2,80,000 crore for agriculture credit. With the debt waiver scheme, almost 40 million new farmers have become eligible for fresh agricultural loans.

According to rough estimates from the National Bank for Agriculture and Rural Development (Nabard), the total loan requirement for the next financial year is estimated at Rs 3,20,000 crore, which is an increase of almost 15 per cent over this year’s target, executives at the refinance agency said.

Of the total requirement, crop loans are likely to account for around 60 per cent, with term loans accounting for the remaining 40 per cent. The estimates are based on the present credit flow to the agriculture sector.

Banks, scheduled commercial banks, regional rural banks and cooperative credit institutions are already facing increasing defaults in the farm loan sector, the executive said.

With farmers expecting more debt waiver schemes, this year the recovery rate has dropped further with maximum defaults in the north-eastern part of the country, said sources. In case of crop loans, the defaults tend to be higher and cooperative banks are already claiming that only that the recovery rate may drop from last year’s level of around 75 per cent. A majority of the defaults are in case of crop loans.

“If the cost of funds comes down and the recovery rate improves, banks and credit institutions should not have any problem in lending in the next financial year. However this year, there is a doubt if cooperative banks can meet the lending target due to the paper work involved in bringing new farmers into the banking network. We expect to meet 80-85 per cent of our lending targets,” said Samir Ghosh, chairman of West Bengal State Cooperative Bank (WBSCB).

According to a senior executive at Uco Bank, “With liquidity easing, lending to the agriculture sector should not be a problem for the banks. While there was a rise in defaults immediately after the debt waiver scheme, it has come down in recent months.”