Rabi crops, priority sector norms boost farm loans

Credit to agriculture rose 19.8% in January, against 6.3% a year ago

In the 12-month period up to January, agricultural credit rose about threefold, boosted by revised priority sector lending norms and a rise in the use of the liberalised Kisan Credit Card scheme.

Public sector bank executives said the rabi harvest and special steps to help drought-hit farmers also contributed to the rise in agricultural credit.

Data released by the Reserve Bank of India (RBI) show credit to agriculture rose 19.8 per cent in January, against 6.3 per cent a year ago. In January 2012, credit due by the agricultural segment stood at Rs 5,58,000 crore.

A senior State Bank of India (SBI) executive said the new priority sector lending norms had resulted in banks reworking their strategies, opting for direct lending to agriculture.

SBI reported a 13 per cent rise in farm credit till December 2012. As on December 31, its farm loan book stood at Rs 1,15,432 crore.

Earlier, the emphasis (especially of private banks) was on lending to intermediaries — non-banking financial companies and microfinance institutions. However, this exposure doesn’t account for priority sector lending targets any more.

In 2011-12, credit growth had seen a sharp fall. Credit growth in the previous financial years stood at about 21 per cent each.

An official in charge of agriculture credit at a large state-owned bank said, “In areas where single crops such as sugarcane and cotton are grown, harvesting was over by December. In January, fresh credit was needed.”

RBI has several guidelines regarding credit facilitation in drought-hit areas.

Existing credit facilities are converted into demand loans, repayable in three to five years. As farmers were also eligible for production credit, farm credit was getting a boost, the banker said.

Other bankers said as the demand from other segments wasn’t high, banks were concentrating on agriculture.

“Agricultural credit can’t see a slowdown for two reasons. First, on the land available for cultivation, farmers would produce something or the other — it won’t be lying idle. The crop might change, depending on factors such as water availability, etc. But it would be used for cultivation. Second, there would be demand for production credit.”

Banks have to meet priority sector lending targets before the end of the financial year.

They have to lend 13.5 per cent of their total credit to direct agricultural activities and an additional 4.5 per cent to indirect agricultural activities, including warehousing, purchase and distribution of fertilisers, pesticides and seeds and irrigation systems.
CREDIT COUNT

• Revised priority sector lending targets give push to farm credit
• Cash crops demand also is pushing farm credit
• Banks concentrating on farm loans as there is not much demand from other sectors
• Drought relief measures also contribute in expanding farm loans
• Meeting PSL norms before March end is another factor