Mumbai: India’s state-owned banks are increasing their share of loans to farm-related activities to meet their targets for priority sector lending as also aid distressed farmers staring at a drought.
Agriculture and allied activities as well as small enterprises are covered under the priority sector, which also includes extending loans to the weaker sections of society.
Also See Sectoral Deployment (Graphics)
“We are planning to increase our disbursement under allied activities, such as poultry, dairy, animal husbandry, etc., so that the incomes of the farmers are supplemented,” said M. Narendra, executive director of Bank of India.
Domestic banks are required to deploy at least 40% of their loan book under priority sector lending, compared with 32% for foreign banks.
Bankers fear demand for agricultural credit may be seriously affected as rainfall remains lower than average this year. If banks are not able to meet their target, they have to put the money aside under the Rural Infrastructure Development Fund, which is utilized by the National Bank for Agriculture and Rural Development.
As of 22 May, agricultural credit of the banking system was Rs64,970 crore, or 16.9% of the total credit, according to the latest data available from the Reserve Bank of India.
“As far as our target is concerned, we think the shortfall in direct agriculture lending will be compensated by our lending to allied activities,” said L.N.V. Rao, Union Bank of India’s general manager for the priority sector.
So far the bank has not seen any shortfall in lending to direct agriculture in the first quarter, Rao said, adding, however, that farmers may avail lower credit for direct agricultural purposes if the water situation does not improve.
The India Meteorological Department last week said rainfall this year is likely to be around 87% of the long-term average as opposed to a 93% forecast earlier, as it made an unprecedented third revision in its predictions.
Banks are also stepping up consumption credit, or loans at under 10% interest that have to be typically repaid within a year. These loans are provided to farmers at concessional rates for basic sustenance.
“We have instructed our branches and field offices to increase the share of consumption credit and credit for recurring expenditures,” said Gobinda Banerjee, general manager for the priority sector at Punjab National Bank.
Loans for irrigation and sundry expenditure incurred during farming, such as diesel to run generators, will also see an increased share in banks’ agricultural lending this year.
“Apart from loans to allied activities, we are advising our people to disburse funds for irrigation purpose also, wherever it is possible. We are funding for minor irrigation channels, dug wells, etc.,” said Rao. “It gives a lot of psychological and moral support to the farmer.” Notwithstanding the increased loans for farm activities not directly related to cultivation, banks are also disbursing fresh loans for other crops, said Narendra.
Banks are expecting farmers to also switch to cash crops such as groundnut and maize that can be cultivated faster and sold easily.
Photo by Anupam Nath / AP and graphic by Sandeep Bhatnagar / Mint