Mumbai: Indian banks lending to the fund starved agriculture sector went up significantly in the fiscal year ended 31 March, 2011 but bankers said this trend can lead to rising defaults moving ahead.
Loans disbursed to farm sector in the last fiscal stood at Rs4.26 trillion as against a targeted of Rs3.75 trillion and Rs3.84 trillion disbursed in the previous fiscal.
During the year, commercial banks alone lent around Rs3.14 trillion surpassing an originally set target of Rs2.8 trillion, a release said.
Similarly, co-operative banks and regional rural banks in FY11 lent Rs69,076 crore and Rs43273 crore respectively to the sector as compared with Rs63,497 crore and Rs35,217 crore in the previous fiscal respectively.
Under the current norms Indian banks have to lend 18% of their total credit to agriculture sector under the so-called priority sector category.
Overall, they need to lend 40% of their loans to farm, export and other weaker sections.
Many banks have seen a rise in their non-performing assets in the past few years. For instance, State Bank of India witnessed a majority of its NPAs emerging from farm loans in the fiscal ended 31 March, 2011.
“Meeting the mandatory farm loan target is a challenge for us as every year, in line with increasing loan book, the quantum also rise”, a senior SBI official said.
Typically, banks lend at 7-10% to farmers with interest rate subvention.
Government increased the subvention of 1% was increased to 2% in 2011 in FY11 to facilitate credit flow.