The Hindu Business Line : Banks find it attractive to lend to farm sector

Bangalore, Sept 14 Interest rate hikes notwithstanding, public sector banks are supporting farm sector with credit below the current benchmark prime lending rates (BPLR).

Bankers said that the credit support for the farm sector was not just for crop loans, but also for non-crop loans, including consumption credits and rural housing. Currently, crop advances are priced at 7 per cent.

But banks receive another 2 per cent as subvention from the government, taking the effective yield to nine per cent. Non-crop loans were priced higher, but were below the BPLR.

Yet, despite the higher rates, effective rates were at least 50 basis points below the prime lending rates.

Innovative products

In some cases loans were priced as high as 12 per cent. Currently, the prevailing BPLR range between 12.75 per cent and 13.25 per cent. Non-crop advances also included, refinance support to farmers for settlement of unorganised sector loans including rural money lenders. B

anks like Syndicate Bank that innovated such loan products have advanced over Rs 1,000 crore since the beginning of this financial year.

Top officials of Syndicate Bank said such products were priced at close to BPLR but farmers were still drawing on the funds. Demand for such loans came from Punjab, Uttar Pradesh, Madhya Pradesh, Maharastra and Karnataka, the officials said.

Extremely profitable

In fact, the impetus for this lending is driven not by statute, but by commercial considerations, bankers said. “Farm sector is extremely profitable, especially this year since monsoons have been exceptionally good,” the bankers said. T

he profits from the farm credits were evident from the wide spreads - as high as 3.5 per cent over the weighted average cost of working funds. Currently, the industry average weighted costs of working funds is around 6.5 per cent.

Besides, historically farm credit has one of the lowest delinquency rates. Non-performing assets in agricultural credit was barely one per cent. In industrial and home loan sectors, the delinquency rates were far higher at close to 3 per cent and four per cent respectively.

Besides, the farm focus is also driven by the move to improve agricultural productivity and step up farm sector growth to at least 6 per cent. Currently, farm credit was growing at over 30 per cent. In fact, for some of the public sector banks, farm advances were well over the 22 per cent of gross advances.

Credit growth in the farm sector between April and mid-August this year is estimated at close to Rs 1,600 crore. This was exclusive of advances made by co-operative banks and specialised institutions like regional rural banks.

May best retail

Bankers said that offtake from the farm sector was likely to improve during the peak credit season beginning from the middle of this month and keep out standing farm credit well above the RBI mandated 18 per cent. In some banks, farm loans share was expected to overshadow retail credits.

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