The Hindu Business Line : Pvt bankers see rich harvest in agri credit

FOR private sector banks, farm credit is no longer a means to meet their priority sector lending obligations. They are now exploring ways to turn this into a profitable business.

Leading private banks such as ICICI Bank, HDFC Bank and IDBI are not only stepping up direct advances to the farm sector but also investing in commodity exchanges, supply chain and other infrastructure projects.

Though bankers were reluctant to disclose specific figures before announcing year-end financial results, officials said advances to agriculture sector had shown an improvement in the last few months.

Analysts say that the UPA Government's thrust on increasing bank credit to agriculture has opened up new business avenues for these banks. While some banks have made direct investments in the commodity exchanges, others have tied up with self-help groups and other agencies to reach out to farmers. Banks are also tying up with companies to finance supply of inputs to farmers and hiring experts to advise farmers.

The formation of new commodities exchanges and the introduction of futures trading in several agri commodities have bought in transparency to the sector. This also encourages banks to lend more to the sector, said a bank official.

ICICI Bank, which is among the top three banks lending to the agri sector in the country, says their success is due to its innovative approach to lending. Mr Nachiket Mor, Executive Director of ICICI Bank, said, "The plain vanilla kind of lending and borrowing will not work. The approach should be more intrusive — finding out details such as soil quality, types of fertilisers and crops. This will help build up a relation with the farmer."

Allowing banks to do commodities trading will also help, says Mr P.V. Ananthakrishnan, Vice-President and Head - commodities business, HDFC Bank. "A good commodity market will bring in international players. The commodities futures market will also help the government reduce subsidies," he said.

Both HDFC Bank and ICICI Bank have picked up stake in the Multi Commodity Exchange, which they feel is good infrastructure investment and will fetch long-term returns.

Private banks are exploring a middle path when it comes to setting up rural branches. IDBI Bank has no rural branches but is trying to lend directly to farmers in seven States.

Mr Rajiv Handa, Head - agri business and priority sector, IDBI says, "We are trying initiatives like lending without a branch network. We have succeeded in reaching about 7,000 farmers in 14 districts in Rajasthan, Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh and Karnataka."

Similarly, HDFC Bank is targeting mandis to open branches. Mr Ananthakrishnan says, "We are looking at areas where the agriculture track record is good. And areas with scope for other banking activities such as property loans, two-wheeler loans and gold loans. Usually farmers avail of gold loans during sowing season."

According to Mr Mor, one way to reach farmers fast could be to set up few branches and few tie-ups with micro-finance institutions. With such tie-ups, the bank will be able to increase its reach to small farmers with landholdings of less than two acres. ICICI Bank has around 100 rural branches in Tamil Nadu.

Mr Handa says, "Banks are also exploring tie-ups with companies producing agri-products". "This way we can help farmers to buy quality seeds and fertilisers. We are also trying to tie up with seed companies so that they can supply to farmers and then buy back the crops," he adds.

Banks can even enter into sourcing and servicing agreements with such companies for providing loans, says Mr Hemant Pardikar, Senior Vice-President and Head - Credit, IndusInd Bank.

"The companies producing farm inputs have the advantage of knowing the farmers. Therefore, they are familiar with the borrowers' profile. They can act as direct selling agents for banks," he suggests.

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