The Hindu Business Line : Banks to study raising credit to farm sector

BANKERS under the auspices of IBA will be meeting on Tuesday to work out the modalities of implementing the Finance Ministry's latest proposal to enhance credit flow to the farm sector.

The managing committee of Indian Banks' Association (IBA) will study the schemes suggested by its standing committee on agri-business, said Mr H.N. Sinor, CEO, IBA.

"We are discussing two or three schemes to expand farm credit to bring in farmers who are not being covered by bank credit at present," he said.

IBA will also discuss a debt-recast mechanism for small borrowers in the farm sector who have been genuinely affected by natural calamities and provide them a moratorium on repayments, `on a case to case basis', Mr Sinor said.

"We will be strictly adhering to prudential norms and there will be no compromise on this. We will recast the debt of only genuine cases where we are comfortable," he added.

Mr Sinor said he expected most banks to adhere to the proposals voluntarily.

On Friday, the Government announced a complete debt-recast package for the farm sector, which included rescheduling of loans as against write-offs.

These initiatives are to be extended to farmers who have been impacted by natural calamities such as droughts and floods in districts declared as `calamity-affected' by the State Governments.

It has also been mooted that the interest outstanding in the accounts of such borrowers should be clubbed with the principal amount due as on March 31, 2003.

This total amount would be repayable over a five-year period at current interest rates, including an initial moratorium of two years.

While most bankers agree that the initiatives are positive for the agricultural sector and will augur well for the economy as a whole, they say that they will wait for some detailed guidelines from the Reserve Bank of India before they take any action in this regard.

For one thing, bankers said, they need to know the modus operandi for the rescheduling of loans from the Reserve Bank of India.

"We need to know exactly how they want us to do it - - whether the reschedulement will be different for different types of loans and different products," said a banker.

Bankers usually have been ascribing their failure to meet the agri-lending target to a higher increase in the offtake of the retail, infrastructure and housing sectors, which has been pushing up the base of net-bank credit.

However, most bank officials are confident of good recoveries from the farm sector, despite the fact that they will have to reschedule loans.

"The industry average in terms of recoveries on farm loans is around 60 per cent. In our experience farmers have been more particular about repaying loans than people from the industry.

Therefore, we see no problem in giving them some leeway in terms of paying back their loans," said a senior official with a leading public sector bank.

In fact, when the drought situation affected may parts of the country a couple of years back, many of the loans had to be rescheduled and yet, with the good monsoons last year, most of the repayments have started coming in, he added.

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