The Hindu Business Line : Syndicate Bank unveils new loan for farmers

Lending help
Loans to be released on the basis of valuation of farmers' assets.
Advances not eligible for concessional pricing
To be priced at one per cent above the current prime lending rate

MR C.P. SWARNKAR

Bangalore , July 10

Syndicate Bank has introduced a new farm loan mortgage product for helping farmers in distress to refinance their debts to unorganised moneylenders.

The Syndicate Bank Chairman and Managing Director, Mr Chandra Prakash Swarnkar, told Business Line, "This product will help farmers bring down their indebtedness." He said that the loan would be made available to farmers on the condition that they do not create fresh indebtedness with the unorganised moneylenders.

The mortgage loans would be released on the basis of a valuation of farmers' assets, he said. Such advances would be falling outside the purview of normal farm advances. Therefore, such advances would not be eligible for the concessional pricing of seven per cent. Instead, such mortgage-backed advances would be priced at one per cent above the current benchmark prime lending rate. Syndicate Bank's prime lending rate is currently 11.25 per cent.

Banking sources said, the product was intended to help farmers stressed by debt. Unorganised moneylenders, usually retailers of fertilisers and farm inputs, price the loans at 12 per cent flat interest. In addition, load hefty margins on their sales to the farmers, leaving them in a debt-trap. The mortgage-backed loan was targeted to relieve the farmers of these intermediaries.

The PLR-linked pricing notwithstanding, sources said, such loans would be far cheaper than the resource support provided by the unorganised sector. Moreover, it would also help cut down the spate of farmer suicides in the country.

Syndicate Bank is the first PSB in the country to introduce such a product. But introduction of the product also made business sense for the banks, the bankers said.

This was because farm loans historically have rarely contributed to the banking sector's portfolio of non-performing loans.

Besides, Mr Swarnkar said, expanding the farm portfolios also meant that the banks would be investing in creating a wide network low-cost resource base and performing the objective of banking inclusion.

Banks with large rural presence would benefit from financial inclusion. The major benefit was that it would help banks to overcome the aggressive disintermediation of deposits from some of the metros and class one cities in the country.

He said that the farm loans off-take were within the 18 per cent target of advances.

So far, farm loans off-take have shown a 41 per cent increase on year on year basis he added.

Credit off-take by the farm sector was expected to further accelerate when the peak season begins, he added.

More Stories on : Farm credit | Public Sector Banks | Credit Market

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page