The Hindu Business Line : Nabard expects demand for refinancing to double

Banks are likely to take recourse to refinance from the development bank as the Government has approved subvention of lending to the agriculture sector at 7 per cent.

However, the fund raising would be a major problem as the comfort of sheltered funds from the Reserve Bank of India and the tax advantage for Nabard's capital gains bonds have been done away with, said Mr K.G. Karmakar, Managing Director, Nabard.

For 2006-07, Nabard has set a refinance target of Rs 9,000 crore of investment credit and Rs 14,000 crore-15,000 crore of short-term credit.

In 2005-06, refinance of investment credit was of Rs 8,622.37 crore and short-term credit or production credit was Rs 9,617 crore.

Last year, Nabard has raised Rs 9,700 crore of funds. Though Nabard has not set a target for the funds it would require to raise this year, Mr Karmakar estimates it will be a "huge lot."

"We will have to raise much of our funds from the market because other instruments are no longer available. Most of the fund raising will have to be done through plain vanilla bonds and will have to depend on our ability to leverage funds from the market," he said.

Last year, Nabard had raised Rs 4,000 crore just through capital gains bonds.

"The Government was paying 14 per cent on these bonds, so it did not make sense to continue with them," Mr Karmakar said.

Other concessional funding such as the National Rural Credit Stabilisation Fund and NRC Long Term Operating Fund too were done away with a few years ago.

The increasing cost of credit adds to the problem of lending to the agri sector, but the bigger problems are lack of timely credit and the huge amount of paperwork in case of availing bank credit, Mr Karmakar said.

Even the recent package announced by the Prime Minister for farmers will help only 15 per cent of farmers who have taken institutional credit, he pointed out.

Banks need to make deposits easily accessible to farmers, provide cheap credit and fast fund transfer, in order to achieve financial inclusion, he added.

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