The Hindu Business Line : Syndicate Bank <I>Jaikisan</I>, `a big hit among farmers'

New product
There is no concessional pricing for the loan, as in the case of crop loans
Allows farmers to become debt-free in about three years
The sub-PLR pricing would have no negative impact on the bank's net interest margin

MR C. P. SWARNKAR

Bangalore , Dec. 26

Public sector Syndicate Bank's debt refinance product aimed at indebted farmers has taken off successfully barely three months after it was launched.

The Chairman and Managing Director, Mr C.P. Swarnkar, told Business Line , "This product has been highly successful, among the farm community." Till date, Mr Swarnkar said the bank had disbursed Rs 295 crore all over the country through the product branded as "Jaikisan''.

Jaikisan is a farm loan mortgage product to help indebted farmers to refinance all their outstanding dues to unorganised moneylenders. It is made available to the farmers on conditions that they do not create fresh debts with these moneylenders.

Unorganised moneylenders, usually retailers of fertilisers and farm inputs, price the loans at 15 per cent flat interest. In addition, they load hefty margins on their sales to the farmers, leaving them in a debt-trap. There is no concessional pricing for the loan, as in the case of crop loans. Crop loans are priced at 7 per cent, since they are entitled to a subvention of 2 per cent from the Centre.

Instead, Jaikisan is priced at rates linked to the benchmark prime lending rate. It is priced at close to 11 per cent, on a reducing balance.

Despite the high pricing, Mr Swarnkar said offtake of farm loans through the Jaikisan product was expected to show big increases during the year.

Estimates are that by the financial year-end, the Jaikisan disbursements are likely to be close to about Rs 500 crore, bankers said.

Unlike the loans extended by moneylenders, Jaikisan allows farmers to become debt-free in about three years.

This was precisely what made the product attractive to the farm sector. In addition to this refinance facility, banks were also offering crop loans to farmers.

The sub-PLR pricing of Jaikisan, Mr Swarnkar said, would have no negative impact on Syndicate Bank's net interest margin. Its NIM is currently about 3.2 per cent. Instead, the farm loans are expected to have a positive impact on the bank's NIM. This pricing is considerably better than corporate loans, where the discounts to PLR are as high as 300 basis points.

Taking the cue from Syndicate Bank, more public sector banks are working to create similar niche products that would have a positive impact on the NIM and at the same time allow the farm sector to become debt-free. These include the new generation private sector banks, banking sources said.

What also made such products attractive are the low asset delinquency ratios in farm sector portfolios. Non-performing ratios in the farm sector loans is barely one per cent.

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