`Credit flow to farm sector may get affected'

Priya Nair

Mumbai, Aug. 15

Co-operative banks appear to be reluctant to lend to the agriculture sector at the subsidised rate of 7 per cent. According to the National Bank for Agriculture and Rural Development (Nabard), lending to the farm sector by co-operative banks has come down in the recent past. This is reflected in the slowdown in the refinance availed of by co-operative banks from Nabard, said Mr K.G. Karmakar, Managing Director, Nabard.

"Co-operative banks have virtually stopped giving crop loans and have stopped taking refinance from Nabard. This is a major problem because they have access to primary agriculture credit societies," said Mr Karmakar.

Nabard provides refinance to land development banks (LDBs) or state co-operative agriculture rural development banks and state co-operative banks.

Slowdown of refinance

Co-operative banks usually account for the larger share in the refinance given by Nabard. In 2005-06, of the total refinance, 24 per cent went to LDBs, 13.6 per cent to state co-operative banks, 46 per cent to commercial banks and 15 per cent to regional rural banks.

The quantum of refinance to state co-operative banks has reduced from Rs 1,737 crore in 2003-04 to Rs 1,244 crore in 2004-05, and to Rs 1,174 crore in 2005-06.

In case of the LDBs, the refinance was Rs 2,544 crore in 2003-04, Rs 2,710 crore in 2004-05 and Rs 2,082 crore in 2005-06.

In many cases, banks are not eligible for refinance because they are not in a position to lend. They may not be able to recover the money and may default on repayment, said a senior official from Nabard.

Scope for UCBs less

Urban co-operative banks (UCB), which are financially more stable, have no scope to lend to the agri sector, as they are located in urban centres, said Mr S.K. Banerji, Managing Director, Saraswat Co-operative Bank Ltd. "Normally we don't get customers from this sector. Only recently the Reserve Bank of India has permitted us to lend up to Rs 2 lakh for agri loans."

Mr Arvind Deshpande, Secretary of The Maharashtra Urban Co-operatives Banks Federation Ltd, said that UCBs can lend only to allied agri sectors and these loans don't qualify for refinance.

"If we get some communication that Nabard wants us to use the refinance route, I am sure they will be flooded with requests," he said.

Co-operative banks used to finance sugar factories earlier, but it is not encouraged, as it is risky due to uncertainties like natural calamities, he added.

Shamrao Vithal Co-operative Bank (SVC) will look at the rural sector actively once it completes the acquisition of Mahavir Co-operative Bank by September, said Mr Suresh Hemmady, Chairman, SVC. "Mahavir Co-operative Bank has 11 branches in rural areas in Kolhapur. We will use that network to lend to the agri sector," he said.

(This article was published in the Business Line print edition dated August 16, 2006)
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