Agri Business

SBI eyes ₹3 lakh cr in farm credit by FY24

Vishwanath Kulkarni Bengaluru | Updated on September 01, 2021

Pre-approved credit to farmers in the offing , says MD C Sreenivasulu Setty

State Bank of India, the country’s largest bank, is also the largest lender for the farm and rural sectors. SBI is leveraging the agri-fintech ecosystem to change the way farm loans are disbursed and renewed through its YONO Krishi platform. With four clicks on the app, farmers can now renew their Kisan Credit Card (KCC) loans, says Challa Sreenivasulu Setty, Managing Director, SBI, looking after the farm and rural sectors.

Business Line caught up with Setty, who has a vast experience in corporate credit and international banking and the first MD of SBI to have a formal degree in agriculture, to know more about the initiatives and future plans as the bank targets a business of ₹3 lakh crore from farm sector by FY24 from the current ₹2.15 lakh crore. Excerpts:

What’s your current assessment of the agri sector?

The performance has been good across the crops. Demand has been robust in FY20-21 both from agri and rural areas. In the first wave, rural areas were less impacted. So, the production and rural consumption was a good story. In the second wave, we have seen some impact in rural areas. Advance estimates show that the GVA number for FY21 has expanded by 3.6 per cent and further it is expected to be 3.5-4 per cent in FY22. In Q1 FY 22, we have seen elevated infections, but from June-July onwards we have seen rural demand pick up. With good monsoon and proper distribution of rainfall, we expect rural to do well this fiscal also.

So, how is this reflecting in the credit offtake?

The largest credit demand is for KCC loans, which are not looked at in terms of growth but measured in terms of disbursements. Most of the crop loans are paid in the harvest season and then they draw again and that’s how the cycle operates.

In Q1, in many northern States like Punjab and Haryana, the sale proceeds have hit the account. Most of the sale proceeds through e-NAM, FCI and state agencies are directly hitting the crop loans now. So, we have seen some less growth in the crop loans in Q1. Despite that, the pick-up has happened in July. We have almost disbursed more than ₹35,000 crore worth crop loans April-July. So, it’s a reflection of farm sector doing well and disbursements are progressing very well.

What would be your strategy to push rural credit?

We have currently a portfolio of ₹2.1 lakh crore and we finance the whole value chain — from seed production, seed processing, crop loans, associated activities like dairy, fisheries and also warehouse financing and post-harvest funding. We are also the largest lender to the self-help groups (SHGs), which again contributes to the supplementary income – farm or non-farm sector of the rural areas.

We have started technological intervention with the crop loans by moving the renewal process on to the YONO Krishi Platform. The smart phone penetration in rural India is significant. With just four clicks, a farmer can now do the annual renewal of his crop loan without visiting the branch. The renewal process through app will reduce the burden on my people and also farmers will get benefited.

We are also focusing on increasing the investment credit. Now, most of the farm credit revolves around production credit, essentially crop loans. Investment credit is going to be our extreme focus in current financial year. We will be focusing on lending for agri infrastructure – it could be minor irrigation, farm gate infrastructure, farmer-owned warehouses, mechanisation, etc. The government has also come up with ₹1 lakh crore Agri Infra Fund (AIF) under the Aatmanirbhar scheme. So far, we have sanctioned ₹350 crore worth loans under AIF. We have current exposure of ₹10,000 crore in investment credit and we want to double that.

Also, we see a great potential in increased financing for SHGs. We have come out with a Stree Shakti scheme for financing individual members of SHGs who want to start something on their own. We have taken up a host of activities which are likely to improve our portfolio, which is currently at around ₹2.1 lakh crore. Our plan is to reach the ₹3 lakh crore- mark by 2024 in the agri-business.

So, what are the initiatives that will help you to reach the ₹3 lakh crore mark?

Besides leveraging technology to enable farmers avail crop loans, we are working with NABARD, NAFED and other entities to encourage formation of Farmer Producer Organisations (FPOs) and Farmer Producer Companies and have a financing model. We feel that credit absorption is much better if the FPCs and FPOs are funded. Also, there are large number of agri-fintech companies involved in extending financial support to rural and farm households. We will be soon announcing tie-ups with agri-fintechs in each segment such as crop production, dairy, fisheries, etc.

We are exploring various models for engaging with the fintechs such as Business Associate model – where they procure the application and we pay a commission or a Business Correspondent model. Also, if they are involved in financing, we can be pursuing a co-lending model. We would like to improve and increase our lending through co-lending model with micro financial institutions and NBFCs. We see a significant growth coming over there. So, it is a combination of using our own extensive network of 12,000-14,000 branches in rural areas, complementing that with the agri fintechs and MFIs. The idea is that you use all the channels and increase your engagement in the farm sector.

On the app-based renewals, is SBI the first mover in that area?

We were told that we are the first one to make an app-based KYC review available in the banking system. On the YONO Krishi platform, we are making available the Mandi and Mitra sections. Mandi is essentially providing price information to farmers, for which we are planning to work with commodity exchanges. We are even exploring the option of providing a marketplace for the farmers to sell their produce on the platform. Mitra provides information of aspects such as farm practices and disease management. We are talking to several agri-input companies to bring them on board and provide information to farmers in local languages. It is not only about financing, but how we interact with them, identify their needs and provide information to them, which is authentic.

The app will be a kind of one stop for the farmers. With rising consumption of digital info in rural areas, we can also bring ICAR and IARI kind of institutes to provide specific inputs including small videos.

YONO Krishi is one of the largest procurers of agri gold loans for us.

There is a perception that accessing credit is still an issue for farmers when compared with urban consumers. What’s your view on this and how this can be changed?

It is perception obviously. We have come a long way, the way farm credit has progressed since the 60s. Barring certain state specific issues, sometimes debt relief slightly complicate the farm credit situation. So, with that either the crop loan renewals get delayed or the default rates go up. There is a perception that farm sector, by nature, has got high delinquencies. Coming from the agriculture background, I have always said that farmer is one who never goes out of business as long as he is having a farm holding. We have to simplify the whole process of lending to farmers. A couple of interesting things are happening. Many state governments have realised the importance of digitisation of land records and are moving in that direction. Digitised land records coupled with satellite imagery and cadastral maps could be used to get the farm level information and convey the message to farmer that as long as you continue to be the owner of the piece of land, you will get the crop loan from us.

I have been representing to the regulator and the Government that we have to minimise the process friction between the bank and the farmer. As a banker, if I know that a person is in farming and continues to hold the land and I have access to the digital records available with the state government and satellite images, I should be able to give him a digital loan. If I am able to give a pre-approved loan to urban consumer, why can’t I give a pre-approved loan to a farmer? Also, among the farmers, there are good progressive farmers. The small and marginal farmers essentially look at input production credit, which is largely taken care of by the KCC. But if there are farmers with slightly bigger land holdings looking at loans for tractor or horticulture, we have a different treatment for them.

Most of these farmers have some credit history established. I will tell him that for next three years, any investment credit you want, I will give a pre-approved loan. He need not go around the banks for loans. That can happen only when we have digital records available. Further, if it is enabled in the records that the particular farmer has taken a loan, the buyer who is buying the land will know that there’s a loan existing and he has to take care of the loan. If the noting about the loan is enabled in the digital records, the quantum of collateral free loan can be enhanced from the current ₹1.6 lakh to ₹3 lakh. We have approached the states in this regard. Karnataka has come out with the plan that digital records are available, record your charge and give a higher loan amount.

Also, it is the combination of the way we do farm lending. Due to some state specific issues, many a times lead to a perception that the farmer don’t get the required credit. My take is that all stake holders, it could be State, central government and banks, should work together to create a digital ecosystem that probably would help in increasing the credit flow to the farmers. For instance, by combining the KCC review with satellite imagery, an officer need not go to the land to see that farmer is actually growing that crop or not. This combination is working and in couple of years, you can see a phenomenal change in the way farm credit is going to be handled in the country.

How soon are we going to see that pre-approved farm credit from SBI?

First the credit profile of the farmer has to be established. Interestingly, most of the satellite imagery provides information on what the farmer has been growing for the past three years. Most of the farmers are already into the credit system, having a credit card or debit card, etc. We are trying to combine the two. We are working with credit information companies on how to develop a credit scoring system for the farmer. As most of the farmers will be new to credit, they would not have had formal credit other than the crop loan. May be in 6-8 months, we will come out with a scoring model and in which case I will be able to give a pre-approved loan on the YONO App. Whenever he wants, he can use the facility.

Do you see farmers’ income levels going up. Is it getting reflected in the borrower's behaviour of SBI?

There has been a good amount of productivity improvement post 2000 and the Minimum Support Prices have also improved. So, while it is difficult to gauge from the farmer behavior as a borrower, as I said there are state specific issues, some debt waiver etc. Every farmer waits that some relief will come to take a call on the crop loan. If you keep that aside, there’s a general tendency to avail crop loan at higher limits. We see a good amount of uptake in farm credit. I personally believe that combination of MSP, combination of improved productivity and also the supplementary income provided through PM Kisan and all would definitely increase the income levels of the farming community. This is our assessment. It is a journey. Most of the time what happens is that there’s some calamity, some farmers will take a hit and will take time to recoup the losses.

Any plans to get into funding of the agri/fin-tech start-ups?

We have our PE wing, which explores opportunity to fund the start-ups and fintechs. We have not allocated any particular amount for this. If we see good opportunity, we will definitely do that. We are constantly engaged with fintechs and other start-ups. We use many services of these fintechs on our IT platform and even on our YONO platform. We are evaluating whether these engagements can be taken to an equity opportunity. We are open to that idea.

Published on September 01, 2021

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