Farm lending process needs an overhaul: SBI chief

State Bank of India Chairman Rajnish Kumar on Sunday said that the present model of agricultural lending in the country was not “viable” and needs an “overhaul”.

The high level of non-performing assets (NPA) in farm sector is an issue.

SBI had registered slippages to the tune of ₹16,000 crore during the April-June 2019 quarter. The retail sector, particularly, agricultural advances, accounted for a bulk (nearly 69 per cent) of the total slippages at around ₹11,000 crore.

Kumar was in the city for a consultative meeting with six regions of Kolkata circle.

Fragmented landholdings make agricultural lending unviable. FPOs or Farmer Producer Organisations can help dealing with the problem of landholding, he added.

“These issues are being discussed with an open mind. Once these consultations are over we should be able to come up with a blueprint,” he said.

According to Kumar, credit growth has been muted primarily because of demand side constraints.

“Credit demand as of now is subdued but there is no supply side constraints. Banks are adequately capitalised, interest rates have moderated and the system has surplus liquidity,” he said.

If monsoons are good, which looks to be positive so far, and festival season demand and government’s infrastructure spending pick up then credit offtake will rise in the second half of this fiscal, he said.

When asked about the possibility of a fiscal stimulus to boost the economy, he said that consultations were on. “We have to wait....,” he said.

SBI is expecting 12-14 per cent growth in advances this fiscal. “I have sufficient liquidity but I cannot deploy it, I need demand for corporate credit to grow,” he said.

The country’s largest lender felt that it would be difficult to pass on the entire transition of repo rate cut to customers as it would affect the interests of depositors. The bank is however, examining the possibility of providing its home loan borrowers the option of choosing between repo rate linked lending and MCLR rate.

Consultative process

The 2-day consultative process, which ended on Sunday, was aimed at identifying the issues and challenges faced by various branches and how to improve their performances.

“There is a lot of participation and enthusiasm because this is the first time that an exercise of this nature has been undertaken. The mega branch level consultation meet in the banking sector will not only help align the public sector banking system with national banking priorities, it will also be a kind of performance audit for branches,” he said.

The discussions were held across eight different zones of the bank over the past two days.

There were eight key parameters for discussion which included credit growth; infrastructure financing; financial inclusion; flow of credit to agriculture, MSME and housing sectors; and digitisation among others.

Based on the initial discussions held in various zones, nearly 25 per cent of the bank’s branches may be performing below par, 50 per cent at par and 25 per cent above par. Nearly 56 per cent of transactions of the bank happen on digital channel, the aim would be to increase it up to 75-80 per cent.

“The exercise will be over today and the data received region by region will be analysed and then next week there will be state-level consultations where all the public sector banks operating in the state will come together and seek and deliberate on whatever feedback has come. A state-level strategy will then be formulated and then it will be deliberated at the national level,” he said.

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