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Banks see agri lending as big business opportunity(The Economic Times (India) Via Thomson Dialog NewsEdge) : Banks are seeing a huge business opportunity in agriculture lending with farm loan growth outstripping credit growth for three consecutive years. Figures show that new loans to agriculture have more than doubled from Rs 17,023 crore in '03-04 to Rs 47,042 crore in '05-06. According to KC Chakrabarty, chairman, Indian Bank, agriculture lending is a profitable business for his bank with a 4% spread and bad loans of less than 4%. His views are echoed by PP Mallya, chairman, Vijaya Bank, who sees agri- loans recoveries as high as 70 to 80%. ICICI Bank has been focusing on agriculture much before the government nudged banks to step-up lending to agriculture. In FY06, ICICI Bank's agri portfolio doubled to around Rs 16, 300 crore. According to Nachiket Mor, deputy MD, ICICI Bank, the logic was to enter a space not aggressively tapped by competition. Besides the push from the government, banks are more comfortable lending to farmers since rural inco-mes have grown, which is reflected in the rise in purchasing power experienced by FMCG companies, said PV Ananthakrishnan,vice-president of agri-lending, HDFC Bank. While the perception has changed, farm loans for most banks account for less than minimum limit of 18% of their loans prescribed by RBI. Banks, particularly the new generation private banks, are facing a problem of reach. The distances and the low-value transactions pushes up costs. But Mr Mor said that managing and balancing transaction costs along with the risk and returns is crucial in rural lending. ICICI Bank is doing this through local partnerships-credit access points, kiosks, micro-finance institutions as rural branch network is limited to 129 agri and rural branches with 13 of them located outside Tamil Nadu. Past loan waivers have led to a perception that losses in farm loans will continue. This is sought to be mitigated by bank lending through self help groups, as there is collective responsibility on clearing debt, and the experience in recoveries is also much better. Copyright 2006 The Economic Times of India, Coleman & Co Ltd. Source : Financial Times Information Limited |