Banks surpass agri credit target

Commercial banks have exceeded the target set by the government for flow of credit to agriculture sector in 2005-06.

Against the target of Rs 87,200 crore fixed for 2005-06, banks disbursed Rs 1,07,900 crore, which is 125 per cent of the target, according to the Indian Banks' Association (IBA).

In the first nine months of 2005-06 itself, banks had achieved 82 per cent of the target for the year. For 2006-07, a lending target of 1,75,000 crore was set with 50 lakh new farmers to be financed.

The commercial banks have also accepted finance ministry's suggestion that banks should not charge interest on agriculture loans on compounded basis. The banks would charge interest on agricultural advances at annual rests instead of quarter or longer rests.

The issue of compounding of interest was discussed at a meeting chairmen of public sector banks had with finance minister, P Chidambaram, on March 23, 2006.

IBA has circulated to member banks the Reserve Bank of India (RBI) guidelines on how to charge interest on agricultural loans, with a request to comply with the same.

The government has also directed the public sector banks (PSBs) to provide short-term credit of up to Rs 3 lakh to agriculture at the rate of 7 per cent. PSBs have sought a subvention of 2.5 to 3 per centage points, tax break on interest income from agri-lending portfolio, cheaper refinance from Nabard and reduced risk-weights for making the lending at concessional rate to farmers a viable proposition.

Agriculture has performed well in 2005-06 and is expected to register a growth of 2.5 per cent to 3 per cent, a robust growth compared with previous year's 0.7 per cent growth.