Banks link up with input providers for farm loans

New private sector banks such as ICICI Bank, HDFC Bank, IDBI Bank and UTI Bank are increasingly tying up with triple-A (AAA) rated corporates that offer agricultural inputs to farmers.

This is aimed to reduce the risk in the banks' rural lending portfolio. Moreover, small farmers are able to leverage their relationship with the companies to source low-cost funding.

With such tie-ups, banks can lend to customers with better payment capabilities and farm input providing companies can help farmers obtain quality inputs. This will facilitate adoption of superior production techniques leading to higher productivity, which in turn can ensure better returns and timely payment to banks, said a private bank official.

Such arrangements help banks reduce the risk in their portfolios as the agri input dealer knows the farmer concerned and is aware of his credit history.

Such loans are small ticket loans with the amount varying between Rs 50,000 and Rs 2 lakh. The interest rate is in the range of 8 to 11 per cent, the banker added.

HDFC Bank is active in financing distributor networks of agri equipment and inputs. In the process, it has entered into a tie-up with Nuziveedu "" a major seed producer in Andhra Pradesh "" and leading tractor and fertiliser manufacturers in the country, HDFC Bank vice-president, corporate banking, Kishore Kumar, said.

HDFC Bank is in the process of tying up with government-based agricultural companies in Punjab to finance farmers who receive bulk export orders, he added.

The bank aims to double its total lending to this sector from Rs 1,500 crore to Rs 3,000 crore by March 31, 2005.

ICICI Bank, in association with the Tobacco Board, recently launched a Kisan loan card.

Through this, the bank plans to extend crop loans to 6,000 tobacco farmers associated with the board. Association with a board gives the bank easy access to a customer base. At the same time, this helps the bank reduce the rate of default as customers are better known to the tobacco board.

UTI Bank and IDBI Bank have similar tie-ups with sugar mills, leading tractor manufacturers, seed and fertiliser manufacturers.

State Bank of India (SBI), the country's largest commercial bank and a leading player in this market, has tie-ups with Tata Chemicals, Jain Irrigation, Mahindra Shublab, HLL, Vineyard Champagne, Chitale Dairy and Meena Dairy.

Union Bank of India has similar tie-ups with Jain Irrigation and sugar mills. The bank uses the customer information from these organisations to meet the financial needs of the farmers associated with the company, said a senior bank official.

Bank of Maharashtra, in association with Emergent Genetics India, has introduced a co-branded kisan credit card. Through the co-branding, the card holders (the farmers) gets access to targeted discounts and subventions schemes run by the seed company on purchase of its products.