The lending by cooperatives and regional rural banks to the agricultural sector declined to Rs 17,034 crore from Rs 20,749 crore in April-May 2007 due to the farm debt relief package and delayed monsoons.
The total outstanding to agriculture and allied activities was estimated at Rs 2,64,787 crore at the end of May 23, 2008. The flow of loans for agriculture and allied activities rose by Rs 42,745 crore or 19 per cent, on a year-on-year basis.
Till May 2007, lending to the segment was 32.2 per cent or Rs 54,038 crore higher, according to data in the Reserve Bank of India’s Macroeconomic & Monetary Developments for the first quarter.
Sources attributed the low lending growth to the farm debt relief, which kept executives busy in settling and clearing past dues. The Rs 71,000 crore debt relief created liquidity problems for cooperatives and RRBs, prompting them to go slow on fresh sanctions.
Moreover, the package has created an impression among farmers who have not benefited from the scheme that there will be fresh a waiver programme, prompting many to default.
Co-operative banks use their entire deposit base to lend to agricultural sector and are finding the environment difficult due to the deteriorating repayment culture, a bank executive said.
Apart from the debt relief package, the delayed monsoons were responsible for lower fresh loan flow from cooperative and RRBs.
With lower disbursals, the banks have seen a drop in their borrowings from National Bank for Agriculture and Rural Development (Nabard).
The RRBs and cooperatives are expected to increase the flow of loans after the government releases the fifth tranche of budgetary support in September.
During a recent review, finance ministry officials asked banks to communicate to the borrowers that the loan waiver scheme was a one-time measure.
“The growth in farm loan this year has been very nominal till now. We expect the loan growth to start picking up from August,” a public sector bank executive said.
