As corporate lending is not picking up, commercial banks are looking for greener pastures, literally.
They have hit upon a unique strategy to raise credit offtake and at the same time fulfill their agriculture sector lending targets.
Interest rates in contract farming have been going down rapidly, from 14 per cent last year to around 9 per cent now.
Banks are entering into tie ups with companies manufacturing farm inputs in order to offer crop finance schemes to farmers who undertake contract farming for the latter.
The move was started by ICICI Bank in the private sector. Now other private banks as well as state-owned banks have climbed the bandwagon.
In the public sector, Union Bank of India and State Bank of India are aggressively pushing farm credit. HDFC Bank has a contract farming portfolio of around Rs 50 crore. while UTI Bank is also looking at getting into contract farming in a big way to increase its direct agriculture lending portfolio.
ICICI Bank is focusing on contract farming and is tying up with several companies. Last year ICICI Bank financed 55,000 farmers. The target for this year is one lakh.
Barring one bank, the entire banking industry has reported shortfalls in meeting the agriculture lending target of 18 per cent of net bank credit.
Hitherto, this shortfall was made good by parking funds in the National Bank of Agriculture and Rural Development
