NPA fears prod banks to train farmers

Banks nowadays have a new job at hand "" educating the farming community. And this has no social service angle to it. Banks in an effort to safeguard against a possible rise in non-performing assets (NPAs) under the liberal farm credit regime are taking enthusiastically to the project.

As the banks are apprehensive of growing NPAs, many public sector banks are tying up with agencies to train farmers in agriculture and allied activities.

Institutionalising this concept, Union Bank of India has joined hands with National Bank for Agriculture and Rural Development (Nabard) to set up colleges for the farming community whereby farmers will learn other trades to safeguard their livelihood, which today is largely dependent on agricultural activities.

The entrepreneurial colleges being set up in Kerala and Varanasi (UP), will be operational in the current fiscal year, said Ratnakar Hegde, executive director, Union Bank of India. These centres will be operated in co-operation with Nabard and the respective state governments, he added.

These colleges will impart entrepreneurial skills and thereby train rural youths for an alternative source of income as agricultural is a seasonal activity.

The rural youth would have the option of taking up training in modern methods of cultivation, carpentry and other allied activities. Having created an enterprising agricultural community, the bank will extend a line of credit to reduce default rates in priority sector lending, said Hegde.

This is not a novel concept as State Bank of India (SBI) has taken the initiative to train and finance individuals in candle making, bindi making and other activities through self-help groups.

"This helps provide an alternative income channel for farmers. This also ensures repayment of bank loans in the unfortunate likelihood of crop failure," said an SBI official.

SBI has provided credit to 5,000 self-help groups in Maharashtra, in addition to financing certain common production activities in the area of vermiculture and card board ice-cream cup manufacturing in Tamil Nadu.

However, while many banks are trying to find means of controlling possible NPAs from increased farm credit, there are others who perceive that agricultural lending is not necessarily prone to NPAs.

"The recovery rate in agriculture credit is 75-90 per cent, which is much higher than the overall recovery rate of 55 per cent," said a chairman of one of the leading public sector bank.

"Agricultural lending is a good commercial proposition provided banks lend in line with prudential norms and proper planning," said a senior bank official. This is possible when banks working closely with self-help groups, mitigate credit risk through pressure from within the group members, he added.