SBI to enter into contract farming deals

The State Bank of India (SBI) is planning to step up agricultural credit by entering into contract farming agreements with farmers and the industry.

A Ramesh Kumar, chief general manager (Mumbai Circle) of SBI said that the bank's programme for contract farming, being offered for 11 agricultural products, would soon be upgraded and will be spread to new areas.

For the financial year 2004-05 the exposure of SBI's Mumbai circle, which includes Maharashtra and Goa, in contract farming stands at Rs 101 crore. This figure is half of the yearly accretion in the entire farm credit made in the circle, Kumar said.

A contract farming arrangement is a tripartite agreement between the farmer, bank and an industrial unit which uses the farm product. While the bank finances the farmer for procuring inputs, the industry guarantees purchase and provides the necessary seeds and know-how for cultivation.

The industry pays the purchase value to the bank which deducts the debt portion and hands over the surplus to farmers.

In Vidarbha, the bank has financed contract farming ventures for Ballarpur Paper Mills Ltd. Farmers would be growing various crops such as bamboo and 'su-babool', which are major raw material for the paper mill. The bank has covered 2,000 acres under this scheme and aims to increase it by a similar quantum each year, said Kumar.

Other crops which are covered under the contract farming finance scheme are onions, grapes, pomegranates and dairy products. The bank has financed farmers' deals with major wineries and champagne makers too, the Kumar said.

The bank is considering a plan for contract farming of a particular variety of cotton seeds. The seeds will be procured by a farmer to grow a specific variety of high yielding quality cotton.

However, it seems financing contract farming for the cotton crop would be difficult in Maharashtra owing to the peculiar procurement methods for this commodity, Kumar said.

SBI is fast interlinking its branches using the core banking solutions, he said explaining bank's other plans. Mumbai circle has inter-linked 100 branches this financial year and by March-end a few more banks would be connected.

A thousand branches are to be connected in the entire country by then. This will enable a customer to carry out transactions with any of the inter-linked branches.

The bank would also implement a business process re-engineering (BPR) plan which will make several client-related procedures much simplier and shorten the time lag in applying for a product and its delivery.

This has already been implemented in a pilot office at Mumbai and would soon be extended to other offices in other parts of the state. A similar BPR is being planned for the inter-linked branches too, he added.

The bank is also keen on increasing its exposure in mico-credit through self-help groups (SHGs). During the year the bank has credit linked 14,000 SHGs, said Kumar.