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LATEST NEWS UPDATES | Budget 2012: Finance ministry set to hike agriculture lending target despite sharp rise in NPAs by Dheeraj Tiwari

Budget 2012: Finance ministry set to hike agriculture lending target despite sharp rise in NPAs by Dheeraj Tiwari

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published Published on Mar 2, 2012   modified Modified on Mar 2, 2012

The finance ministry is all set to increase the agriculture lending target by around 25% in the budget for 2012-13 despite a sharp increase in the non-performing loans in the sector. 

In the last budget, the government had increased the target to 4.75 lakh crore from 3.75 lakh crore in the year before. 

"Banks will continue to focus on all priority sector areas. This year more focus will be on direct lending to agriculture sector," said a senior finance ministry official. 

The finance ministry has already asked heads of at least five state-run banks to give a status report after they failed to achieve agriculture direct lending target of 13.5% in last three years, the official added. 

Goaded by the government, state-run banks have met almost half of their agriculture sector target of 4.75 lakh crore by the end of September 2011 despite a sharp run up in bad loans. 

Gross NPAs of the sectors rose to 14,487 crore at the end of March 2011 to 8,330 crore the year before. The finance ministry says concerns over bad loans are overdone. 

"Most of agriculture loans get paid after crop season. So, for now they may be bad assets but the number will drastically come down in the next two months," the official said. 

The finance ministry has already launched a concessional loan scheme for farmers to who park their produce at warehouses. 

The scheme will ensure that farmers will be able to avail short-term post harvest loan at 7% as against the prevailing rate of 11-12%. 

"Banks are already under pressure to recover loans especially from small farmers. But we also have to meet priority sector targets," said an official with SBI. 

According to a report by FICCI-IBA-BCG, the bad loans in the sector continue to be high because of lack of innovation in credit delivery. Banks see MSME and agriculture function only as a 'top up' or they are seen as mandatory obligations to be fulfilled," the report stated. 

RBI guidelines require banks to lend 40% of their adjusted net credit to the priority sector, which includes agriculture, small-scale industries and other weaker sections. 

If banks fail to meet the priority sector lending target they can buy loans of regional rural banks or micro-finance institutions. 

The Economic Times, 2 March, 2012, http://economictimes.indiatimes.com/news/economy/agriculture/budget-2012-finance-ministry-set-to-hike-agriculture-lending-target-despite-sharp-rise-in-npas/articlesh


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