Agri lending: A perspective - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Agri lending: A perspective

Jun 22, 2004

It is now widely accepted that the 'India shining' mantra of the previous NDA government failed to elicit the desired response from the Indian electorate. The new UPA (United Progressive Alliance) government seems to be determined not to make the mistakes that the earlier government is 'alleged’ to have made, i.e. sideline the rural poor. This is evident in the way in which the new government is promising sops for the agriculture sector, especially significantly higher credit to the sector. The government has stated that it plans to double the credit to the rural sector in the next three years. It has also indicated that immediate steps will be taken to ease the burden of debt and high interest rates on farm loans. While it is difficult to gauge whether the targets, especially for credit disbursal set by the government are realistic, the intent seems to be clear, and the message to the banking sector is also unambiguous.

Taking this perspective in mind, we took note of the trends in agri lending over the last four years. Now, before we analyse the numbers, let us put agri lending in perspective of the overall lending by banks. Lending to this sector comes under priority lending for all scheduled commercial banks. Priority sector lending by banks has to be maintained at 40% of overall advances and 18% has to be to the agricultural sector.

The table below indicates how overall advances of the banking sector have moved in the last four years and how agricultural sector lending has moved over the same periods. If one were to notice, lending to the sector has lagged behind the overall growth in the advances of the whole banking sector. Lending to the sector includes direct lending to farmers as well as public food procurement credit. We can observe that the growth has been rather volatile compared to the growth seen in the overall banking sector. In the last 3-4 years, banks have been averse to give loans to the industrial segment and the same kind of inertia has been observed even in the agri sector. This may be attributed to the fact that the sector is prone to natural calamities like droughts and floods, which significantly raise the risk profile of this sector.

(Rs bn) FY01 FY02 FY03 FY04*
Gross bank credit 4,692 5,367 6,169 6,631
YoY change   14.4% 14.9% 7.5%
Credit to agri sector** 919 1,147 1,211 1,157
YoY change   24.8% 5.5% -4.5%
*Till August 2003
** Includes food procurement credit

Another reason for the volatile movement of agri credit is due to the fact that foods procurement credit is included in this figure. Foods procurement credit fell strongly in FY03 after rising strongly in FY02. While in FY02, foods procurement credit saw a significant rise (Rs 139 bn), this fell to a marginal Rs 45 bn in FY03. This can be attributed mainly to the fact that in FY03, there was a drastic fall in the overall food grain reserves of the country and this was used to pay off certain amount of outstanding foods procurement credit.

While the time under this analysis may not be a good indicator of the overall trend of credit growth in the sector (excluding food procurement credit), we can however conclude that the growth in credit to this sector at best mimics the growth in the overall advances of the banking sector. However, according to the target set by the UPA, there needs to be a CAGR of atleast 24% in order to reach the target of doubling credit to this segment in the next three years. All eyes will now be set on the budget and the implementation of this bold initiative by the UPA, as it will have a profound impact on the banks in the country. Whether agriculture sector lending will be the next big opportunity after the retail segment or will it be the next pitfall depends on how the government handles broader issues like irrigation and most importantly the sensitive issue of land reforms.

Equitymaster requests your view! Post a comment on "Agri lending: A perspective". Click here!

  

More Views on News

These Stocks Have Rallied Over 300% In the Last 12 Months. Is the Rally Justified? (Views On News)

Nov 12, 2021

As many as 150 stocks from the BSE 500 index deliver multibagger returns in the past one year.

Ultimate Guide to Hedging Your Portfolio (Fast Profits Daily)

Sep 21, 2021

How can you protect your portfolio in a market crash? Find out in this video.

Ride the Indian Real Estate Revival with this 'Different' Smallcap Stock (Profit Hunter)

Mar 23, 2021

Affordability in the housing segment has never been so good in last one and a half decade. Here's how you could make the most of it...

My Latest Stock Recommendation (Fast Profits Daily)

Oct 9, 2020

How I picked an exciting stock using trends from both the commodity and equity markets.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS