A farmer ploughs a paddy field, while women sow seedlings at Godagari upazila in Rajshahi.

Private and foreign banks increased their farm loan disbursement in the first five months of fiscal 2012-13 to avoid the central bank's punitive measures.

In July-November, private and foreign banks lent Tk 1,820 crore to the agriculture and rural sector, a 28 percent rise from last year, according to Bangladesh Bank data.

The figure is 33 percent of the bank's agricultural credit target for the full year, up from 27 percent a year ago.

SM Moniruzzaman, executive director of the central bank, linked the private and foreign banks' farm credit disbursement growth to a directive issued last year, which stipulated banks lend 2 percent of their loans and advances to the farm sector.

"As we have made lending to the farm sector mandatory, the private and foreign banks have become more cautious than in the previous years in achieving their targets."

Failure to comply with the directive would not only lead to fines for banks but also depositing of that amount to the central bank at 5 percent interest rate for a year.

The directive was to ensure sufficient credit to the agriculture sector, which accounts for nearly one-fifth of the country's gross domestic product and employs the highest number of the nation's workforce directly and indirectly.

In recent years, resilience of the farm sector, mainly crop, vegetables and fisheries, helped accelerate the country's economic growth and contain domestic demand.

Increased production of rice has also cut the country's import dependence largely in the last fiscal year, according to data from the food ministry.

Over the years, the sector got little attention from private banks, currently the main supplier of credit for economic activities.

Private banks, fearing defaults, were shy in lending to the farm sector. The state commercial and specialised banks, such as the Bangladesh Krishi Bank, were the main supplier of credit.

To address the issue, BB had earlier taken punitive measures against some foreign and private banks, Moniruzzaman said.

He said the private and foreign banks would gain more from lending to the farm sector, adding: "If they fail to attain their targets, they will be the losers."

Loan disbursement target for all the 47 banks is Tk 14,130 crore for fiscal 2012-13, up only 2.39 percent from the previous year.

Of the amount, private and foreign banks will have to lend Tk 5,523 crore, with the state and specialised banks disbursing the rest.

"The farm sector is a priority for the economy and private banks should come forward and lend more to it. Otherwise, it will be difficult to meet the sector's credit demand.”

Haikal Hashmi, deputy managing director of Trust Bank Ltd, said private banks are shaking off their reluctance to lend to the agricultural sector.

"Private banks' capacity to monitor loans to the farm sector used to be low and hence the wariness to lend to them. Now, there are many branches that allowed us to monitor better."

"So far, our experience in terms of recovery is very good," said the executive of Trust Bank which started lending to the farm sector in 2010.

News: The Daily Star/Bangladesh/18th-Dec-12