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Increased loans for agriculture leave banks vulnerable: HNB CEO

18 Jan 2013 - {{hitsCtrl.values.hits}}

Amidst government efforts to boost the agriculture sector through various incentives, the Central Bank has made it mandatory on banks to allocate percent of the loan book to finance the agriculture sector, a top banker noted.

“We are talking about doubling the existing loans and advances worth of Rs.3 trillion by 2016. If you really look at the math, 10 percent of Rs.6 trillion is Rs.600 million just to sustain the agricultural sector which has one third of the work force, which I believe needs to be reviewed by the Central Bank as this increasing exposure to a highly vulnerable sector will pose a risk,” said Rajendra Theagarajah, MD/ CEO of Hatton National Bank at a panel discussion on risks faced by the banking sector in the quest to a US $ 100 billion economyby2016.

In May 2008, the Central Bank required all banks to have exposure to the agriculture sector of 10 percent of their loan portfolios by end 2009 and those who did not comply contribute the shortfall to a refinancing fund operated by the Central Bank to be drawn on by other banks.

During the first eight months of 2012, 13 percent of the banking sector loans were concentrated on the agri sector while loans to trading, consumption, construction and manufacturing sectors were 16 pc, 14 pc, 14pc and 11 pc respectively.

Meanwhile T.M.J.Y.P Fernando, Director of Bank Supervision at the Central Bank took no time in endorsing the stance by the Central Bank and told bankers, “We want you (banks) to channel a fair share of your funds to these areas of the economy which were formerly neglected. This is exactly the motive of this move. You have to realize that the whole effort is in the interest of the economy and it is your national duty.”

On the contrary, the Central Bank Governor Ajith Nivard Cabraal speaking on the sectoral composition said, although the share of agriculture in the GDP had declined over time (to 12 pc), the share of employees in the sector (at 30 pc) had not declined proportionately.

“I urge the relevant authorities for productivity enhancement in the sector by way of introducing a crop calendar, facilitating storage facilities and strengthening of domestic forward & futures market for agri produce in order to improve output and reduce price volatility,” remarked Cabraal.

Furthermore, he identified the issue of exportation of mere primary products with less value addition and proposed the forward integration in to agri-based industries as a natural next step for the workers in the sector.

Meanwhile R. Raghuuttama Rao, the MD of IMaCS, an Indian Consulting company on the banking sector mainly on risk management suggested the funding to agricultural sector should be broadly defined where the loans must be provided for processing and value-addition of agri products rather than pure cultivation as a way forward.

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Increased loans for agriculture leave banks vulnerable: HNB CEO

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