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Professor Mustafizur Rahman on banking policy, SME and agriculture

PCBs can make a liaison with the Micro Finance Institutions (MFIs) to achieve their disbursement target of SME and agriculture loan, which will reduce the risk management factors

Published on The New Nation on Wednesday, 7 October 2015.

Agri-loan disbursement
7 banks fail to achieve target

Abu Sazzad

Seven banks failed to achieve agriculture loan disbursement target in the first two months (July to August) of the current fiscal 2015-16. Most of these banks, most of the banks are foreign commercial banks (FCBs). These banks are Bank Al-Falah, Citibank NA, Commercial Bank of Ceylon, Habib Bank, National Bank of Pakistan, State Bank of India and Farmers Bank.

The central bank has set a farm loan disbursement target of Tk 16,400 crore for the current fiscal. Although these banks have failed to fulfill their disbursement target, the farm loan disbursement increased by 6.29 per cent in the first two months of the current financial year compared with the corresponding period of the FY15. According to the Bangladesh Bank data, farm loan disbursement by all banks increased by Tk 1,814.34 crore in the first two months of the current fiscal (July-August) against Tk 1,706.96 crore during the corresponding period of the FY15.The banks are now being compelled to disburse the farm loan in line with their financial year’s target as the central bank had earlier said that they (banks) would have to deposit the entire fund of their undisbursed agriculture loans in a blocked account with the BB, said the central bank Executive Director M Mahfuzur Rahman.

The central bank took the move as a punishment measure. The central bank implemented the rule from this financial year, he also said.The BB will return the fund to the respective banks if they disburse the undisbursed amount with their fresh targets for the next financial year, also said the BB official.

For this reason, the banks are now more cautious to fulfill their annual farm loan disbursement target to avoid the punishment measure set by the central bank, he said.

The BB official said that the central bank had already asked the banks to speed up the farm loan disbursement programme.

In July-August of the FY16, the state-owned commercial banks – Sonali, Janata, Agrani, Rupali and BASIC – and the three specialised banks – Bangladesh Krishi, Rajshahi Krishi Unnayan and Bangladesh Development – together disbursed Tk 666.87 crore as farm loans, which is 7.18 per cent of their annual loan disbursement target of Tk 9,290 crore.

The private and foreign commercial banks together disbursed Tk 1,147.47 crore in agricultural loans in the period, which was 16.14 per cent of their total annual loan disbursement target of Tk 7,110 crore.

Bangladesh Bank reduced the interest rate on farm loan to 11 per cent from 13 per cent in December 2014, which also played a significant role in increasing the disbursement of the agriculture loan.

The BB data showed that the defaulted farm loan had also decreased by 16.26 per cent to Tk 5,065.68 crore in the first two months of the FY16 from Tk 6,049.95 crore during the same period a financial year ago.

The BB official said that the banks had recently taken various types of move to recover the defaulted farm loans, which put a positive impact on decreasing classified loans in the sector, he said.

Center Policy Dialogue (CPD) Executive Director Mustafizur Rahman said, every year PCBs failed to fulfill their disbursement target due to their illogical banking policy.

They (PCBs) do not have any rural branches, so they deliberately avoid the disbursement target, he claimed.

PCBs can make a liaison with the Micro Finance Institutions (MFIs) to achieve their disbursement target of SME and agriculture loan, which will reduce the risk management factors, suggested the CPD Executive.

Adequate SME and agriculture loan are important to attain a sustainable economy, he pointed.

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