BB mulls injecting more funds into farming sector

Bangladesh Bank (BB) is planning to inject more funds into the farming sector through banking channels from the next calendar year for strengthening the country's food security amid warnings of a possible food crisis worldwide.

The central bank would raise the banks' agriculture credit disbursement target in terms of percentage of their total annual lending programme while the amount of disbursement under the bank's own channel is planned to be increased, senior bankers have said.

Different multilateral institutions and recognised research bodies have so far been apprehending that there is the possibility of a food crisis throughout the globe in 2023 mainly due to the Russia-Ukraine war that affected areas having 30 per cent stake in food grain production.

"We're planning to set high the disbursement target for the commercial banks in the upcoming calendar year," a senior official at the BB told the FE, seeking anonymity.

At present, the banks are supposed to invest a minimum of 2.5 per cent of their total loans in the agriculture sector and that 30 per cent of the amount should be disbursed through their own channel, not other distribution mechanisms like MFIs, according to a guideline.

"We're now planning to raise both the ceilings… but nothing is finalised yet," said the BB official.

At a meeting last week, BB Governor Abdur Rouf Talukder asked the top executives of private commercial banks to enhance the farm credit to ensure food security of the country.

The central bank, meanwhile, announced a refinancing scheme worth Tk 50 billion to provide liquidity support so that the country's 60 commercial banks can increase loans to the agriculture sector.

Though the country's food stock situation is not that bad, the central bank's move would be a precautionary one, said a top executive of a privately-owned commercial bank.

However, the senior bankers expressed mixed reactions over the BB plan - some believe it would further push up the nonperforming loans and the others defended the move arguing that the farmers would require more funds for adopting modern and mechanised agriculture practices.

Managing director and chief executive officer of the Mutual Trust Bank Limited (MTBL) Syed Mahbubur Rahman informed the FE that the central bank governor at a recent meeting urged the top executives of the PCBs to increase the credit flow to the agriculture sector.

In the meeting, he added, the governor dropped a broader hint of raising the ceiling of loan disbursement with the banks' own management, not other mechanisms like MFIs' channel, from existing 30 per cent to 50 per cent in the next couple of years.

"If the thresholds are widened, the farmers' access to low-cost credit would increase which we also want for the sake of the economy," he added.

"But there is also a risk," he said, adding that the banks will need to supervise the borrowers on a regular basis to monitor when the crops will mature and when the paddy will be ripe for harvesting.

"If the paddy is washed away or damaged because of natural calamities, what will happen to us (the banks) in absence of a crop insurance mechanism? So, there is every chance of increasing the amount of bad loans," he added.

Seeking anonymity, another top executive of a commercial bank informed the FE that the default loans are surging at present and the rate is reaching double digits out of the total Tk 14.0 trillion in outstanding loans.

"Actually, the loans from the state-owned banks are being sanctioned on political considerations … Those are the large chunk of the bad loans. So the move may further intensify the NPLs," he added.

Md Ali Hossain Prodhania, former managing director of Bangladesh Krishi Bank, said that any move to increase funding for the Agriculture sector is a good one. "I think the governor's move is very praiseworthy as the sector needs huge funding for increasing agricultural productivity."

A former managing director of Rajshahi Krishi Unnayan Bank (RAKUB) said: "The agri credit is always a demanding one and any move to increase it is a good step towards modern agriculture practices."

He said the refinancing scheme by the central bank would also be very helpful for funding the sector.

However, the share of the crop sub-sector was 46.8 per cent of the total agriculture credit disbursement, followed by livestock and poultry (20.4 per cent) and fisheries (13.0 per cent).

The agricultural credit disbursement target for the current fiscal year has been fixed at Tk 309.11 billion, which is 8.88 per cent higher than the target of Tk 283.91 billion for the last FY.

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