DAMAGES to crops and livestock by the recent floods have created additional demand for agricultural loans. And this has coincided with the low credit appetite of the cash-rich manufacturing sector.

Since post-flood agricultural credit demand is originating chiefly from areas where farmers lost parts of their standing cotton crop, bankers say they can easily meet the additional demand because of existing bonds between them and cotton growers.

According to NDMA estimates, the floods have damaged more than 2.5m acres of crop area — almost entirely in Punjab — and perished a little less than 15,000 cattle heads while destroying 250 poultry farms.

Growers say the damage to the crop has created demand for bank credit for different purposes. Firstly, farmers whose cotton crop was entirely washed away need money for second sowing, and those whose crop was partially damaged require bank finance for buying pesticides to save the remaining crop from pest attacks.

In 2010, the SBP had launched a subsidised refinance scheme for the revival of farm activities in flood-affected areas. Growers now call for a similar scheme

Growers whose mature paddy crop was washed away need money to prepare land for some minor crops, and those whose paddy fields were partially hit require immediate funds to take better care of whatever is left. Those who have lost minor crops, including vegetables, need financial help for re-sowing winter veggies and taking good care of them to achieve maximum production.

Farmers are also looking for bank borrowing to drain flood water and dredge mud from sugarcane fields and orchards, and to save sugarcane stalks and fruits from diseases.

Bankers say Habib Bank, National Bank, United Bank and some smaller banks are well-positioned to reach out to farmers in flood-affected areas, as they have extensive branch networks in Punjab and have been doing well in terms of agricultural lending.

The main issue, however, is whether banks can trust the repayment capacity of those who have suffered losses due to crop damages and may delay the servicing of previous loans. “That is where banks with a diverse range of agri finance products can take an initiative,” says a senior HBL executive.

“Our crop input and farm implement financing schemes allow growers who have running financing for crop raising (before the floods) to now separately avail short-term finance to overcome their problems.”

Bankers say other banks also have similar facilities for farmers with varying features in terms of loan limits, collateral types, installment split and effective interest rates etc.

Though some commercial and microfinance banks look set to accelerate their post-flood agricultural loaning, the Zarai Taraqiati Bank Ltd (ZTBL) and the Punjab Provincial Cooperative Bank (PPCB) may find it difficult, sources say.

In July-August, ZTBL and PPCB met only 5pc and 5.6pc of their FY14 targets, whereas all banks combined achieved 11pc of the overall target of Rs500bn. Banking sources say the two banks are focusing more on improving their loan recovery instead of expanding lending volumes. Besides, tougher competition with local private banks and microfinance banks has also affected their ability to lend aggressively.

Unlike the super floods of 2010, the recent floods have resulted in a lesser damage to the livestock sector, and banks don’t expect any dramatic increase in credit demand from livestock breeders. But they say they are ready to meet any additional demand.

“Corporate livestock and poultry farming have already been big recipients of agricultural credit for quite some time, chiefly because these segments are growing fast, creating demand for development loans,” says the head of the agricultural division of a big local bank.

Higher per-acre indicative financing limits for key crops announced earlier this year will help banks make larger loans to flood-affected growers. But farmers say they also need interest rate subsidies, pointing out that agricultural production loans are currently available at no less than 15-16pc.

After the 2010 floods, the SBP had launched a subsidised refinance scheme for revival of agricultural activities in flood-affected areas. Growers’ lobbyist groups demand that a similar scheme be announced now to ensure provision of adequate and cheap farm credit in flood-hit areas.

Bankers say they generally charge 4-5 percentage points over six-month Kibor for most of their revolving agricultural credit. In some cases, the premium over Kibor is lesser or higher than this range depending upon the nature of the loan and the credit worthiness of the borrower. Six-month Kibor is currently hovering around 10.2pc.

ZTBL executives say because of the exclusive nature of its operations, the bank offers a wide range of agricultural finance products and that in the post-flood scenario, they are expecting maximum utilisation of their Asan Qarza (easy loan) scheme. Every borrower can get up to Rs200,000 under this scheme at less than 15pc markup, and he can also avail a 1pc interest rate rebate if he regularly makes loan payments.

Published in Dawn, Economic & Business, October 6th, 2014