KARACHI, Oct 20: Banks lent Rs20.62 billion to the farming sector in the first quarter of this fiscal year. The full year target for bank credit to this sector is Rs85 billion. In the last fiscal year, banks had lent Rs73.6 billion to growers.

Bankers involved in disbursement of agricultural credit say that in July-September 2004 they lent Rs20.62 billion under the State Bank's mandatory agricultural credit scheme.

Zarai Taraqiati (Agricultural Development) Bank Ltd. made the largest lending of Rs5.97 billion but this amount is shorter than what the bank should have lent to meet its credit target of Rs34 billion set for this fiscal year.

Bankers say since ZTBL is making agricultural loans only out of its recoveries, a lesser than targeted farm credit off-take from ZTBL means its recoveries ought to have been a bit higher.

Five major banks made Rs10.93 billion farm loans in July-September 2004 against their combined target of Rs38 billion. Of them, National Bank and Habib Bank lent Rs3.95 billion and Rs3.49 billion respectively against their full fiscal year targets of Rs15 billion and Rs10 billion respectively. Muslim Commercial Bank and United Bank made Rs1.45 billion and Rs1.2 billion farm loans in the first quarter of this fiscal year against their full year targets of Rs5 billion each. Allied Bank lent Rs828 million against its target of Rs3 billion.

Thus, HBL achieved the highest 35 per cent of its full fiscal year credit disbursement target.

The Punjab Provincial Cooperative Bank offered Rs1.79 billion loans to farmers in the first quarter against its target of Rs8 billion for the current fiscal year. Fourteen local private banks lent Rs1.91 billion against their combined target of Rs5 billion.

These banks are: Askari Commercial Bank, Bank Al-Habib, Bank Alfalah, Bolan Bank, Faysal Bank, Metropolitan Bank, PICIC Commercial Bank, KASB Bank, Prime Commercial Bank, Saudi Pak Commercial Bank, Soneri Bank, The Bank of Khyber, The Bank of Punjab and Union Bank.

The total farm lending of Rs20.62 billion in the first quarter of this fiscal year is part of the overall private sector credit during this period.

Banks' overall lending to the private sector stood around Rs46 billion between July 1-September 25, according to State Bank's statistics.

Growers are currently getting farm loans at 9 per cent mark-up from all the 21 banks involved in disbursement of agricultural loans. ZTBL that used to lend at a high mark-up of 14 per cent is also now lending at 9 per cent. Good borrowers who clear their dues on time are getting ZTBL farm loans even at 8 per cent.

Banks' agricultural loaning in the first quarter was quite profitable because the 9 per cent mark-up on farm loans was much higher than their average lending rate of 5-6 per cent. But as their average lending rate rose from 4.63 per cent in July to 5.08 per cent in August in response to the SBP's tightening of the monetary policy and there are chances that the rate would rise further, banks may find it a bit difficult to lend to the agricultural sector at 9 per cent.

In fact, banks' agricultural lending in September has already been a bit lower than the average monthly off-take in July-August. Average monthly lending in these two months was Rs7.18bn whereas in September total agricultural lending was Rs6.26 billion.

Agricultural credit off-take fell in September as farmers deferred purchase of tractors using these loans, because of up to 50 per cent increase in their prices on the back of higher cost of raw materials including steel.