Farm loan disbursement dropped by 2.81 per cent or Tk 406.86 crore in the July-February period of the current fiscal year due mainly to liquidity crisis in the country’s banking sector.
In July-February of FY19, banks disbursed Tk 14,113.56 crore in farm loans against Tk 14,520.42 crore disbursed in the same period of FY18, according to the latest Bangladesh Bank data.
Officials of the central bank mentioned liquidity shortage as the key reason for the fall in agricultural loan disbursement by banks.
They said that banks were facing multiple challenges that were holding them back from disbursing farm loans in line with the central bank-set target for the current fiscal year.
The liquidity crisis of banks was reflected in inter-bank loans, call money rate and increasing deposit rate in the banking sector.
Even the private sector credit growth was 13.2 per cent in January this year, far below the BB-set target (16.5 per cent).
Riding on higher demand for liquidity, call money rate increased to 4.53 per cent on March 28 this year. The rate of call money was 2.77 per cent in June last year.
Banks borrowed Tk 13,475.8 crore from the central bank through repurchase agreement (REPO) in the period between July, 2018 and March 5, 2019 while the entities borrowed Tk 572.86 crore in the entire 2017-2018 fiscal year.
In the fiscal year of 2016-2017, banks’ borrowing through REPO was Tk 115.67 crore.
Deposit growth in the banking sector dropped below 10 per cent in recent months, which also worsened the liquidity situation in the banking sector.
Considering the liquidity situation in the banking sector, the central bank on March 7 extended the advance-deposit ratio adjustment deadline by six month to September 30 from March 31, 2019.
Dhaka Bank managing director and chief executive officer Syed Mahbubur Rahman told New Age that the stressed liquidity situation in banks might be the reason for the fall in farm loan disbursement by banks.
Besides, cost of fund in the case of farm loans has become the same as it is for some other loans that might have made farmers reluctant to take farm loans, he said.
He, however, hoped that banks would finally be able to meet the annual target as there is a mandatory provision in this regard.
According to the BB policy, every bank has to disburse at least two per cent of its total lending in the agriculture sector.
Mutual Trust Bank managing director and chief executive officer Anis A Khan told New Age that there were many factors which had created liquidity shortage in the banking sector and that’s why many banks might have been selective in issuing loans to the farmers.
In the first eight months of FY18, banks had managed to disburse 71.17 per cent of the target for the entire fiscal year but their loan disbursement in the same period of FY19 dropped to 64.74 per cent of the annual target.
The central bank has set Tk 21,800 crore as farm loan disbursement target for FY19 for banks. The target was Tk 20,400 crore for FY18.
Banks will have to disburse another Tk 7,686.44 crore in farm loans in the remaining four months of the current fiscal year.