The Agricultural Credit Advisory Committee (ACAC) has approved a target of Rs 160 billion for disbursement of agriculture credit to farmers during fiscal year 2006-07. This target is 23 percent higher than last fiscal year's target of Rs 130 billion.
The approval was given at a meeting, chaired by the Governor, State Bank of Pakistan (SBP) Dr Shamshad Akhtar, held here on Monday. Dr Shamshad Akhtar underscored that these targets should be treated, as 'minimum achievements' required from banks. While the State Bank is not in business of directed credit, but it would encourage banks to achieve balanced regional and sectoral distribution of credit to achieve sound economic development.
The five big commercial banks (ABL, HBL, MCB, NBP & UBL) have been allocated target of Rs 80 billion, Zarai Tarqiati Bank Ltd Rs 48 billion, Punjab provincial Co-operative Bank Ltd (PPCBL) Rs nine billion & Domestic Private Banks as group Rs 23 billion. The ACAC also made province wise allocations of disbursements, based on cropped area and absorption capacity of each province, AJK & FATA.
The committee expressed deep satisfaction that total disbursement to agriculture sector during July-May 2005-06 reached to Rs 117 billion, which is 25.8 percent higher than disbursements of Rs 93.0 billion in same period of last fiscal. The disbursements made in 11 months are about 90 percent of full year target. Considering average disbursements of Rs 15 billion in June in the last three years, full year target of Rs 130 billion would be achieved comfortably.
The five big commercial banks as a group disbursed Rs 59.8 billion against the full year target of Rs 63 billion. ZTBL, PPCBL & domestic private banks (DPBs) disbursed Rs 38.8 billion, Rs 4.5 billion and Rs 13.9 billion against the target of Rs 43 billion, Rs nine billion and Rs 15 billion respectively.
The five big commercial banks as a group achieved about 95 percent of full year target. ZTBL 90 percent, PPCBL 50 percent and DPBs as a group achieved 92.4 percent of their annual targets.
The committee was informed that the disbursements to farm and non-farm sectors as a whole during 11 months of fiscal year 06 remained more or less as per target with farm sector fetching Rs 95.7 billion or 81.8 percent against target of 80 percent and non-farm sector obtaining Rs 19 billion or 16.3 percent against target of 16 percent.
The committee expressed hope that the banks would take necessary steps to further accelerate pace of credit disbursement to the agriculture sector so that Rs 160 billion target for year 2006-07 is achieved comfortably.
The committee noted small farmers (farmers having landholding up to subsistence level) attracted 67 percent, economic holding (medium farmers) 23 percent and large farmers (above economic holding) received 10 percent of total disbursement made to farm sector.
Taking serious note of regional, provincial disparities in growth of agricultural credit disbursements, the SBP governor announced setting up of a special committee of five big commercial banks & ZTBL to prepare a report to identify issues and constrains impeding credit delivery at provincial level and suggest corrective measures within one month.
The committee also impressed upon the provincial governments to take initiatives to make the farming community of respective provinces, regions attractive for banks' investment.
The ACAC was informed that the SBP, in consultation with stakeholders, was in the process of framing guidelines to facilitate, encourage banks to build up their portfolio in the livestock sector. These guidelines, likely to be notified this month, are aimed at increasing credit flow to the livestock sector that promises rich returns to dairy growers, banks and economy as a whole. The allocation for the livestock sector was raised to 15 percent of total disbursements as compared to eight percent last year.
As both the federal and provincial governments are taking initiatives to enhance flow of fund to agriculture, rural sector, the ACAC is likely to recommend to the provincial governments to reduce stamp duty to Rs 50 for all agricultural loan agreements upto Rs 0.5 million to facilitate small farmers in accessing loans from banks.
The ACAC has also made recommendations to further increase pace of growth for agricultural credit disbursement, which would be examined by the SBP: Allowing refinancing credit lines to banks at KIBOR to extend loans to Agriculture/rural sector; government/ministry of finance may be requested to consider exempting interest income on agri-credit from income tax or tax it at a concessional rate under a separate bracket for a period of 3-5 years; board members & senior management teams of commercial banks may be sensitised about business viability of agriculture, rural finance and further capacity enhancement and institutional building in an area may be emphasised; off and on announcements for loan write offs and interest waivers promote default culture and create difficulties for banks in recovering loans and thus, discourage banks to build and expand their portfolios in rural areas, such announcements may, therefore be avoided; insurance framework for rural areas, particularly for crop loan and livestock loans may be developed on priority and provincial governments may be requested to ensure full co-operation from their revenue department and automation of land records may be initiated on immediate priority.
The meeting was informed that the committee constituted by the ACAC in its meeting in July, 2005 under the chairmanship of Riaz Riazuddin, SBP Economic Advisor, revised and finalised Credit Estimation Methodology Report in light of latest developments in agricultural technology and suggestions received from different stakeholders, research institutions and agricultural universities. The report will be published shortly.
The National Reconstruction Bureau also made presentation to the ACAC on automation of land records and conferment of property rights. The committee appreciated the proposed system, however, it emphasised the need for greater consultation with all stakeholders including the SBP and banks before launching the project.
The meeting was attended by the SBP Deputy Governor, Mansur-ur-Rehman Khan, presidents of commercial banks, ZTBL and PPCBL, officials of federal and provincial governments, chambers of agriculture, farmers' associations, agricultural, economic research and other stakeholders.