Agri loans remain strong as credit, recovery grow

At a time when the credit flow to the private sector is on a downward trajectory, the disbursement and recovery of agricultural loans through banks increased in the first two months of the current fiscal year.

A total of Tk5,308 crore agricultural loan was disbursed in July-August of FY24, marking a 38% increase from Tk3,837 crore in the same period last fiscal. 

Besides, loan recovery in the two months amounted to Tk5,251 crore, a 27% increase compared to last fiscal's Tk4,123 crore. 

Bankers say agricultural loans are easy to recover, leading to their ready issuance. Additionally, the central bank's agricultural credit targets prompt banks to disburse these funds diligently.

The total outstanding agricultural loan is Tk53,230 crore, of which, 16,087 crore is overdue, according to central bank data. The default rate of agricultural loans is 7.37% or Tk3,924 crore.

Bangladesh Krishi Bank disbursed the maximum Tk853 crore loan in these two months, followed by Dutch Bangla Bank at Tk488 crore, Standard Chartered Bank at Tk 397 crore, Islami Bank at Tk353 crore and Brac Bank at Tk223 crore.

In FY23, farmers took Tk32,829 crore loans from banks and repaid Tk33,010 crore. 

Farmers have consistently exceeded loan repayments, even during the Covid-19 pandemic, resulting in credit collections surpassing disbursements.

Farmers get loans from banks at a maximum interest rate of 8%. However, due to a lack of infrastructure to reach marginal farmers, banks often route 50%-80% of agricultural loans through NGOs, which then disburse the funds to farmers at much higher double or triple interest rates.

Therefore, the central bank set a target of 50% disbursement of agricultural and rural credit in FY24 through the banks' own network. 

Besides, according to the agricultural loan policy formulated for the current fiscal, the central bank also asked lenders to disburse loans for rooftop gardening.

According to the central bank, rooftop gardening is a good alternative system for those who do not have enough land for traditional farming.