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Money > Business Headlines > Report August 5, 2002 | 1245 IST |
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Drought threatens banks' retail plansBS Banking Bureau in Mumbai Bankers are a worried lot as the spectre of drought looms large over the country. The concern is not so much about rescheduling agricultural loans in the drought-hit states, which has been standard practice. Some of them feel plans to get into retail financing in a big way may face a roadblock because consumer spending will be affected as the drought grips certain pockets of the country. At least one large bank, which had put in place an aggressive plan to go all out on farm financing this financial year to steer credit growth, is reworking its strategy. "We are taking a close look at the agriculture loan portfolios in Punjab, Haryana, Uttar Pradesh, Madhya Pradesh, Rajasthan and Maharashtra, where the state governments have declared drought in some parts. We will be required to reschedule farm loans in these states," said a bank chairman. Traditionally, once a state government announces drought, banks take a reality check on the extent of damage. "We are in the process of doing so. We may have to reschedule crop loans at least for this season. Besides, we will also be required to pump in more money to help farmers tide over the natural calamity," said the banker. Going by the Reserve Bank of India rules, banks are not required to classify these loans as non-performing assets and hence no provisioning is needed. "The banking industry loses on two counts: the banks will not earn interest and they will be required to extend fresh loans. But since agriculture loans account for 15 per cent of the total loan portfolio and only a part of that is crop loan which will be rescheduled, there will not be a major impact on their balance sheets," pointed out a banking sector analyst. "Banks are always directed to reschedule loans whenever there is a natural calamity - be it drought, flood or earthquake. But this time the scenario is different because drought is set to hit the economic landscape when there were flickers of recovery. We are apprehensive of its impact on growth. Particularly, consumer spending will be affected which, in turn, will have an impact on our plans to go retail," said another bank chairman. In the absence of a pick-up corporate loans all banks have been drawing elaborate plans to attack the retail segment of business. This will be seriously affected if drought casts its shadow on the recovery process. For instance, most of the public sector banks are targeting housing loans in semi-urban and rural India as a means of credit growth. Some of them have started reworking their projections. At least one big bank is changing it strategy in view of the impending drought. This bank had planned to make an aggressive foray into farm financing to prop up its credit portfolio as well as meet priority sector lending norms. ALSO READ:
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