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Central bank goes tough with farm loan anomalies

Non-compliant banks to lose 3pc of their undisbursed loans

Star Business Report
Bangladesh Bank (BB) yesterday said banks that fail to disburse targeted farm loans would be penalised.
Bankers also demand an impact assessment study against their farm loans to the economy.
“We will cut 3 percent of undisbursed farm loans from the respective banks' accounts," BB Governor Dr Atiur Rahman told top bankers at the launch of the Agriculture and Rural Credit Policy and Programme for fiscal 2012-13 at the bank's office.
If a bank fails to disburse Tk 20 crore out of its annual target of Tk 100 crore, the BB will cut Tk 60 lakh (Tk 3 lakh per Tk 1 crore) from the bank's accounts with it. The BB introduced the measure last year and 13 banks failed to disburse their targeted loans. These banks requested the governor to reconsider the punishment and vowed not to repeat the failure.
Rejecting the bankers' requests, Atiur said: “We should maintain it... After all, non-compliance has a cost."
The central bank has set the farm loan disbursement target for all the 47 banks operating in Bangladesh atTk 14,130 crore for fiscal 2012-13, up by only 2.39 percent from the previous year.
All the banks collectively disbursed Tk 13,137 crore or 95 percent of the target at Tk 13,800 crore in farm loans by June of fiscal 2011 -2012, according to the BB.
“The punishment measure of keeping 3 percent of non-disbursed loans will be maintained to keep pressure on the banks,” said SK Sur Chowdhury, deputy governor, who briefed the media after the meeting.
Chowdhury said this year’s loan disbursement target was set in line with the GDP (gross domestic product) growth rate. He said the meeting also discussed priority and new areas for farm loans.
He said private and foreign commercial banks that were reluctant to given farm loans a few years ago have performed relatively better in 2011-12 than the state-owned banks.
“Many private banks disbursed 100 percent of their targeted loans,” he said. Foreign banks are also coming forward despite limited branch network, he added.
The farm sector plays a key role in Bangladesh's economic development as it contributes more than 20 percent of GDP. On an average, the country's GDP growth rate has been 6.35 percent in the past three years.
After Rahman became the governor of the central bank in May2009, he kept pressing the banks to go to rural areas with funds. Rahman also introduced several refinance schemes, including cultivation of spices and lending to sharecroppers, to encourage the banks in this regard.
“Agriculture plays a significant role in creating domestic demand. A good harvest also helps contain food inflation,” said Rahman.
The governor urged the private banks to open accounts for the poor people.
Responding to the central bank's measures, the bankers said they want to see how their loans impact the rural people.
“We have requested the central bank to carry out an impact assessment study on our farm loans in the economy,” said Nurul Amin, managing director of NCC Bank and chairman of Association of Bankers Bangladesh.