KARACHI: In the backdrop of massive damages to agriculture by unprecedented floods caused by historic monsoon rains, the State Bank of Pakistan (SBP) on Friday set a little higher Rs1,800 billion agriculture credit target for 2022-23.

Last year, the Rs1,700bn target was missed primarily due to financial institutions’ cautious lending approach.

The current year is under the immense pressure of devastating flash floods across the country. No official data is available about the loss of crops, livestock and other related valuables in the agriculture sector, a brokerage house initially estimated a total loss of Rs900bn.

However, it is difficult for brokerage houses or independent NGOs to assess the possible losses due to limited capacity, only the government can provide data about the exact damages caused by the floods.

Banks missed last year’s target due to cautious lending approach

At the same time, it is also obvious that the agricultural sector needs much more financing to recover from the massive losses inflicted by the natural calamity.

The SBP has assigned an annual agriculture credit disbursement target of Rs1.8 trillion to the financial institutions for the current fiscal year to cater to the agriculture credit demand.

Moreover, in line with the national food security requirements and the need for mechanisation of farms to enhance agriculture productivity, specific targets of Rs140bn for production loans of the wheat crop, Rs45bn for tractor financing, and Rs20bn for harvesters, planters and other farm machinery have also been set under the overall target for FY23,” said the central bank.

The per acre indicative credit limits for agriculture financing have also been increased to support the farming community to avail adequate financing from banks and optimise their agriculture inputs’ usage.

Credit for wheat has been increased by 40pc per acre this year in the wake of the shortage of wheat.

The country is expected to spend $1.7bn on the import of 2m tonnes of wheat.

“The per acre indicative credit limit for wheat has been enhanced from existing Rs60,000 to Rs100,000 which will allow farmers to deploy quality inputs for improved yields,” said the SBP.

During FY22, the financial institutions managed to disburse Rs1,419bn to the agriculture sector compared with the disbursement of Rs1,366bn in FY21.

The SBP said the unprecedented disbursement and growth in the agriculture credit portfolio was supported by various recent initiatives to promote agriculture credit and financial inclusion in the country.

One of the major recent initiatives of SBP was the introduction of a comprehensive agriculture credit scoring model to bring the focus of banks towards improving qualitative aspects and regional distribution of agriculture financing in the country, it added.

The model, adopted by the Agricultural Credit Advisory Committee, provides individual scores reflective of each bank’s agriculture credit performance against multi-dimensional criteria based on various indicators including sectoral disbursement, regional performance, outstanding amount and outstanding borrowers etc.

“Recently, growth in agriculture credit disbursement remained subdued due to various challenges such as adverse climate change effects, resource constraints in banks, underutilisation of approved limits by borrowers etc, while a few banks, particularly large public sector banks, among others, also performed slower than usual and struggled to achieve their assigned annual targets,” said the SBP.

The SBP has also released the annual ranking of banks under this scoring model to bring transparency and competition among the various agriculture credit providers.

As per the model’s results for FY22, HBL ranked top among large banks with a score of 75.4, Bank of Punjab scored 62.1 and ranked highest among midsize banks, and BankIslami stood first among small banks with a score of 55.7. Further, U Microfinance Bank scored the highest 80.4.

Published in Dawn, August 27th, 2022