At the top of State Bank of India’s (SBI) head office in south Mumbai, Arun Kumar Purwar, chairman and managing director of India’s largest commercial bank, has just finished a meeting with a large foreign investor in the bank. Chief among the investor’s concerns is whether the new Congress-led government’s diktat to Indian banks to increase farm loans by 30% and restructure old ones will hurt SBI’s bottom line.
There are enough ways to lend profitably to the farm sector, says Mr Purwar, who has spent over three decades with the SBI group, more recently as head of an associate bank, State Bank of Patiala (SBP). Lending to agriculture, whether to finance the purchase of tractors or suppliers of milk, is the most profitable part of SBP’s business, he points out. Spreads are high on farm loans, argues Mr Purwar, conceding, however, that the non-performing loans to the farm sector are also higher at around 8%. But now that fat treasury profits have disappeared at state banks as interest rates have hardened, banks will have to go that “extra mile” to find good borrowers, he adds.
