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Rural focus in budget to push bank credit offtake

Author: Debasis Mohapatra/Wednesday, February 7, 2018/Categories: Banking & Financial Services

Rural focus in budget to push bank credit offtake

Mumbai, February 7: Banks and non banking finance companies are likely to see higher credit disbursements in rural India owing to budgetary provisions which has put special emphasis on agriculture and infrastructure development in rural areas.

According to analysts and credit rating agencies, apart from lending to agriculture and related activities, segments like two-wheeler and tractor financing will also get a major boost from this year’s budget.

They are also of the opinion that new age small finance banks and payments banks which are looking to get a foothold in rural areas will also be the beneficiary of these measures apart from public sector banks with large branch presence.

“The 10% hike in agriculture credit to Rs 11 lakh crore and proposal to hike MSP of all crops at 1.5X of production costs augurs well for the rural income and spending. This shall benefit the banks through improved credit offtake as well as improvement in asset quality in the agriculture segment,” the rating agency, ICRA said in a note.

It also said that the proposal to allow Regional Rural Banks (RRBs) to raise market capital would support credit flow in the rural sector.

The recently announced budget has put special focus on rural India with increased allocation for a host of agri and related sectors. Total allocation for rural, agri and allied sectors has been hiked by 20.5% to Rs 14.34 lakh crore. This year’s budget has also allocated Rs 19,000 crore for development of roads in rural area under Pradhan Mantri Gram Sadak Yojana (PMGSY).

Similarly, another credit rating agency Crisil said boost to rural economy augurs well for two-wheeler and tractor financing. “Increase in agricultural income and institutional credit to the rural economy will increase finance penetration in the automotive sector, particularly for two-wheelers and tractors,” Crisil said in a report.  

The rating agency also pointed out that higher disbursement target under MUDRA for the next financial year would benefit micro enterprises in the rural areas.

Interestingly, the possible uptick in credit disbursement will not only benefit the big public sector banks with large presence in rural areas, but also support the growth of new payments banks.

“Apart from big banks with good number of rural branches, newly launched small finance banks are also likely to see an uptick in lending to small and micro enterprises. Joint liability based group loans will be the category in focus for these entities,” a banking analyst said. Similarly, higher rural income will also translate into increased bank deposits.

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