BB relaxes farm loan rules

Bangladesh Bank has brought down the amount of penalty for commercial banks that fail to meet farm loan disbursement targets.

Private and foreign commercial banks will now have to deposit only 3 percent of their undisbursed agriculture credit, down from the previous 100 percent, in a blocked account with the BB.

In a circular, the central bank said it would return the fund to the respective banks if they distribute the undisbursed amount with fresh targets for the next two fiscal years.

The banking regulator does not return blocked funds if banks fail to disburse the amount within two fiscal years.

The BB, however, exempted the specialised and state-owned commercial banks from the punitive measures.

In July 2015, the BB took the initiative to block the entire fund of the undisbursed agriculture credit as punishment. Banks do not get interest on the amount.

The central bank blocked undisbursed farm loan amounting to Tk 139.81 crore of four banks after they failed to achieve their targets in FY16. Farm loan disbursement rose 19 percent year-on-year to Tk 20,999 crore in 2016-17.

It increased 23 percent year-on-year to Tk 4,235.74 crore in the first quarter of 2017-18, although seven banks did not distribute any farm loan during the period, according to the central bank data.