Corporation Bank, which has fallen short on priority sector lending targets, will focus on direct lending to farmers during the current financial year.

Mr Ramnath Pradeep, Chairman and Managing Director, Corporation Bank, told Business Line the bank will substantially improve lending to agriculture this year to save significant amount which is required to be deposited with Nabard (National Bank for Agriculture and Rural Development).

“I am incurring a loss of Rs 500 crore on account of this. We are paying depositors an interest rate of 9.5 per cent while the amount deposited with Nabard will earn only 4 per cent,” he said. There is a loss of 5.5 percentage points.

The banking regulator, the Reserve Bank of India, stipulates that 40 per cent of a bank's total lending should be to the priority sector — comprising agriculture, horticulture, dairy activities, and micro and small enterprises. Lending to agricultural activities must account for 18 per cent of the 40 per cent.

If banks do not achieve this target by end of each financial year, depending upon the shortfall, the bank will have to deposit an amount with Nabard which pays nominal interest.

Earlier, Corporation Bank used to lend to mill-owners, but now the bank will directly open accounts for farmers as this is considered as direct lending to agricultural sector, he said.

The RBI's clarification that after March 31, 2010, lending to Food Corporation of India, State Food Civil Supply, and Cooperative Federations will no longer be considered under priority sector has hit the bank. The bank had lent about Rs 3,500 crore to these institutions.

“We had reached a compliance level of 14 per cent (against a target of 18 per cent). But because of disqualification it has come down to 8 per cent,” Mr Pradeep said.

Financial Inclusion

The RBI had mandated banks to provide financial services to all villages above 2,000 population by March 2012. Corporation Bank has completed this financial inclusion target one year in advance. Therefore, the bank will cover an additional 500 villages this year.

Corporation Bank has 7 lakh no-frills accounts and plans to add 20,700 more this year. Mr Pradeep said the each account will be given overdraft facility Rs 500-5,000, which would act as an income generator for the bank.

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