Agricultural lending in Bangladesh is grappling with mounting repayment pressure as overdue farm loans nearly doubled over the past year to about Tk 23,807 crore by the end of July.
The spike in overdue farm loans is largely due to a policy shift by Bangladesh Bank in April, which introduced stricter loan classification rules, according to industry people.
Under the new guidelines, farm loans are now classified as overdue after three months instead of the previous six months.
Given that crop cycles typically span five to six months, this change has left many farmers prematurely marked as defaulters, exacerbating the repayment crisis, they said.
“By tightening classification rules without considering crop cycles, the central bank may have inadvertently pushed thousands of small farmers into default,” said a senior official of Bangladesh Krishi Bank, on condition of anonymity.
“This could discourage banks from lending to the agriculture sector at a time when food security is a top priority,” the official added.
This shift in loan classification comes at a time when agricultural lending is diversifying. Traditionally, crop loans made up the largest share of farm financing, but their share has declined.
In July, crop loans accounted for 38 percent of total disbursements, down from 41 percent a year earlier. Meanwhile, livestock and poultry financing rose sharply, comprising 34 percent of the total disbursements, up from 26 percent previously.
Fisheries financing also saw a dip, dropping to 16 percent from 18 percent. While this shift towards livestock and poultry loans may appear to be a diversification strategy, the increase in overdue loans highlights a growing problem in the sector. Overdue loans have been especially pronounced in state-owned commercial and specialised banks, as well as private banks, reflecting systemic stress throughout the industry.
Despite a 20 percent year-on-year increase in disbursements and a 15.7 percent rise in loan recovery, the sharp rise in overdue loans underscores the risks associated with farm lending.
Besides, bank officials argue that the revised classification rules have unintentionally forced many small farmers into default, undermining the stability of the agricultural loan market.
