Sri Lanka to change banking laws to mandate bigger credit to agro sectors

Sri Lanka plans to bring in changes to its banking laws before next March to mandate banks to double their agriculture lending portfolio, Treasury Secretary said Wednesday. Sri Lanka plans to bring in changes to its banking laws before next March to mandate banks to double their agriculture lending portfolio, Treasury Secretary said Wednesday. “Credit channeled from banks to the agricultural sector is grossly inadequate and we will amend the Banking Act early next year making it mandatory to increase the agriculture lending portfolio to ten percent,” P B Jayasundara told a gathering of tax experts during a post-budget debate.

Banks, he says, are quick to mop up deposits from rural folk but very slow to lend to them.

“The share of agricultural credit has fallen from 6.3 percent in 1995 to 4.7 percent in 2004. We want to increase it to ten percent in the next three-years,” he said.

Agriculture and fisheries currently account for some 19 percent of Sri Lanka’s US$ 20 billion economy.

However, Jayasundara’s ‘carrot and stick approach’ is not going down too well with the banking sector.

Bankers are describing it as an ‘archaic’ practice generally used to pump money into unviable projects.

Some of the development banks in the Asian region that started off with similar policies were subsequently bailed out by their respective governments.

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