Agriculture loan disbursement rose 4.47 percent year-on-year to Tk 12,702 crore in the first seven months of the current fiscal year, according to central bank data.

Commercial banks have long been showing an increased interest in disbursing more farm credit amid a sluggish demand from the industrial sector, according to officials of the Bangladesh Bank.

In July-January, eight state-owned commercial and specialised banks -- Sonali, Janata, Agrani, Rupali, BASIC, Bangladesh Development, Bangladesh Krishi and Rajshahi Krishi Unnayan -- disbursed Tk 5,299.41 crore in agriculture loans.

The amount is 55.26 percent of their total annual farm credit lending target of Tk 9,590 crore.

Private and foreign banks lent Tk 7,402.76 crore to the sector during the period, which is nearly 70 percent of their total annual farm lending goal of Tk 10,810 crore.

The BB officials said the farm loan disbursement may face a slowdown in the months to come. Six to seven months ago, most banks had an excess of cash, prompting them to channel more money to the farm sector.

The surplus liquidity in some banks, however, has decreased in the last few months because of an increase in non-performing loans.

A good number of banks, burdened with classified loans, are being forced to keep a large amount of provision that weakened their liquidity position, the officials said.

Besides, the banks have to disburse the farm loan counting an interest rate of 9 percent in line with the central bank directives, but the interest rate for lending on all credit products has significantly increased recently, they said.

The latest liquidity crunch has forced the banks to increase the interest rate for both lending and deposit.

Syed Mahbubur Rahman, managing director of Dhaka Bank, told The Daily Star yesterday that the banks must disburse 2.50 percent of their total loans and advance in a fiscal year in the farm sector in accordance with the central bank instruction.

So, the farm loan disbursement will not decrease significantly because of the central bank's agriculture loan policy, but the banks might not go beyond their annual target.