Capital Increase for Iran's Agriculture Bank

Bank Keshavarz Irani (Agriculture Bank) will receive its share from the government’s plan to increase the capital of public-sector banks by the yearend, announced the minister of agriculture jihad.

“Pumping up the capital cushion of Agriculture Bank to extend more credits to farmers and removing hurdles to production is on the government’s agenda and in line with this, the bank will receive 38 trillion rials ($990 million) by the end of the current year [March 20],” Mahmoud Hojjati also said in a talk with IRNA.

He added that the capital increase will be significant for the bank, as it currently holds only 23 trillion rials ($599.7 million) in capital.

The Cabinet headed by President Hassan Rouhani voted in mid-January to obligate the Ministry of Economic Affairs and Finance to allocate 200 trillion rials ($5.2 billion) of excess funds to increase the core capital of state-run banks.

Hojjati noted that the parliament has approved clauses in the budget amendment, based on which a significant sum will be allocated to public-sector banks to increase their capital. 

“This law is currently undergoing preliminary implementation processes in the administration,” he said.

In an analytical report published in late January, the research arm of the parliament declared that two clauses in an article of the budget law are problematic, one of which directly involves the Agriculture Bank.

Majlis Research Center had noted in a recent report that “while increasing the capital of public-sector banks is necessary under the current circumstances, methods cited in the aforementioned clauses contain numerous flaws”.

The first regulatory measure faulted by the think-tank concerned Clause B of Article 17, which states that “the government is allowed to raise the capital of Bank Melli, Bank Sepah and Bank Keshavarzi by a maximum of 50 trillion rials ($1.3 billion)” from the interest and fees related to overdrafts and credit lines paid by these banks to CBI. The research center asserted that the clause has failed to mention the adverse effects of waiving overdraft fees of banks, lacks transparency regarding “various dimensions of capital increase” and contradicts budget planning principles. It then suggested that the clause be entirely removed from the budget law.

The minister of agriculture stressed that the country needs to pay serious attention to modern agriculture technology, which calls for paying attention to the production chain in the sector.

Hojjati noted that this kind of agriculture is currently being mobilized in various countries and has prepared the grounds for their success, therefore “we also have no choice but to move on this path”.