Change in banks' cash reserves aimed at boosting agriculture

Reduction for qualified rural institutions expected to ease loans at grassroots level

China will reduce the amount of cash that village commercial banks keep at the central bank to increase financial support for the agricultural sector, the State Council decided at a Cabinet meeting on Wednesday.

The reserve requirement ratio will be reduced for qualified rural commercial banks and cooperative banks in counties, as part of the packaged policies that Premier Li Keqiang endorsed at the meeting.

Li did not state when and by how much the reserve requirement ratio would be lowered for lenders, saying only that an appropriate reduction would be made for qualifying banks.

Billions of yuan will be released into the market, said Huang Yanxin, deputy director of the economic management department under the Ministry of Agriculture, as these grassroots banks will be able to take back their deposits from the central bank.

It is unclear at the moment where that money will flow, Huang said. But a "certain percentage" of deposits must be used to support the local agricultural sector, the State Council decided at the meeting.

"This will make it easier for rural residents and the agricultural economy to get loans, but the government also has to keep an eye on the outflow of the money in case they choose to enter high-risk sectors," Huang said.

The central bank sets different reserve requirement ratios for Chinese banks that depend partly on the scale of their lending business. The ratio stands at 20 percent for China's biggest banks, which are generally subject to the most stringent requirements.

The ratio for rural cooperative banks ranges from 13 percent to 14.5 percent, while the ratio for rural commercial banks is about 18 percent.

Huang Daowei, deputy chairman of the Guangxi Zhuang autonomous region, told People's Daily during this year's two sessions that the money deposited at the central bank by the cooperative banks and commercial banks in rural Guangxi totaled 200 billion yuan ($32.14 billion) in 2013.

In addition, the central government's control on the credit boom means a strict limit on the amount of money that grassroots financial services can lend on a monthly basis, resulting in a very low loan-to-deposit ratio.

A slight adjustment in the current monetary policy can enable grassroots banks to better play their role in stimulating agricultural production and to ease the difficulties of financial service shortages in rural areas, he said.

Wednesday's meeting also hammered out other favorable policies to better finance China's agricultural sector. More grassroots banks providing services for rural residents in villages and townships will be set up, and private capital will be allowed to hold a higher ratio of shareholdings in these financial institutions. The government will also improve the policy of offering subsidiaries for agricultural insurance as well as set up a prevention mechanism to protect farmers from natural disasters and other catastrophes.

According to the provincial branch of the Agricultural Bank of China in Zhejiang, the branch has issued nearly 440,000 debit cards with a special reduced interest rate and commission fee to rural residents in the province since 2008.

It has also provided loans of about 1 billion yuan to nearly 5,000 households in the last six years. Local rural residents are able to pledge houses, forest ownership, land ownership, large agricultural machineries and fishing vessels as security for loans.

Currently, there are 39 sub-branch offices under the Agricultural Bank of China operating in the county-level administrative areas in Zhejiang.

To serve rural residents, the branch bank has installed 1,300 financial service stations in convenience stores at local townships and villages, where residents are able to transfer money, top up cell phones or do other simple business transactions without going to sub-branch offices far away from their village.

Apart from financial support for the agricultural sector, it was agreed at the Cabinet's meeting on Wednesday to extend until the end of 2016 the tax redemption policy till for companies that hire unemployed people. Under the policy, college graduates who start their own business after graduation, and enterprises that hire unemployed and disabled people, will be able to receive a tax redemption.

Earlier, the premier set the creation of 10 million jobs annually as the minimum that the government needs to ensure.