The Hindu Business Line : Drought dries up lending options for banks in Kerala

PUBLIC sector banks in the State can at best defer recovery of crop loans outstanding and waive, in selective cases and subject to conditions, a portion of the interest payments.

Explaining the bankers' case to Business Line, Mr S.C. Gupta, Chairman and Managing Director, Indian Overseas Bank, said that in cases where farmers were found to be ready for the next crop save the finances, the banking industry could think in terms of providing fresh loans on a selective basis.

"But the final decision will be taken based on the extent of present exposure, probability of loss and chances of recovery in economic activity within the overall framework of the bank concerned, " Mr Gupta explained.

Bankers had to adhere to Reserve Bank norms with regard to the package evolved for farmers, and look at their past records, too.

"This is not the first time we are faced with this type of a situation. Maybe, Kerala has not suffered an onslaught of this magnitude before. Bankers, particularly those in public sector, provide various special credit packages, including rehabilitation measures and other relief, in two sets of environments - one, a severe repayment crisis due to drought or such other calamities. Two, need for issue of cheaper finances, including Kisan Credit Cards."

On the issue of banks being directed to lend farm loans at nine per cent or lower, Mr Gupta said this was being adhered to. Up to a loan amount of Rs 50,000, IOB charged only nine per cent. In the case of self-help groups (SHGs), the rate had been reduced to 8.5 per cent. The benefit of cheaper rates had been extended to small-scale industries, too.

Dwelling on aggregate lending to priority sector, especially agriculture, being always below RBI norms in the State, Mr Gupta said this had to be seen against the larger canvas of low credit-deposit (CD) ratio obtaining in the whole State. Maximum absorption of credit was recorded in the manufacturing sector, which had hardly any presence in the State.

"With the kind of liquidity that we slosh in, we cannot afford to pick and choose which States to lend most to. The low credit absorbing capacity in Kerala may be due to the inadequate economic activity in the manufacturing, agriculture, trading or service sectors.

"For instance, look at the successful poultry farming industry in neighbouring Tamil Nadu, which is concentrated in the Namakkal area. I was making casual enquiries with the traders.

"To my question as to which part of India they shipped maximum eggs/chicken consignments to, they said Kerala. Which means, initiatives have not been taken locally to set up own poultry farms here despite the fact that the consumption rates are very high", Mr Gupta said.

`Lending scope limited in State'

THIRUVANANTHAPURAM: Keralites, probably because most of their productive people have migrated elsewhere, are not exactly known for their entrepreneurship within the State. Not many economic or manufacturing activities, involving some financial investment, have been attempted locally.

This has limited the scope for intervention by banks whereby they could hope to expand their credit base, says the Chairman and Managing Director of IOB.

"Even as we've been accused of raising huge deposits from within the State and investing most of it elsewhere, we swear by our stand that not a single economic activity evolved locally has suffered for want of legitimate need of credit. I think this is the point that needs to be looked into before jumping to conclusions on the deposit mobilisation and lending pattern. It is not the intention of any banker to mobilise resources from a State and siphon off it to some other for lending. As a person sitting at our headquarters in Chennai, every time that I collate the data, I find credit expansion for the bank is the lowest in Kerala. The logical conclusion that I can draw is that the credit absorption capacity is the lowest in the State," Mr Gupta said.

The accusations aside, bankers are genuinely concerned about Kerala. "Because, if we don't lend enough, we don't make money. We would simply like to expand our credit base in the State where we have three regional offices and 115 branches." - V.K.

More Stories on : Farm credit | Credit Market | Kerala

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