The Hindu Business Line : Claims apart, do banks care for the poor?

The Report on Currency and Finance, 2003-04, has a chapter on lending and deposit rates, which, however crudely, indicates that the banks are quite comfy with the present interest rate regime.

As of March 2003, 53.7 per cent of total deposits earn less than 8 per cent and this percentage has gone up over the years from 16.9 per cent in March 2001 to 25 per cent in March 2002. The percentage of deposits between 8-9 per cent as of March 2003 fell to 16.4 per cent from 22.6 per cent in March 2002.

Against this, the outstanding loans of scheduled commercial banks is 25.1 per cent as of March 2003 (22.5 per cent as of March 2002) in the interest bracket 12-14 per cent with the next slab, as of March 2003, being 22.9 per cent (24.5 per cent as of March 2002).

On an extremely crude measure, the scheduled commercial banks are making a pile. Is this fair when the lending and deposit rates are out of alignment with the market rates?

The Report lists a host of factors for the disequilibrium and some of them are:

Average cost of deposits for major banks continues to be relatively high.

A substantial portion of deposits is in the form of long-term deposits at fixed interest rates which reduced the flexibility available to banks to reduce interest rates in the short-run without adversely affecting their return on assets.

Relatively high interest rates on competing instruments of savings like administered small savings instruments.

Relatively high overhang of non-performing assets although these have been declining quite substantially in the last three years.

In view of legal constraint and procedural bottlenecks in recovery of dues by banks, the risk premium tends to be higher resulting in wider spread between deposit rates and lending rates.

Large borrowing programme of the Government, over and above the SLR requirements, provides significant prospects for deployment of funds by banks in sovereign paper.

All these will not make any sense to the thousands of fishermen in south India who have lost their livelihoods. Mostly, they have relations with private lenders, and not with banks. Is it not the job of branch managers in these areas to extend loans against zero collateral (to avail of Nabard refinancing) as the poor have lost everything.

Not one TV clip talks of District Collectors (IAS officers) or bank managers heading for immediate rescue. It makes no sense for a few banks to contribute a few crore to some relief fund as it will never reach the devastated.

At another place, the Report says, "bank credit to agriculture, as a proportion of total credit, shows a decline from its levels in the 1980s, although the declining trend has been arrested since March 2002."

The distribution of outstanding credit of banks to agriculture was at a high of 17.6 per cent as of June 1985 and dropping to 10 per cent as of March 2003.

The Report contends: "Illustratively, the ratio of credit to the agricultural sector to its own GDP at around 15 per cent at end-March 2003 was higher than that of 12 per cent at end-March 1990. The analysis thus indicates that the efforts of the RBI during the last 3-4 years to improve the flow of credit to agricultural sector have been successful."

How do all these claims gel with the immisering poverty of the poor in south India dunked by the tsunami?

As a nation have we lost our sensitivity for the needs of the poor and devastated? Seemingly, Page 3 and New Year celebrations are more important.

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