The Hindu Business Line : `States can help banks recover NPAs'

THE Reserve Bank of India's Expert Group on Investment Credit (EGIC) today asked state governments to extend all possible help to banks in their recovery efforts and even make suitable amendments to their recovery acts, as flow of credit to rural sector is hampered by poor recovery of loans and increasing non-performing assets.

This is one of the suggestions put forward by EGIC. "Banks may also take recourse to the services of the Lok Adalats for speedy recovery of their dues and even consider outsourcing recovery to government departments on commission basis," the report said.

The group headed by the Nabard Managing Director, Mr Y.S.P. Thorat, said that Nabard should design appropriate products for financing rural infrastructure projects, especially for such projects that would be implemented through community participation.

The report said that as disbursal of money to the agricultural sector involves higher transaction cost, it could adversely affect profitability of banks. Therefore, banks could adopt methods like hub-and-spoke model and satellite banking to increase their outreach. Banks may also have to resort to alternative mechanisms of rural credit delivery such as self-help groups, micro-finance institutions, co-operatives and agent base banking.

In order to encourage investors, there is need to develop commodities futures market by allowing banks to operate on behalf of farmers and participate in commodity derivatives.

As a deterrent to wilful default, the group suggests establishing a Credit Information Bureau to track and share credit information.

This will enable lenders to provide incentives to those with good credit history.

As measures to improve productivity by efficient water management, the group suggests steps such as promoting micro irrigation projects like drip and sprinkler, revival of traditional rainwater harvesting methods, formation of water users' associations, encouraging conjunctive use of water and rainwater harvesting through farm ponds, proper upkeep and maintenance of canal and appropriate targeting of state government subsidies given for crops.

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`States can help banks recover NPAs'

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