The Hindu Business Line : `States must speed up co-op credit revamp'

AIMING FINANCIAL INCLUSION: The Union Finance Minister, Mr P. Chidambaram, at bankers conference 2006 in Hyderabad on Friday. Mr V.P. Shetty, Chairman and Managing Director, IDBI Bank, is also seen. — K. Ramesh Babu

Hyderabad , Nov. 3

The Union Finance Minister, Mr P. Chidambaram, has asked State Governments to expedite the process of completely revamping the cooperative credit system.

Addressing bankers, regulators and policymakers at `Bancon 2006', the annual bankers' conclave here on Friday, he said, "Unless cooperative credit system reforms are completed, it is not possible to achieve total financial inclusion."

According to him, the cooperative credit system is one of the critical instruments for reaching out banking services to rural households.

Blurring distinction

Stating that the very purpose of floating regional rural banks (RRBs), `barefoot bankers of yesteryears', was to provide affordable credit facilities to rural India, he said the objective could not be achieved as the distinction between the parent bank and the RRB had blurred over the years.

"The distinction between the people served by the parent bank and the RRB should not be allowed to be blurred. The purpose of RRBs is to serve people who are not banking clients at all," Mr Chidambaram said.

Though the Union Government had accepted the recommendations made by the Vaidyanathan Committee for strengthening the cooperative credit system, it was disappointing to note that there was no alacrity or sense of restlessness on the part of State Governments, except Andhra Pradesh, in getting on with the restructuring of cooperative system.

"The cooperative credit instrument must be sharpened and employed to take credit facilities to the farm sector," the Finance Minister said.

Micro finance

Stating that micro finance world over carried an interest rate not less than 20-25 per cent, Mr Chidambaram said the perception in India somehow was that such a rate of interest was highly exploitative. "There is a cost to micro-finance and we should educate the public at large that micro finance carries a price."

In this context, he said the Union Government had recently asked the State Governments to crack the whip against moneylenders while at the same time treading cautiously when interfering in the functioning of micro finance institutions (MFIs).

The Centre was also set to bring out legislation to regulate MFI activities but they would be given a large degree of latitude and autonomy, the Finance Minister said.

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