The Hindu Business Line : Small borrowal accounts declining

Bangalore, July 11 The share of small consumers, farmers and entrepreneurs in bank loans and number of bank accounts has been falling since March 1999, the year when the cut-off limit for small borrowings was raised from Rs 25,000 to Rs 2,00,000.

The Reserve Bank of India’s Survey of Small Accounts, 2006 shows that the banking system discriminates against all types of small borrowers – whether they require credit for agriculture, personal finance, transport, industry, trade or professional services. Efforts to boost farm credit after reports of distress might have bypassed the rural poor.

Small borrowers accounted for 97.5 per cent of all accounts and 23.1 per cent of gross bank credit in March 1999. However, in March 2006, they made up 90.3 per cent of all accounts and 16.4 per cent of gross bank credit. Bank credit was better directed at small borrowers between June 1984 (when the cut-off limit for small borrowings was raised from Rs 10,000 to Rs 25,000) and March 1999. In June 1984, small borrowal accounts made up 95.5 per cent of all accounts and 20.5 per cent of all outstandings.

Better-off favoured

Even within small borrowers, banks favour the better-off. The Survey says, “About one half (49.8 per cent) of the small borrowal accounts had a credit limit of up to Rs 25,000 but accounted for only 18.2 per cent of the amount outstanding. The small borrowal accounts each with a credit limit above Rs 1,00,000 formed 11.3 per cent of all borrowal accounts and accounted for over one-third (35.5 per cent) of the total amount outstanding.” The situation was no better in March 2005, when small borrowers with a credit limit of over Rs 1,00,000 accounted for a third of total outstanding credit.

In March 2006, agriculture accounted for 31 per cent of the outstanding sum under small borrowals, against 29 per cent in March 2004. In no other category of small borrowings – personal loans (which accounted for two-fifths of small accounts and small loan outstandings in March 2004 and March 2006), industry, transport, trade and professional services - has there been a similar increase. Since the skew in favour of the better-off among small borrowers has persisted over time, it appears that the well-to-do in the farm sector have benefited as well.

Personal finance

Personal finance, such as housing and consumer durables, constitutes the single largest head under which small loans are taken. The number of accounts in this category as a proportion of all small borrowers fell from 41.8 per cent to 35.5 per cent. A higher average outstanding amount per individual in this segment implies that the better-off got more loans than the rest.

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