The Hindu Business Line : Cheaper credit

Fear of loan delinquencies and NPAs on the part of banks and other financial institutions is one of the most important factors affecting credit availability for customers. And growing defaults and increased provisioning requirements which could dent the banks’ profits justify such fears.

In this regard, it is suggested that an institutional mechanism could be set up by the Government for providing credit default insurance to a reasonable extent to banks and other lending institutions.

It should be made mandatory for all such financial institutions to get a specified percentage of their loan portfolio insured under the scheme in an ongoing manner, at half-yearly or yearly intervals.

Considering the present level of NPAs, 10 per cent of the loan portfolio could be considered as the prudential limit to be insured under such a scheme to act as a hedge against loan delinquencies.

The suggested set-up could be funded partly by allocation of funds by the Centre and partly by collecting a nominal insurance premium from the borrowers, such that it would not add to the burden of the borrowers. The premium can be made higher for corporate customers and marginal for individual customers.

It is hoped that the Prime Minister, who is in charge of Finance as well, takes this suggestion.

N. Vijayagopalan Bangalore

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