The Hindu Business Line : Why continue to reward defaulter-banks?

THE RBI has cut interest rates from 6.75 per cent to 6 per cent on funds deposited with the Small Industries Development Bank of India (SIDBI) by foreign banks equal to the shortfall in priority sector lending.

The RBI adds: "SIDBI will take appropriate steps to ensure that priority sector funds are utilised expeditiously and benefits of reductions in interest rate passed on to the borrowers."

One cannot yet grasp the RBI logic of helping banks to earn on their shortfall in priority sector lending by depositing with SIDBI and Nabard. Banks, including foreign, should be made to place their excess funds free with these two agencies as the very act is a default.

At one time the RBI did look into the French variant, Credit Agricole, but somehow gave it up.

Today's credit policy states: "While assessing the progress made in implementation of Vyas Committee, the Committee would, inter alia, look into the role of Nabard in the development of the sector; the present structure and deployment of Rural Infrastructure Development Fund (RIDF); role of RRBs; and incentive and attitudinal aspects of credit delivery."

The National Bank for Agriculture and Rural Development (Nabard) can no more continue to be a refinance agency. It has to become a universal bank by buying up regional rural banks (RRBs) to access cheap retail funds.

Trends in rural lending are quite depressing going by a paper submitted by Mr V. Jagan Mohan, chairman, Kakathiya Grameena Bank (sponsored by SBI), styled Rural Banking.

Priority sector accounts of banks have dropped from 34.6 million in 1994 to 26.16 million; the percentage of rural advances of scheduled commercial banks has dropped from 13.90 per cent to 13.37 per cent; the percentage of agricultural advances of banks has dipped from 15.30 per cent in 1991 to 9.75 per cent; the percentage of small loans (less than Rs 25,000) to total loan amounts has slipped from 18.30 per cent to 5.90 per cent.

The author talks of an urban-rural divide with cheap rural funds going into funding corporates at 6 per cent while Rs 50,000 loan for the farmer costs 9 per cent.

Today, the credit policy has advised each commercial bank to constitute an ad hoc committee "to undertake procedures and performance audit on public services rendered by the bank. The committee would look into simplification of procedures and practices with a view to safeguarding the interests of common persons, be they current or savings account holders ... .." Is there a need for a committee when the solution is quite simple?

If only the bank chairmen will pay a few unscheduled visits to the branches operating near their spacious, air conditioned rooms, the message will go to the staff that they will have to work for their excellent salaries. Nothing of that sort has ever happened and the poor depositor has to just take it lying down.

Will a hapless customer be able to approach the ad hoc committee directly?

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