The Hindu Business Line : Farmers continue to get raw deal

2004 has been ordinary for the financial sector. For the Government and RBI, financial sector reforms hold little value. Moss has grown over most of the critical proposals put up by the Narasimham Committee to alter the system.

Through 2004 bankers wailed over loss of treasury profits when their mandate talks of building the loan book. Under intense pressure from New Delhi, banks are talking of lending to the rural sector while RBI and Nabard (one cannot understand the rationale for its existence) are showing little urgency.

Just one instance. Bankers readily agree to sub-PLR lending rates for corporates but do not extend the same to farmers or the small-scale sector. Most corporates today get away with 8 per cent for one year credit while banks charge farmers 9 per cent on loans up to Rs 50,000 with 11 per cent being the norm for loans above Rs 2 lakh.

Banks charge at least one percentage point over Prime Lending Rate (over-PLR) when it comes to borrowers in rural India. Servicing farmers add up transaction costs even as rural branches are familiar with the portfolio of farmers over the last 30 years and their cheap deposits run the banking system.

There is no transaction cost in okaying a Rs 200-crore loan to a corporate as it is usually a friendship, sugared deal.

Is there any Government bank, which has come up with crop-specific incentive-loan schemes for farmers growing sugar cane, cotton, pepper when there are umpteen strategies for car, housing and personal loans for the urban consumers.

Has any Government bank thought up educational loans for the rural children with payments linked to returns from farming? For banks farm credit is a nuisance obligation. Bank chairmen are today busy holding press meets to announce mergers (names will be selectively leaked) with every chief executive keen on taking over a bank with none offering a bank to close the deal.

The RBI could have publicly laid down the terms of merger of Government banks in consultation with the Finance Ministry as the public holds minority equity in most Government banks. There is no move to shed Government stake to 33 per cent in public sector banks nor is the RBI keen on it. The central bank has made public its aversion to micro-monitoring while insisting on more of the same. It strongly favours the totally iniquitous 10 per cent cap on voting rights as it mixes well with its agenda to restrain equity holding in a private bank to 5 per cent and 10 per cent. Should RBI be busy running the monetary policy or also set the terms of foreign and private investments in banks? Bankers inside and outside RBI have been privately dwelling on the drop in efficiency at the RBI over the last few years. None wants to go on record; there is nothing official; anyone with ears can hear the dissonance; in recent years dissent is not favoured by the top layers in the administration.

Old-timers recall the story of an executive director telling a deputy governor that he would not change his draft even if it meant a sack.

"That was normal. Dissent was a habit in our times. It helped understanding every facet of an issue. Of course, it also admitted to the top bosses over-ruling objections to make a final decision," remarked a retired official.

That tradition seems to be peeling off. Sometimes policy notes are touched up to suit the general mindset. Shouldn't RBI now benchmark itself against world-class players in the east and west? RBI is too seasoned a regulator to feel uneasy with the idea of self-examination.

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