The Hindu Business Line : Reddy calls for shift in rural credit strategies

The Governor of Reserve Bank of India, Dr Y.V. Reddy, has said that the financial sector and banking system may have to consider a paradigm shift in strategies for rural credit and processes consistent with the globalised environment.

There is a need to ensure development of rural agrarian economy by integrating it with the vibrant services and manufacturing sectors.

Delivering Smarajit Ray memorial lecture on Rural Banking — `Review and Prospects' at the Centre for Social and Economic Studies, he mapped the historical transition of the rural economy and how the banking and financial services sector has played a catalytic role in its growth path. However, he cautioned about the tough road ahead.

Despite determined efforts towards expansion of rural credit, through rural banking, the non-institutional credit still continues and the credit deposit ratio shows that despite the intermediation of banks, its ratio continues to be low in the rural areas.

Rural issues

Dwelling on rural issues, Dr Reddy said the new policy directions by the National Development Council and the Prime Minister indicate the criticality of improving the credit system and rightly position it as one of the four deficits that needed to be addressed to manage the crisis of stagnation in the agriculture.

He said agricultural development has to be led by ensuring commercial viability that has to be enabled by an appropriate credit system. The credit can be substitute for longer term commercial viability only if a price is paid in the financial sector. At the same time, costly or inadequate credit system may constrain growth and commercial viability.

Providing a brief outline of what could be potentially done to bring in a paradigm shift in increased flow of credit to rural areas, Dr Reddy said fiscal policy could play an enabling role in two ways by targeting the poor for subsidy and enhancing public investment while encouraging private investment that would benefit the rural economy.

While subsidising power, water and fertiliser, the trade policy both domestic and external should facilitate commercialising of agriculture and thus ensure the scope for investments. Restrictions to trade within the country at a time when economy is opening up, may, at times, be less than optimal. ]

Rural Savings

Significantly, savings in the rural areas and agriculture are now transmitted by the banking system to urban areas and non-agriculture for want of commercially viable avenues in rural areas.

While advocating a risk mitigation mechanism that will make credit disbursal less risky, he said there needs to be an attitudinal change.

More Stories on : Rural Development | Credit Market

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Poor getting richer, yet falling behind

`Focus should be on competitiveness'

HDFC fund to invest in hospitality sector

Japan FIIs may pump in over $10 b next year

Trial run

Continue textile tech fund till end of 11th Plan: Industry body

Small professionals rely on savings for initial funding: Survey

Pvt equity investors to help SMEs grow big

DoT norms on foreign CEOs

Orascom keen to invest in India

Reddy calls for shift in rural credit strategies

Mandatory checks — Pre-job screening catches on in non-IT sectors

Hannover Messe to hold 3 fairs in Bangalore