The Hindu Business Line : Scheduled banks in AP to aid self-help groups

The initiative
The banks have decided to lend about Rs 2,000 crore to self-help groups in 4,000 villages in Andhra Pradesh.
Deccan Grameena Bank had lent Rs 58.55 lakh to 17 groups as part of its financial inclusion programme.

Hyderabad , Jan. 7

Micro-finance institutions (MFIs), charging exorbitant interest rates and moneylenders may go out of business if a plan by scheduled banks in Andhra Pradesh becomes a reality.

The banks have decided to lend about Rs 2,000 crore to self-help groups (SHGs) in 4,000 villages in Andhra Pradesh to help them swap high-cost loans (with interest rates up to 36 per cent) with low-cost loans (with just three per cent interest rate) and fund their growth plans.

"It is no small relief. Each SHG member will save Rs 225 every month by just retiring the high-cost loans they have taken from moneylenders and MFIs," said Mr S.V. Hanumantha Rao, Chairman of Deccan Grameena Bank (DGB). Inspired by what is now referred to as DGB model, members of State-Level Bankers Committee (SLBC) have decided to emulate the scheme. At a recent meeting of SLBC, Mr K. Ramakrishnan, its Chairman and Chairman and Managing Director of Andhra Bank, had agreed to study the model to offer similar schemes by the members.

It was DGB's idea to utilise State Government's `pavala vaddi' (three per cent interest rate) scheme to launch the pilot project in Karimnagar district. In order to increase credit flows into the SHGs, the Government offered to pay the remaining nine percentage points to the banks.

The bank had lent Rs 58.55 lakh to 17 groups as part of its financial inclusion programme. "The idea is to reduce the gap between the credit needs of the farmers and availability of low-cost finance from the banks," said Mr Hanumantha Rao. "A recent study showed that only 15 per cent of the credit needs of people in rural areas are met through bank finance. For the rest, they depend on moneylenders and micro-finance institutions," he said.

Micro credit plan

The bank had evolved a plan in meeting the credit requirements of SHGs. In association with Society for Elimination of Rural Poverty, a World Bank-funded programme, a team from the bank would assess the liability and credit needs of each member before finalising a `micro credit plan' for each SHG.

The DGB, sponsored by State Bank of India, runs 166 branches in Telangana region with a deposit base of Rs 1,083 crore and advances of Rs 716 crore as on November 2006.

Recognising the fact that SHGs would utilise the funds mostly for agriculture and allied activity, the bank has decided to extend the scheme to 155 branches before the end of the financial year.

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