Despite the talk of liberalisation and deregulation of banking, more than two-thirds of bank deposits are pre-empted by the cash reserve ratio, statutory liquidity ratio, priority sectors, export credit and differential interest rate scheme.

As if these are not enough, there is now a demand for the prescription of a minimum credit-deposit ratio of 60 per cent in every State on the grounds that there is a `migration' of deposit resources from one region to another.

Why should a bank collecting deposits in State `A' lend them in State `B'? There may be lack of lending opportunities in State `A'.

Or the returns and the performance of assets are better elsewhere.

The government is not really helping the non-performing assets by compelling banks to lend in area where they are not commercially viable.

In the euphoria for lending in rural areas after the nationalisation of leading banks in 1969, some politicians used to say that bankers should not sit in their offices and wait for borrowers to come to them, but instead chase them for lending.

In a sense it has happened. The banks are now chasing the borrowers for recoveries of loans!

A. Seshan


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(This article was published in the Business Line print edition dated April 18, 2005)
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