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High level of non-performing assets (NPAs) in the North-Eastern States (NES) is a deterrent for bank lending, according to Mr Deepak Mohanty, Executive Director, Reserve Bank of India.
The senior RBI official attributed this, in part, to non-viability of some of the activities financed by banks coupled with lack of adequate engagement with the borrowers.
Pointing out that NES lagged behind other parts of India in terms of development banking, Mr Mohanty said the credit-deposit ratio in NES was much lower at 34 per cent at the end of March 2010 (28 per cent at the end of March 2001), compared with 73 per cent at the all-India level (59 per cent at the end of March 2001).
NSS data
As per the National Sample Survey (NSS) data on indebtedness, in the case of NES, 45 per cent of finance taken by the farmers was from the formal sector, while the remaining 55 per cent was from the non-formal sector.
Referring to the NSS data pertaining to NES, Mr Mohanty said it clearly shows that there is credit absorptive capacity. Hence, there is considerable scope for improving banking penetration in NES, comprising Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.
The NSS data on all-India indebtedness show that 58 per cent of finance taken by the farmers was from the formal sector, while the remaining 42 per cent was from the non-formal sector.
“There is a need to improve credit culture (in NES) in which financial education could play a vital role. In addition, banks will have to augment the staff strength in their branches with an emphasis on staff with knowledge of local customs and practices,” the RBI official said in a speech delivered at the Gauhati University on Thursday.
Given the preponderance of community-based society in NES, Mr Mohanty observed that group lending could be a successful mode of credit delivery. Hence, there is a need for promotion of self-help groups (SHGs) with greater linkage with banks. In this regard, the National Bank for Agriculture and Rural Development has an important role to play, not only in promotion of SHGs, but also in capacity building, along with the Small Industries Development Bank of India and the State government agencies concerned.
Housing loan
Underscoring the fact that expansion of housing loan remains poor as mortgages cannot be created in many parts of NES, the RBI ED said, banks can explore innovative structures for housing loans with a greater emphasis on group lending.
While the topography of NES, the dispersal of population, transport bottlenecks and law and order conditions in some areas inhibit branch expansion other than in certain commercial centres, the RBI official suggested that all the stakeholders — banks, State governments and the Reserve Bank — need to work in close co-ordination for increasing banking penetration and promoting financial inclusion in the region.
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