Money & Banking

Panel asks banks in AP to give revolving credit to SHGs

G. Naga Sridhar Hyderabad | Updated on February 21, 2011 Published on February 21, 2011

The move will ‘protect people' from MFIs





Banks in Andhra Pradesh will be extending a revolving credit facility to self-help groups to wean them from microfinance institutions (MFIs).

A core committee formed by the State-level bankers' committee (SLBC) of Andhra Pradesh, to look into SHG-bank linkage and issues related to MFIs, has recommended that the revolving credit facility be introduced on pilot basis.

“Core committee member banks may introduce the facility in minimum two districts to start with. Other banks and regional rural banks (RRBs) may introduce in at least one district,” said a report on action plan, drafted by the core committee, which was submitted to the SLBC.

Andhra Bank, State Bank of India, Syndicate Bank, Indian Bank, Nabard and SIDBI were the member-banks of the core committee.

The State Government, which had recently put in place the AP MFI (Regulation of Money lending) Act to curb ‘excess' of MFIs and ‘high' rate of interest charged by them, had requested banks to provide revolving credit to SHGs to prevent the groups from going to MFIs for working capital.

“The move will help protect people from MFIs,” Mr Reddy Subrahmanyam, Principal Secretary, Department of Rural Development, Govt of AP, told Business Line.

Banks are also looking at the possibility of increasing the loan limit to Rs 7.5 lakh from Rs 5 lakh on the basis of economic viability of the activity and repayment capacity for deserving groups.

The loan will come with some riders. The provision of revolving credit would be introduced on a pilot basis up to a minimum of 25 per cent of the regular limit from the second dose of loan onwards in districts where recovery rate is good.

“The facility of revolving credit is not to be utilised for liquidating dues with MFIs and other lenders,” the report said, asking the Society for Elimination of Rural Poverty to put in place the appropriate mechanism.

The extension of revolving credit would also be subject to confirmation from the State Government that ‘Pavala Vaddi' would be applicable to it.

The loan-sanction process would also be faster as all the loans of SHGs would be reviewed within 15 days of repayment of earlier loan to reduce the time-lag between two linkages (loans).

Tighter control was mooted on bank branches to ensure that they do not cross-sell insurance policies and products to SHGs and also do not keep loan amounts in deposits.

Published on February 21, 2011
This article is closed for comments.
Please Email the Editor