This refers to the news report ‘RBI sees red as MFI lending rates show no sign of easing’ (October 25). Even though micro credits are a primary institutional credit for the underprivileged who have low debt servicing capacity, the rate of interest being charged by Micro Finance Institutions is higher than that of private money lenders.
It is incorrect that the MFIs are borrowing from banks or NBFCs at higher rates for onward lending to the users of microcredit. Imprudently fixing prices of micro credits sans assessing the risk element involved is unjustifiable.
It is essential to make available institutional credit on easy terms to thwart the flourishing money lending business of the crooked money lenders to save the poor people from debt traps.
The large NBFCs who are availing credit from scheduled commercial banks at competitive rates must not be permitted to lend to the MFIs at abnormal rates. The MFIs who have extensive presence in semi-urban, rural and other remote areas must be restrained from levying unreasonable rates. A threshold cap is necessary.
Riskproofing small loans
This refers to the news report ‘Lenders flag risks in small ticket loans post RBI caution’ (October 25). Making big banks go slow in lending to small borrowers for whatever reason will have adverse effects on the flow of credit to the deserving sectors in the economy. Credit flow in rural and semi-urban areas is already affected by the restrictions rightly imposed on cooperatives.
Laxity in credit appraisal and supervision of lending to small borrowers was a by-product of big banks using NBFCs, SHGs and other entities as conduits for delivery of credit in rural areas.
RBI’s present guidance is loud and clear about the inevitability of regulation and supervision of credit irrespective of the size of loans or the purpose for which money is lent.
The central bank has to protect the interest of depositors at any cost. Any loan going bad results in proportionate loss to the depositor or taxpayers.
Apropos ‘Crossed Wires’ (October 25), the apex court’s verdict to treat the license fee for telecom firms as capital expenditure to be amortised in years will create liquidity problems for them.
Nevertheless if the apex court orders for retrospective effect on payment of arrears to the government it will further amplify the liquidity problem and impact their plans to upgrade equipment, which is crucial for providing hassle-free service to customers.
This is with reference to the news report “Household investments in physical assets on the rise”, (October 25).
The average Indian household holds 84 per cent in real estate and other physical goods, 11 per cent in gold and the residual 5 per cent in financial assets.
India is a country of savers and discretionary investors where a majority believes in capital protection.
Amidst extraordinary market disruption, Indian investors are opting to invest in physical assets over the volatility of other financial investment options.
Virudhunagar (Tamil Nadu)