Ramasubbareddy

Private Banks falter in Providing Credit to Weaker Sections K. Ramasubba Reddy INDEX Page 1. Shortfalls in Agricultural and Weaker Section Loans: Resulting in loss of employment opportunities and income 2. Small and micro enterprises neglected in dispensing credit 3. Shortfall works out to a huge amount of Rs 1 lakh crore 4* Recovery of Agri and weaker section loans excellent 5* GOVERNMENT AND THE RBI SHOULD MAKE BANKS DISBURSE SHORTFALL IN LENDINGS 6.*Shortfall in extending credit support for weaker sections by Private sector banks over Rs25,000 crore 1.A target of 18% of net bank credit (NBC) is set for agriculture and 10% for weaker sections. RBI data have revealed that 14 out of 28 public sector banks and 17 out of 23 private sector banks have not achieved the 18% target as at the end of March 2008; likewise, as many as 15 public sector banks and all the 23 private sector banks have not achieved the 10% target of lendings to Weaker Sections. Taking these data into account, an estimate of the possible shortfalls in agricultural and weaker section loans is given in the table below: Shortfalls in Agricultural and Weaker Section Loans: By Bank Groups (in Rs crore) 1.Agricultural Advances 32,206 Public Sector Banks 21,893 Private Sector Banks 10,313 2.Weaker Section Loans 45,335 Pub.Sector Banks 19,981 Pvt. Sector Banks 25,354 Aggregate Short Fall (1+2) 77,541 Source: RBI (2008): Trend and Progress of Banking in India 2007-08 (EPW 240209) These estimated shortfalls of about Rs 77,500 crore pertain to only agriculture and weaker section loans. 2*Small and micro enterprises too are neglected in dispensing credit. The National Commission for Enterprises in the Unorganised Sector (NCEUS) has recommended that loans to Small and Micro Enterprises (SME) should be enhanced to 10%. Presently the actual achievement is a mere 4.5% of NBC. 3. The shortfall works out to a huge amount of Rs 102,760 crore. These shortfalls in lendings to Agriculture, Weaker Sections and SME segment together add up to a whopping sum of about Rs 180,000 crore – roughly 8% of non-food credit outstanding as at the end of March 2008. 4* Recovery of Agri advances is excellent. The NPAs of Public Sector Banks in Agri segment declined from Rs 8,020 Crore as on March 2008 to Rs5,262Crore as on Dec 2008(-34%). Agri NPA component to total NPAs has decreased from 3.2% to just 2% during the same period. Recovery of Weaker section loans is also excellent as overdoes are just about 5%. So there is no earthly reason why there should be a huge shortfall in lending to these sectors. This amount of bank credit disbursed amongst the labour intensive unorganised sectors will greatly help to widen the demand base of the economy as such sectors account for the employment and livelihood of over 80% of the country’s population. This can be achieved only if public policies are consciously directed towards it. 5*HIGH TIME FOR GOVERNMENT AND THE RBI TO MAKE BANKS DISBURSE THIS SHORTFALL IN LENDINGS OF Rs 1,80,000 CRORE TO PRIORITY PRODUCTIVE SECTORS WHICH WILL GENERATE GREATER EMPLOYMENT AND INCOME WHICH IN TURN WILL PROVIDE STIMULUS FOR ECONOMIC GROWTH. ADDITIONAL EMPLOYMENT GENERATION IS THE NEED OF THE HOUR. CREDIT OF Rs 1,80,000 CRORE EXTENDED TO LABOUR INTENSIVE PRODUCTIVE SECTORS GENERATES MORE EMPLOYMENT AND INCOME TO INDIVIDUALS THAN THE SAME AMOUNT GIVEN FOR CREDIT CARDS, REAL ESTATE , SERVICE SEGMENTS AND CAPITAL INTENSIVE BIG INDUSTIES. LET THE PRIORITIES FOR CREDIT DISPENSATION BE RIGHT. RIGHT PRIORITY IS GIVING CREDIT TO PRIORITY SECTORS. 6.*Shortfall in extending credit support for weaker sections by Private sector banks Financing of weaker section is at less than mandated credit. Private sector banks are the laggards details of which are given below. Banks are required to extend credit to weaker sections unto 10% of their net bank credit. Weaker sections comprise of SCs/STs, Small and Marginal farmers, Tenant Farmers, Agri. Labourers, Rural artisans, etc. ii* Financing of Weaker Sections (Rs in Crore) Figures in brackets-loans given as % to net bank credit Year Pub Loans Sector shortfall Pvt Loans Sector shortfall Total Loans Total shortfall 2004 41,589 (7.44%) 14,310 1,495 (1.34%) 9.661 43,084 (6.49%) 23,971 2005 63,492 (8.85%) 8,250 1,914 (1.20%) 14,036 65.406 (7.52%) 22,286 2006 78,374 (7.70%) 23,410 3,909 (1.60%) 20,522 82,283 (6.50%) 43,932 2007 94,285 (7.20%) 36,666 5,229 (1.55%) 28,506 99,514 (6.02%) 38,060 2008 1,26,934 (9.3%) 9,554 7,228 (2.10%) 27,191 1,34,162 36,745 Public sector banks have increased their lendings over a period to about 9% by 2008 from about 7% in 2004. Still as many as 12 out of 28 banks have lent less than 9%. IDBI Bank lendings were at a very low of 0.4% with a shortfall of Rs 5,200 crore. Private sector banks lendings continue to be very low at 2% with a very huge shortfall of Rs 27,000 crore. Out of 23 private Banks, as many as 7 banks lent even less than 2%. For example ICICI Bank which is the second biggest bank after SBI, the lendings work out to a mere 0.72%,with a whopping shortfall of Rs 11,870 crore. ICICI Bank and IDBI Bank together account for a huge shortfall of Rs 17,000 crore, more than one third of the aggregate shortfall of Rs 46,000 crore. The same trend continued in FY March 2009 also with these two banks accounting for a huge shortfall in extending credit to weaker sections of Rs 18,000 crore. iii* Aggregate shortfall of all banks, taking each bank’s shortfall into account, works out to about Rs46,000 crore. Finance provided for weaker sections up to March 2008 was only about Rs 1,34.000 crore against a requirement of Rs1,80,000 crore. As many as 15 out of 28 public sector banks and none of the Private sector banks achieved the norm of 10% lending to weaker sections and the loaning by Private sector banks was megre at 2%. As many as 14 out of 28 public sector banks and 17 out of 23 private sector banks have not achieved the 18% target of agri credit. Shortfalls in both Agricultural and Weaker Section Loans are estimated at Rs 77,000 crore. Similar trend continued in FY March 2009 also. RBI has provided an escape route for such laggard banks by enabling such banks to deposit the shortfall in lending to weaker sections in the safe haven of RIDF or funds with other financial institutions as specified by the Reserve Bank, with effect from April 2009. Adverse impact: This concession enables banks to avoid lending to weaker sections by conveniently transferring the default amount to RIDF which will not directly benefit weaker sections by any stretch of imagination. This leads to avoiding purposive duty to finance weaker sections and this easy facility of transfer to RIDF should not be allowed. This unfair concession should be with drawn forth with. iv* Small and micro enterprises are neglected too in dispensing credit. The National Commission for Enterprises in the Unorganised Sector (NCEUS) has recommended that loans to Small and Micro Enterprises (SME) should be enhanced to 10%. Presently the actual achievement is a mere 4.5% of NBC. The shortfall works out to a huge amount of Rs 102,760 crore. These shortfalls in lendings to Agriculture, Weaker Sections and SME segments all together add up to a whopping sum of about Rs 180,000 crore – roughly 8% of non-food credit outstanding as at the end of March 2008. Category Percentage Of net Bank Credit 2004 2005 2006 2007 Small&Marginal Farmers 2.5 3.4 3.3 3.1 Micro Enterprises(Invest Upto Rs.5 lakh) Total Weaker Sections 2.1 6.49 1.6 7.52 1.4 6.50 1.2 6.02 Of net bank credit, credit extended to small & marginal farmers was only 3.1% and credit to micro enterprises a mere 1.2%. v* The recovery of loans advanced to weaker sections at 95% is excellent. By March 2009, banks have to extend loans to weaker sections to the tune of Rs 2,20,000 crore. If the present trend continues, there will a be huge shortfall of Rs 50.000 crore in financing weaker sections resulting in loss of income generation, to the economically most vulnerable people, estimated at Rs 20,000 crore . The Policy change recently announced by the RBI to deposit the default amount in RIDF makes it easy to avoid lending to weaker sections by banks thus the defeating the purpose of the scheme. KRSR/181109