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Harish Damodaran

New Delhi, July 11

FINANCIAL liberalisation and interest rate deregulation has undoubtedly benefited people in urban areas, specially metros, by spurring competition among banks and leading to lower borrowing costs as well improved service quality to customers.

But the same cannot be said for rural India, a point that the Agriculture Minister, Mr Rajnath Singh, has emphasised in a recent letter written to the Finance Minister, Mr Jaswant Singh.

The Reserve Bank of India's latest `Basic Statistical Returns of Scheduled Commercial Banks (SCB) in India' further reinforces Mr Rajnath Singh's point.

Between March 1994 and March 2002, the number of bank offices or branches in rural areas (i.e centres with population below 10,000) has come down from 35,329 to 32,481. Over the same period, the number of branches in semi-urban areas (population between 10,000 and one lakh) has risen from 11,890 to 14,723, while going up from 8,745 to 10,447 in urban areas (population between one lakh and 10 lakh) and from 5,839 to 8,557 in metros (population above 10 lakh).

The reduced rural orientation of commercial banks is also mirrored in their overall lending portfolio. Agriculture's share in SCBs' outstanding credit of Rs 6,55,993.10 crore as on March 31, 2002 was only Rs 64,008.55 crore or 9.8 per cent.

Even after including loans for `food manufacturing and processing' (rice, sugar, edible oil, tea, fruits and vegetable processing etc), the share of agri-business worked out to only Rs 84,750.22 crore or 12.9 per cent, which was way below that for non-food industry (Rs 2,50,883.83 crore) or trade (Rs 1,00,872.04 crore).

What is more telling, however, is the fact that agricultural lending by commercial banks is now lower than even their outstanding `personal loans' portfolio of Rs 82,518.02 crore, comprising housing loans (Rs 32,825.92 crore), loans for purchase of consumer durables (Rs 3,213.71 crore) and `rest of personal loans' (Rs 46,478.39 crore).

And when juxtaposed with the Agriculture Minister's observation that banks today are charging 8.5-10 per cent interest on housing loans, against 11-14 per cent on farm loans, the apparent `anti-rural' bias becomes all the more real.

The accompanying Table shows why banks are turning increasingly shy of rural lending. About 45 per cent of the SCBs' borrowers are in rural areas, but they account for only 13.4 per cent of their outstanding loans.

On the other hand, metros generate 54 per cent of the banks' overall lending business, despite housing being only 15 per cent of the total loanee population.

Simply put, an average metro customer borrows nearly 12 times what his rural counterpart does. 98.5 per cent of rural borrowers operate small borrowal accounts with credit limit below Rs 2 lakh.

In contrast, nearly 64 per cent of loans above Rs 2 lakh are concentrated in metros.

It is obvious from all this that rural credit is a rather cumbersome proposition for banks, involving excessive paperwork and servicing of small accounts spread over a large number of borrowers.

This is also borne out by the disproportionate burden placed on public sector banks in catering to this segment.

The combined share of nationalised banks, the State Bank of India and its associates and regional rural banks in outstanding rural credit as on March 2002 was as high as 93.95 per cent, against 1.24 per cent and 4.81 per cent for foreign banks and `other commercial banks' (i.e private Indian banks), respectively.

But with regard to lending in metros, the share of foreign and Indian private banks in outstanding credit was 12.84 per cent and 18.16 per cent, respectively, against 69 per cent for public sector banks.

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