The Hindu Business Line : IBA group mulls lower rates on rural credit

THE issue of rationalisation of interest rates on rural credit came up for a review at the meeting of the IBA Working Group on Rural Credit here on Saturday.

Briefing newspersons at the end of the meeting, Dr B. Samal, Chairman of the Working Group, and also CMD of Allahabad Bank, said that some members of the group were of the view that the present norms should be relaxed in favour of higher limits and lower interest rates.

Right now up to Rs 2 lakh of loans advanced by the rural branches of the public sector banks attracted prime lending rate. Since banks were advancing loans to trade and industry at sub-PLR, there was no reason why the same facility should not be extended to rural borrowers too. Also, the limit of Rs 2 lakh should be relaxed.

Dr Samal said a decision in this regard would be firmed up soon, indicating that the group would finalise its findings latest by the middle of September.

In February, the Indian Banks' Association (IBA) constituted the Working Group on Rural Credit under Dr Samal to examine various steps needed to be taken by banks to support credit requirements of the rural sector to achieve the 10th Plan targets.

The other members of the committee include Mr S.K. Mitra, Chief General Manager, Nabard, Mr M.A. Krishnan, Chief General Manager, State Bank of India, Mr A.L. Nageshwar Rao, General Manager, Andhra Bank, Mr N.S. Mishra, General Manager, Bank of Baroda, Dr J.B. Kulkarni, General Manager, Bank of India, Mr M. Gokuldas, General Manager, Canara Bank, Mr M.M. Lopez, General Manager, Central Bank of India, Dr Gomtinayagam, General Manager, Indian Overseas Bank, Mr A.K. Bhargava, General Manager, Punjab National Bank, Mr Dinkar Rao, General Manager, Syndicate Bank, and Mr S.N. Masaldan, General Manager, State Bank of Bikaner & Jaipur. They all were present at today's meeting.

The Working Group felt that further simplification of procedures for advancing loans by the rural branches of the PSU banks was not needed; but what might be of help was the proper training and orientation to the staff employed in the rural branches to expedite the processing of loans.

The need for launching awareness programme by the banks too was emphasised in this context, said Dr Samal, pointing out that the prospective beneficiaries of the rural credit were often unaware of the details of the various schemes available to them.

The scheme of non-public banking working day in rural branches was also reviewed. In addition to weekly holiday, no public transaction is undertaken on this day in rural branches. When originally introduced, its purpose was to enable those employed in rural branches to visit the farmers and other existing and prospective borrowers to promote rural credit among them.

But the reality, it had been found, was very different. In most rural branches, the employees would take it as yet another paid holiday. In many branches, the job supposed to be completed within the same day would be shifted till the non-public banking working day, creating backlog.

The suggestion, therefore, was that instead of having across-the-board non-public banking working day in all rural branches, the facility should be extended selectively, only to those branches where there was a shortage of staff. "Our prime concern is the benefit of the farmers'', Dr Samal observed.

There were certain issues that did not fall strictly within the ambit of the operation of rural branches but did affect the branches. For example, the lack of infrastructure like bad roads and the absence of processing and marketing facilities in rural areas would often force the farmers to resort to distress sale, entailing poor repayment of banks loans.

The issue of crop insurance also came up for a review with the suggestion that the coverage must be much wider than at present.

"In India, the farmers were so much subjected to vagaries of weather'', he said, pointing out that right now some parts of the country were having drought while some others excessive rains and, therefore, floods.

In 2001-02, the growth of deposits in rural branches of the public sector banks at 14 per cent was higher than the national average of 13.7 per cent for the banking industry as a whole. Similarly, the growth of advances at 17.6 per cent was higher than the national average of 16.8 per cent.

For the past three years, the growth of rural credit had been at around 20 to 21 per cent annually, Dr Samal added.

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