UN special envoy hails RBI's work on financial inclusion | Business Standard News
UN special envoy hails RBI's work on financial inclusion | Business Standard News
Copied below are the concluding paras of my July8, 2013 article on the subject posted at moneylife.in:
“The banking system has done a commendable job in this direction(towards financial inclusion) in comparatively literate and affluent geographical areas through the network of rural branches, rural financial institutions (RFIs) including cooperatives, Regional Rural Banks(RRBs) and rural branches of commercial banks. The focus shifted midway, somewhere during 1990s to urban and metropolitan lending. Rise in rural deposits and urban credit created imbalances and certain bypass routes were allowed for banks to achieve their priority lending targets. Like Mutual Funds (MFs) investing in schemes of other MFs to pair risks, banks started searching for other intermediaries like microfinance institutions (MFIs) for providing credit to small borrowers. MFIs, in some cases borrow from banks at low rates and lend at up to three times the borrowing rates, in the same area where bank branches function. So as long as banks source rural deposits, they should also shoulder the responsibility of providing credit in rural areas at reasonable interest rates.
The situation calls for a review of the entire rural credit architecture for an overhaul. The changes necessary may include:
• • Reviving the role of Rural Financial Institutions ( RFIs) including rural and semi-urban branches of commercial banks, cooperatives and Regional Rural Banks which have strayed away from their mandated responsibilities,
• • Identifying costs for financial intermediaries that cannot be factored into interest costs and specifying the agency which should meet them, if the activity has to remain bankable,
• • Without going back to the abandoned “regulated interest rates regime”, working out and specifying broad bands within which ultimate lending rates should remain when bank funds are sourced for the purpose, and
• • Reducing the number of bypass routes allowed for priority sector lending to the minimum.
Such a review may be necessary at this stage, irrespective of who gets a license for a new commercial bank.”
M G Warrier, Mumbai
Copied below are the concluding paras of my July8, 2013 article on the subject posted at moneylife.in:
“The banking system has done a commendable job in this direction(towards financial inclusion) in comparatively literate and affluent geographical areas through the network of rural branches, rural financial institutions (RFIs) including cooperatives, Regional Rural Banks(RRBs) and rural branches of commercial banks. The focus shifted midway, somewhere during 1990s to urban and metropolitan lending. Rise in rural deposits and urban credit created imbalances and certain bypass routes were allowed for banks to achieve their priority lending targets. Like Mutual Funds (MFs) investing in schemes of other MFs to pair risks, banks started searching for other intermediaries like microfinance institutions (MFIs) for providing credit to small borrowers. MFIs, in some cases borrow from banks at low rates and lend at up to three times the borrowing rates, in the same area where bank branches function. So as long as banks source rural deposits, they should also shoulder the responsibility of providing credit in rural areas at reasonable interest rates.
The situation calls for a review of the entire rural credit architecture for an overhaul. The changes necessary may include:
• • Reviving the role of Rural Financial Institutions ( RFIs) including rural and semi-urban branches of commercial banks, cooperatives and Regional Rural Banks which have strayed away from their mandated responsibilities,
• • Identifying costs for financial intermediaries that cannot be factored into interest costs and specifying the agency which should meet them, if the activity has to remain bankable,
• • Without going back to the abandoned “regulated interest rates regime”, working out and specifying broad bands within which ultimate lending rates should remain when bank funds are sourced for the purpose, and
• • Reducing the number of bypass routes allowed for priority sector lending to the minimum.
Such a review may be necessary at this stage, irrespective of who gets a license for a new commercial bank.”
M G Warrier, Mumbai
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