By Syed Zahid Ahmed,
If India has to have inclusive growth, we need to discard the discriminatory credit practices by Scheduled Commercial Banks (SCBs) and allow poor and vulnerable to get fair treatment from banks while it comes to disburse loans. It’s not any prejudice that the rich borrowers get edge over poor in the banking sector, but the following statistics derived from the publication of the Reserve Bank of India (RBI) reveals the facts.
Less loans to poor, more to rich
Distribution of Loans by SCBs (by end of March 2009)
The poor borrowers (with credit limit under Rs 2 Lakhs) though shares 87.05% of loan accounts, have just 12.29% share in outstanding credit extended by SCBs; whereas the richer borrowers (with credit limit over Rs 1 crore) just share 0.17% of loan accounts but have 61.93% share in outstanding credits. So, banks are prioritizing rich over poor to extend bank loans.
More interest rate for poor, less for rich
Banks are not only distributing more loans to the rich borrowers, but also unfairly charging higher interest from the poor and lower interest from the rich. Considerably the rich borrowers (with credit limit over Rs 1 crore) have around 75% share in loans where interest rates are less than 10%, against poor borrower’s (with credit limit between Rs 2 to 5 Lakh) share of less than 9% in such loans. However the same rich borrowers have just 27% share compared to 60% share of poor borrowers when the rate of interest on loans exceeds 20% per annum. How we could call it a fair regulation by RBI if SCBs are allowed to distribute loans in such discriminatory manner?
Amount of Loans in Rs Crores by end of March 2009
RBI doesn’t consider it a significant issue because according to Dr K C Chakrabarty (Deputy Governor, RBI): ‘as interest costs are a very small fraction of operating costs, one should not ask for low interest rates from the banking sector, and instead ask for credit at competitive rates. Credit has to be self-liquidating on a viable project and has a cost.’
If interest would have been just 4% of total output costs, farmers and artisans in India would not have committed suicides. RBI should investigate stories on suicides by farmers and accordingly set interest policies suitable for inclusive growth. Otherwise India’s growth will be for rich people only. Until the poor get due share in country’s economic growth, we cannot say that ‘India prospers’. RBI certainly needs to understand that there is need to revisit the efforts supposed to ensure economic growth through financial inclusion.