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Letters: Banking on the government?

Business Standard  |  New Delhi 

The Andhra Pradesh government is thinking of forming a Non Banking Finance Company (NBFC) in collaboration with public sector banks (“State mulls separate NBFC to counter MFIs”, April 1). The result of the experiment with regional rural banks that started in the seventies with the participation of public sector banks and state governments is quite evident. They were opened with the aim of providing timely credit to poor people in remote rural areas. However, today you would rarely find a regional rural bank branch in a remote village. But you will surely find one in the city (Nallakinuta in Hyderabad, for example) or in urban areas. The low-cost salary structure has also been replaced with pay scales of mainline commercial banks.

Also, the staff of the proposed NBFC would be hired mostly on the basis of connections and not merit. Besides, when the Malegam Committee has already stipulated a rate of interest of 24 per cent and a ceiling on the number of loans to which the present MFIs have to adhere, where is the need for one more NBFC? The ceiling of 12 per cent margins on interest is making even private MFIs shudder. How can a government-promoted body with leakages function with such margins?

B Vithal Rao, Hyderabad

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First Published: Tue, June 14 2011. 00:02 IST