Namrata Acharya’s report, “Agri, education pangs for priority sector lending” (October 19), discusses a drop in credit disbursement for agriculture and education. At the outset, there is a dichotomy between recovery of non-performing assets (NPA) and credit disbursement; this upsets budgetary planning. The first lays stress on recovery of bad loans to strengthen the capital base and display a more transparent balance sheet for banks. In the process, fresh credit disbursement is being delayed and hence the year-to-year negative variance.
Post nationalisation, bank policies require at least 40 per cent priority sector lending or investment in the Rural Infrastructure Development Fund (RIDF) to finance economic and social development. Credit always has an element of risk attached to it; direct lending is more beneficial to banks from the revenue angle. Receipt of interest on direct lending is always more profitable.
Accordingly, the blocking of loanable funds by investment in the low-interest-bearing RIDF should only be an emergency solution due to low interest rates. In the current economic situation, the emphasis is more on recovery than on disbursement of credit. However, the absence of planned credit disbursement will not only hurt revenue inflow but also lead to economic stagnation.
Loan waivers irritate honest borrowers, who see potential defaulters as beneficiaries of such schemes that lead to NPAs. These are solutions that hurt rather than achieve anything.
The vagaries of the weather are hampering agricultural yield and, in turn, the markets. The negative impact spreads to allied segments such as small and village industries as also retail trade. This causes economic stagnation and hurts NPA recovery.
Thus, credit disbursement needs to continue in the interest of both the economy and the institution. There can be no profit without business and no business without resources. At the macro level, policy decisions have to be formulated to support decision-making at the micro level to ensure a balance between credit recovery and credit disbursement.
C Gopinath Nair Kochi
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