Andhra CM against banks forcing risk products on SHGs

Andhra Pradesh chief minister YS Rajasekhara Reddy on Wednesday took public sector banks in the state to task for forcing life insurance products on self-help groups (SHGs), who take term loans from them.

Addressing the 164th state level bankers’ committee (SLBC) meeting here, he said using such tactics to increase revenues through non-banking channels was against the Reserve Bank of India mandate. “There is a big resentment among the SHGs against collection of insurance premium,” he pointed out.

Some banks were remitting insurance premium to the tune of Rs 1,500 to Rs 2,000 a year from the loan amount, he said, adding the government had insured the SHG members for Rs 75,000 in case of accidental deaths and Rs 30,000 for natural deaths. This apart, the loans taken by these people are insured. There are over 900,000 SHGs in Andhra Pradesh.

Andhra Bank chairman and managing director and SLBC president RS Reddy too admitted there had been stray incidents of banks collecting life insurance premium from SHGs. He said the banks were not justified in doing so and assured to reimburse the premium collected in the villages.

Calling for total financial inclusion across the state to ensure that the poor do not fall into the clutches of private money lenders, the chief minister asked banks to universalise smart cards.

Even as bank officials pointed out that there was liquidity pressure due to the agricultural loan waiver scheme that they implemented recently, he said the scheme was a one-time contingency programme to bail out distressed farmers and now with the government increasing minimum support prices for agricultural produce, farmers would not be desperate for loans in the years to come.

The state government, he said, would provide an incentive of Rs 5,000 per farmer who have repaid their loans (and, therefore, did not benefit from the loan waiver scheme) from November 19, to coincide with former Prime Minister Indira Gandhi's birth anniversary. While the scheme would benefit about 3.2 million farmers, it would put a burden of Rs 1,600 crore on the state exchequer.

Meanwhile, cumulative deposits for the half year ended 2008-09 increased 20.12 per cent to Rs 182,708 crore as against Rs 152,101 crore last year. Advances were up 33.35 per cent to Rs 183,629 crore (Rs 148,015 last year).