'Bank the unbanked, fund the unfunded'

Mudra Bank to help create credit for non-agri activities

In the area of financial inclusion, the government is attempting to address issues of banking the unbanked, funding the unfunded and social security schemes. “After so many years of independence, people do not have bank accounts. With a mission mode campaign of the government, 16 crore (160 million) new bank accounts have been opened and the zero-balance accounts have come down from 80 per cent to 52 per cent in a few months,” said Hasmukh Adhia, Secretary, Department of Financial Services, Ministry of Finance, according to a statement from the IIM Bangalore (IIMB).

 

He was addressing students at IIM Bangalore on financial sector reforms in India, focussing on various schemes and measures initiated during the last one year by the government.

He added, “The benefit of LPG transfer amount has helped in bringing down zero balance accounts for urban consumers. However, there are many other similar schemes in rural areas which once implemented will make many of these bank accounts operational.” “Further, around 80,000 people have already availed of overdraft facility so far and many more are being offered under this under ‘Jan Dhan’. The government is encouraging banking institutions to inform account holders about the overdraft facilities. The purpose of ‘Jan Dhan Yojana’ is to use bank accounts for meeting small credit needs of people,” he said, according to the statement.

 

The motive of funding the unfunded, he said, was to provide finance to the small businesses who have nearly no sources of funding but for the moneylenders. The Micro Units Development and Refinance Agency Ltd (MUDRA) Bank, he said, would help create credit for non-agricultural activities, including small businesses and industries, handicrafts and handlooms. The two main objectives of MUDRA bank would be to develop the micro finance sector and lower the interest rates. The loans under this scheme would be below Rs 10 lakh. The small loans in the country are best provided by the micro finance institutions which have a high rate of recovery, but the micro finance sector in India is still nascent.

Adhia promised that the government would make efforts to develop this sector by providing guarantees to the MFIs, which would help bring down the interest rates and hence allow more people to avail these loans. In the previous year, banks had provided Rs 50,000 crore to micro and small units. This year government is trying to increase this to Rs 1 lakh crore so that small units are not starved of financial resources.

 

On stressed assets, while he agreed that the gross NPAs in public sector banks (PSBs) had increased to 5.2 per cent of their advances and total stressed assets including restructured assets had risen to 13.2 per cent, he said, in 2001, when the concept of restructured assets was non-existent, NPAs of public sector banks was at 13 per cent.

“This came down to 2.3 per cent in 2008. And there are understandable reasons for the rise in stressed assets of PSBs as between 2008 and 2011 – most infrastructure projects were financed by PSBs. However, many of the projects got held up due to various reasons such as land acquisition, gas prices, cancellation of coal allocation, and overall slowdown in the world economy. During this period, NPAs of the private banks were much higher than those of PSBs and they were reluctant to invest in infrastructure projects, and also there were obstacles in credit expansion for this sector. The economy was passing through a critical time that many projects were not been able to take off,” he explained.