Banks suffer a high default rate of about 40 per cent in rural areas, as against just 10 per cent by non-governmental agencies engaged in providing microfinance. | |
| Banks need to understand better their loan customers in rural areas to improve recovery rates closer to around 90 per cent enjoyed by microfinance NGOs, said R B Barman, executive director, Reserve Bank of India. |
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| NGOs lend at rates above 20 per cent but their default rate is less than 10 per cent, Barman told reporters on the sidelines of a banking technology seminar organised by Confederation of Indian Industry (CII). |
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| Public sector banks, private sector banks and regional rural banks had aggregate loans outstanding at about Rs 1,39,000 crore at the end of September 2006. |
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| Barman said banks need to revamp the way they evaluate customers in rural areas. "They need to do much more than they currently do," he stressed. |
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| He said better recovery rates were all a function of knowing more about customers. NGOs manage to keep their default rates low because they understand customers and their cash flows better. |
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| Speaking at the seminar earlier, Barman said the RBI wanted to reduce the volume of cheques used as a medium of payment. He said cheques account for 70 per cent of payment transactions in the country, but only 25 per cent in value terms. |
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| Listing some of the changes that confronted the banking sector, Barman referred to the task of serving the rural areas. While information technology was a solution, ultimately it would be the people who would use the system that would make it a success or a failure. |
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| "IT can help, but it is the people who drive the initiative," he pointed out. |
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