Nabard moots colloateral-free loans in rural areas

Domestic banks need to practice "faith banking" in the rural areas by not asking for collateral. This will help increase rural penetration, according to R Balakrishnan, executive director, National Bank for Agricultural and Rural Development (Nabard).

"The essence of banking in rural areas should be trust," said Balakrishnan at the CII Banking Tech Summit.

Balakrishnan pointed out that venture capital is another area, which has to get more attention, to encourage rural entrepreneurs.

According to figures available with Nabard, microfinance institutions have managed to reach up to 12 crore people in India through 1.6 billion self-help groups in 572 districts. The total credit disbursal under microfinance currently stands at Rs 7,000 crore.

Emphasising the various rural-based initiatives undertaken by Nabard, Balakrishnan enumerated pilot projects conducted for setting up Computer Munshis, processor codes and branch automation and the e-grama project in Karnataka.

The e-grama project involves setting up of 13 information centres disbursing data on weather and crop inputs. Nabard is also working on rural initiatives with the Visakha Gramin Bank in Andhra Pradesh and the Krishna Gramin Bank in Gulbarga.

Speaking about the scope for growth in microfinance through use of technology, HSBC's senior vice-president and head - microfinance and priority sector, Royston Braganza, said, "Technology is a vital partner, but it is not a substitute for good business strategy and operational procedures. All the three have to be married together."

Mahindra & Mahindra Financial Services' managing director, Ramesh Iyer, said that the rural markets could serve to be a great opportunity for Indian banks, provided they looked at institutionalising transactions by partnering with local players such as commodity exchanges, self-help groups, private money lenders and corporates to make operations more cost-effective.