The credit guarantee scheme under the Deposit Insurance and Credit Guarantee Corporation (DGICI) is poised to be scrapped, following the recommendation to that effect by the Reserve Bank of India (RBI).
The RBI has written to the Central government to terminate the scheme, said RV Gupta, deputy governor of the RBI, in an interview to Business Standard on the eve of his retirement. After serving for two-and-a-half years as the deputy governor of the RBI, Gupta retires today.
He was in charge of important portfolios like exchange control, rural planning and credit, urban banks, information technology, currency management, and DICGC.
Neither banks nor corporates were interested in the scheme, and many banks had withdrawn from it, Gupta said. The last straw was the withdrawal of the State Bank group, which withdrew from the scheme sometime back. However, banks will clear the past liabilities on this account in due course, he clarified. Gupta further said that that banks will be free to start their own credit guarantee schemes.
Talking about deposit insurance, he said that there is no reason why the sum should be restricted to Rs 1 lakh. Banks should have freedom to start their own schemes and different banks can have different schemes.
Indicating that a major restructuring of rural credit may be in the offing, Gupta said that the sponsor banks of regional rural banks (RRBs) will be made the sole decision makers. The sponsor banks will be made responsible for management of RRBs as well as for credit and investment decisions. The necessary changes in the acts are coming, he pointed out.
Local area banks will soon start functioning, said Gupta. Three applicants who had received the RBI approval for this purpose are making prepararion for the launch.
However, the RBI is examining the books of one of them -an NBFC - and that may take some more time. The competition from LABs will result in an increase in the efficiency of RRBs.
On Rural Infrastructure Deve- l opment Funds for Nabard, Gupta said that amounts released under three successive RIDFs were not fully utilised. The utilisation was 80 per cent for the first scheme, 30 per cent for the second and negligible for the third. Nabard has Rs 7000 crore worth of funds and therefore there is no need for it to raise money from the market, Gupta said.
Based on the recommendations of the Prabhu Committee, the government has decided to amalgate the three different poverty alleviation schemes into a new scheme called Swarna Jayanti Shahari Rozgar Yojna. While this would help reduce the administrative work at the branch level, it will not result in any improvement in the quality of the scheme, Gupta commented.
