Banks can explore unorganised sector

| | in Oped
Banks can explore unorganised sector

Business cannot be done in isolation. Banks largely depend on political, social, cultural, economical and environmental conditions for doing business

The Union Government has announced a massive Rs  2.11 trillion recapitalisation plan for public sector banks. The untamed NPA growth leaves little option for the Government but to provide more capital to banks. No Government wants bad loans to erode people’s deposit in PSBs which keep more than 70 per cent of the total deposit in the banking sector. Though recapitalisation is not a long-term measure, it gives bank a breather. 

Banks may not recover their huge bad loan which grow bigger day by day as loss assets pile up.  Some bad corporates duped banks, laundered bank credit and backstabbed the economy with wilful default. Their act slowed down economic growth, eroded trust and made some people rich with defaulted bank loan. Good corporates now suffer credit crunch due to bad corporates as banks want to examine loan documents as per guidelines. Many good small borrowers also suffer as banks make the checklist and KYC longer. Quick recovery of loan from the wilful defaulters will put banks on track again.

When the fear of high risk and default bottleneck corporate finance, smart bankers explore the retail sector to keep credit business ticking. But here the volume of business is less and the number of loan accounts is many to handle. But banks need not worry about the volume since the actual potential of this retail and unorganised sector is huge. Proper mapping of the retail and unorganised sector will create bigger opportunity for banks to flow credit.

In fact, banking business cannot be done in isolation. Banks largely depend on political, social, cultural, economic and environmental condition around it for doing business. If a village is located alongside a dry river, it cannot have more income. A dry river neither provides water nor fish. It can hardly increase the water table of the village. This adversely affects agriculture productivity and increases farmers’ input cost.  If water and green fodder are not available, the entire animal husbandry sector suffers.  The bank credit becomes NPA.  If Government shows political will to prevent over damming of river and look for wind or solar energy in place of hydro power, the fine fabrics of economic growth will sprout again. The Government should put in place more India-specific development planning.

Until 2012, villagers of Boshi in Adilabad district of Telangana used to get enough fodder to keep dairy animals. The village had lost its green fodder due to over-exploitation of ground water and soil moisture loss. Today they find dairy farm not viable due to loss of green fodder. Many of the villagers have already sold their animals. The Telangana Government has to stop the over-exploitation of ground water and protect the surface water.  No banker will give loan for dairy farm in the villages where low cost green fodder is not available. Alphonso mangoes sell at Rs 25 per kg in Ratnagiri and Sindhudurg districts of Maharashtra. When it goes to Mumbai the price soars up to Rs 150 to Rs  200 per kg. Here middlemen eat up the profit. If banks finance the farmers, they won’t get back the loan because the farmers get a very low margin due to middlemen. If Government provides a transparent supply chain, the farmers can get a good margin and banks can do business. No villager will migrate to city for menial jobs.

Many small and medium agro processing plants find it difficult to survive in Ratnagiri and Sindhudurg as they can’t compete with the giant companies with huge scale of production. If the Government wants to let the small and medium agro processors survive, it should disallow the biggies to stray into the areas of the small and middle segments. If big companies produce pan masala, jeera powder, mango jelly, achar, papad and hundreds of other grocery items in small sachets priced at Rs  2 to Rs  10, the small and medium sector cannot compete with them. And the Government can’t sustain them with subsidy and sops. Banks can’t recover their loan in this environment which lets the big one makes profit and throttles the small. Thousands of self-help groups find it difficult to market their products due to mass production of grocery and utility items by big corporates. Ten years ago, the recovery from SHGs was more than 90 per cent. Today it has reduced to 70 to 80 per cent. If climate is not conducive for credit growth, there is possibility of credit delinquencies which lead to default. If politicians promise loan waivers to farmers, this creates potential defaulters. Good hard-working farmers suffer as they repay loan on time. Ultimately the farmers lose interest in farming. The banks’ recovery suffer. This is high time to correct the fundamentals for sustainable credit growth.

(The writer is a freelance commentator)

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