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LATEST NEWS UPDATES | Lending to priority sector is good business, Mundra tells banks

Lending to priority sector is good business, Mundra tells banks

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published Published on Jul 18, 2017   modified Modified on Jul 18, 2017
-The Hindu Business Line

RBI Deputy Governor says such loans support economic activity, generate income & surplus

Mumbai:
Given the overexposure of the banking system to large corporates and the consequences thereof in the last few years, Reserve Bank of India Deputy Governor SS Mundra said lending to priority sector is good business for all the right and justifiable reasons.

“The excessive lending to corporate sector was the outcome of what I call “least input and maximum output” approach.

“With little effort one could create large credit volumes whereas creating similar volumes in the priority sector would have required commitment of larger resources in terms of branch staff and operating people,” he said.

Priority sector loans include those given by banks to segments such as agriculture, micro, small and medium enterprises, affordable housing, and renewable energy.

‘Noteworthy changes’

Speaking at a recent ‘Conference on credit flow to priority sector — policy and implementation’ held at the College of Agricultural Banking, Pune, the Deputy Governor pointed out that because of the regulatory dimension, focussing on smaller loans would become all the more necessary now.

“A couple of noteworthy changes have happened in the recent past — there is a revision of single and group borrower exposure limits and an overall ceiling on exposure of an entity to the banking system has been mandated.

“These developments would push the corporates to gradually shift to markets for meeting their funding requirements,” explained Mundra.

Apart from the bitter experience (of lending to corporates) of the past and the need for risk diversification, Mundra said banks should look at priority sector lending for better business opportunities due to the earning potential presented by the segment.

He referred to the fact that there has already been a conscious move by banks into the ‘retail’ segment from corporate.

‘Not productive’

“I am not suggesting that movement to retail is not okay, but from overall economic and credit perspective, retail loans are not productive loans in the hands of the borrower as they neither generate income nor they lead to further economic activities.

“On the contrary, loans to segments such as agriculture, small and micro enterprises do support economic activities, generate income and also surplus. Such borrowers then become worthy recipients of retail credit. That is the larger philosophy and reason for moving over to priority sector as a business case,” Mundra said.

Each credit extended by banks to priority sector can be a life-changing event and the priority sector credit as a whole can change the lives of a multitude of people of this country, he added.

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The Hindu Business Line, 17 July, 2017, http://www.thehindubusinessline.com/money-and-banking/lending-to-priority-sector-is-good-business-mundra-tells-banks/article9773575.ece?homepage=true
 

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