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The banking woes of an “excluded” community by Vidya Subrahmaniam


Banks have designated red zones where the vast majority of Muslim clusters fall. This fact is confirmed by the rash of banking-related complaints received by the National Commission for Minorities.

A little over a year ago, Ali Arshad, a resident of Okhla in Delhi, went to a well-known private sector bank to open a bank account. He thought his case would be fast-tracked because he had a banking background, he worked with a well-known investment and brokerage company and he had the necessary documents: A passport, a pan card and a house rent agreement notorised on stamp paper.

He still has not heard from the bank. The manager of the branch informally told him that his passport showed a Patna address and the bank did not accept rent agreement as proof of residence. The Hindu checked the website of the bank and found that the bank did accept house rent agreement as proof of residence. A call placed to the bank confirmed that a passport (proof of identity) and a rent agreement (proof of residence) were enough to start a bank account.

Mr. Arshad finally opened a salary account with a bank that had his company's corporate account. “The bank could not refuse me because I came as a package,” Mr. Arshad says. He attributes his banking difficulties to the fact that he stays in Muslim-concentrated Okhla, an unofficial red zone for banks. Indeed, in the Muslim belt of Okhla, Zakir Nagar and Batla House stories abound of residents not being able to open bank accounts and of banks turning down their loan applications. The situation, residents say, has got worse after the September 2008 killing of two alleged terrorists in Batla House. “Landlords here refuse to give residence proof documentation for fear of being tracked down,” says Hasan Shuja, editor of Urdu daily Sahafat. Mr. Shuja, who has gone from bank to bank looking for a loan to expand his business, says, “I gave them all possible documentation but to no avail. But not just Delhi, you will hear the same thing wherever Muslims are in large numbers.”

The sense of “exclusion” among Mr. Shuja and others has only heightened with recent reports that in Andhra Pradesh alone as many as 90,000 Muslims students were unable to open bank accounts to deposit their scholarship cheques. The complaints were received by the State Minorities Commission which, in turn, referred them to the National Commission for Minorities in Delhi. The Ministry of Minorities has since taken up the matter with the State's Chief Secretary. The puzzling thing here is that banks have shown the audacity to turn away students despite a standing RBI circular instructing them to open basic, no-frills accounts for people from deprived categories.

At the NCM, officials cannot cope with Muslim complaints relating to banking. The Commission receives an average of five banking complaints a day from across the country, with most complainants recording specific details of discrimination. The NCM recently intervened to have a dismissed Muslim official of a leading private sector bank reinstated. The official was found to have been falsely accused of fraud.

Up until the Sachar Committee report, which conclusively established unacceptable levels of Muslim deprivation, there were not many takers for Muslim-specific banking complaints which were typically dismissed as an exaggeration. The other commonly held perception was that Muslims were averse to banking because of religious injunctions against receiving interest.

Several significant findings emerged in the investigations of the Sachar Committee which analysed access to Priority Sector Advances (farm sector, small-scale industries and small advances to weaker sections) across Socio Religious Communities. To start with, banks confirmed the existence of “red zones” where they offered minimal services. Says Abusaleh Shariff, who was member-secretary with the committee: “We did not use the term discrimination in the report but we did find banks to be unacceptably insensitive. They accepted that they don't like to provide services in the red zones. Unfortunately, most of the areas where Muslims live fall in the red zones.”

The committee was also able to bust the myth that Muslims were against banking. Muslims held a 12 per cent share in PSA bank accounts which was rather low considering the high concentration of Muslims in socially and economically deprived sections. Nonetheless, as Mr. Shariff points out, the figure established that given a chance Muslims opened bank accounts.

The committee's third major finding was that Muslims did not easily get loans. The community's share of outstanding PSAs was pathetic — only 4.6 per cent as against a population share of 13.4 per cent. The ratio of loans to population was even worse in the Minority Concentration Districts. In 44 such districts, where the Muslim share of the population was 33 per cent, their share of PSAs was an abysmal 7.9 per cent. The share of other minorities, who together constituted two per cent of the population, was 3.7 per cent. In 11 of these districts, where the Muslim share of the population was 51.4 per cent, their share of PSAs was 12.9 per cent. With a 1.2 per cent share of the population in the same districts, other minorities received 3. 4 per cent of PSAs while Hindus, who formed 47.4 per cent of the population, got a PSA share of 63.1 per cent. Over all, other minorities fared twice as well as Muslims in the priority sector.

When the UPA government came to power in 2004, one of its early priorities was to address the “development deficit” among Muslims. It recast the old 15-point Minority Welfare Programme and established a time-frame for programme-specific interventions. It set up a Ministry of Minority Affairs (MMA), following it up with the first-ever exhaustive study of the community's social, economic and educational status. Simultaneously, it started a programme of financial inclusion through the Reserve Bank. The RBI's charter, reiterated through repeated circulars, included expanding access to banking through “nil balance, no frills” accounts as well as smoothening credit flow to Muslims.

Six years later, the government, and the MMA in particular, are still battling systemic resistance to minority welfare. This situation is despite the ministry's exemplary commitment and overall vision. Ministry sources say that with each year, they are getting closer to reaching the target, exceeding it in some programmes such as the award of scholarship. And yet it has been literally a case of inching forward. Take the National Minorities Development And Finance Corporation established 17 years ago. In all this time, it has disbursed loans only to 5.39 lakh minority beneficiaries. A drop in the ocean for a Muslim population of over 130 million.

The MMA points out that as against this dismal figure, the corporation achieved a target of 1.46 beneficiaries in 2009-2010. However, the ministry had to move mountains for this, as the States, with some exceptions, simply would not cough up their share of 26 per cent to the scheme. For instance, Uttar Pradesh has so far contributed only 7 per cent (Rs. 7 crore) of its share of 26 per cent (Rs. 44 crore). The Ministry offered to set up a separate fund for strengthening the state channels for disbursal. “Not one State has responded to our offer,” said a top ministry source. In the 90 Minority Concentration Districts, too, progress has been uneven, with development plans going back and forth and the States not being quick with their feedback.

Need to black list errant banks

The MMA was patting itself on the back for its success in the scholarship scheme when reports came in of banks refusing to open scholarship accounts for Muslim students. The ministry has swiftly moved to address the problem but the news has understandably upset the community. As politician Abdul Khaliq remarked: “This situation will not change unless Muslim representation in banking staff goes up. And government must black list errant banks and punish the guilty officers.”