Banks are discriminating among the rich and the poor borrowers
Banks are discriminating among the rich and the poor
If India has to have inclusive growth, we need to discard the discriminatory credit practices by Scheduled Commercial Banks (SCBs) and allow poor and vulnerable to get fair treatment from banks while it comes to disburse loans. It’s not any prejudice that the rich borrowers get edge over poor in the banking sector, but the following statistics derived from the publication of the Reserve Bank of India (RBI) reveals the facts.
Amount of Loans in Rs. Crores by end of March 2009
Size of Bank Loans
No. of Loan Accounts
% of Loan Accounts
Credit Limit in
Rs.
% of Credit Limit
Outstanding Credits in
Rs.
% of Outstanding Credits
Less than Rs. 2 lakhs
958,010
87.05%
494,304
12.27%
349,865
12.29%
Rs. 2 lakh to 1 crore
140,649
12.78%
949,107
23.56%
734,169
25.78%
More than Rs. 1 crore
1,903
0.17%
2,585,666
64.18%
1,763,680
61.93%
Total Bank Loans
1,100,562
100.00%
4,029,077
100.00%
2,847,713
100.00%
The poor borrowers (with credit limit under Rs. 2 Lakhs) though shares 87.05% of loan accounts, have just 12.29% share in outstanding credit extended by SCBs; whereas the richer borrowers (with credit limit over Rs. 1 crore) just share 0.17% of loan accounts but have 61.93% share in outstanding credits. So, banks are prioritizing rich over poor to extend bank loans.
Banks are not only distributing more loans to the rich borrowers, but also unfairly charging higher interest from the poor and lower interest from the rich. Considerably the rich borrowers (with credit limit over Rs. 1 crore) have around 75% share in loans where interest rates are less than 10%, against poor borrowers (with credit limit between Rs. 2 to 5 Lakh) share of less than 9% in such loans. However the same rich borrowers have just 27% share compared to 60% share of poor borrowers when the rate of interest on loans exceeds 20% per annum. How we could call it a fair regulation by RBI if SCBs are allowed to distribute loans in such discriminatory manner?
Amount of Loans in Rs. Crores by end of March 2009
CREDIT
LIMIT RANGE
Loans with Interest under 10%
% of Loans with Interest under 10%
Loans with Interest between 10 to 20%
% of Loans with Interest between 10 to 20%
Loans with annual interest over 20%
% of Loans with annual interest over 20%
Rs. 2 Lakh to Rs.
5 Lakh
68,293
8.96%
222,168
8.70%
23,497
59.30%
Rs. 5 Lakh to Rs. 1 Crore
123,189
16.16%
495,855
19.41%
5,486
13.84%
More than Rs. 1 Crore
570,616
74.87%
1,836,244
71.89%
10,644
26.86%
Total Loans and Advances
762,098
100.00%
2,554,266
100.00%
39,627
100.00%
RBI doesn’t consider it a significant issue because according to Dr K C Chakrabarty’s (Deputy Governor, RBI) ‘as interest costs are a very small fraction of operating costs, one should not ask for low interest rates from the banking sector, and instead ask for credit at competitive rates. Credit has to be self-liquidating on a viable project and has a cost.’
If interest would have been just 4% of the costs, farmers and artisans in India would not have committed suicides. RBI should investigate stories on suicides by farmers and accordingly set interest policies suitable for inclusive growth. Otherwise India’s growth will be for rich people only. Until the poor get due share in country’s economic growth, we cannot say that ‘India prospers‘. RBI certainly needs to understand that there is need to revisit the efforts supposed to ensure economic growth through financial inclusion.
About the Author
Master of Economics from AMU, Aligarh, India. Chief Editor for www.economicinitiatives.com based in Mumbai, keen to serve unorganzied sector enterprises in India. Effortlessly working to promote interest free banking and finance in India.
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