I appreciate , support and concur with the advice given by RBI Governor Mr. Urjit Patel to banks that banks should try to reduce lending rates for business so that business minded people come forward for taking new initiatives in creation of more and more assets as also job opportunities for unemployed. He should rather impress upon bankers either through verbal advices or through obligatory guidelines to ensure strict compliance of its guidelines so that bankers increase interest rate for retails loans like personal loans, car loans, home loans ( at least for high value cars and homes ), consumer loans etc which are unproductive and on the other hand reduce the same for business sector which will help in real increase in GDP .
I do not hesitate to mention here that root cause of slowdown in manufacturing sector in particular and business in general during last two to three decades is that bankers put their entire energy on credit growth through rise in retail lending which according to them is more safe secured and comfortable in making decisions. Banks in general and private banks in particular avoided lending to farm sector which resulted in sharp fall in farm production as also migration of villagers from villages to towns and cities in search of job or other sources of livlihood. In my view ,the bitter truth is that until business grows , job opportunities cannot go up and until problem of unemployment continue to rise, real demand for retail sector cannot go up. Artificial demand created by marketing skill results in increase in temporary demand as also results in increase in cases of NPA in banks.
It is unfortunate that top bankers for their self greed, self career and quick growth create demand for retail loans by reducing interest rates and through marketing skill. They motivate credit personnels at field level to focus on retail lending and for this purpose they give them huge targets to be achieved every month or quarter. They give lucrative incentives to employees who achieve highest growth in retail . They give incentives for growth in insurance business too. But they hardly give any weightage to business loans. This culture in banks has given great boost up to loans in retails sector from mere 1 to 2 percent in eighties to 40 to 60 percent in current decade.
But this culture of risk free lending adopted and practiced by lenders initially by private banks and then Public sector banks in the name of privatization and liberalization during last two-three decades , has adversely affected , rather spoiled business culture to a great extent. Many business flopped due to denial of financial assistance from banks or due to demand of high amount of bribe from loan sanctioning officials. Bank officers of corrupt culture got promotion after promotion and officers of honest culture sidelined to ineffective posts and denied even justified elevation. I laugh when top officials of PSB cry before Ministry of Finance for experienced officers in banks and on this pretext seek more and more power to run the bank in arbitrary and whimsical manner.
There is no doubt that business loan requires more knowledge and skill on the part of bankers in taking decisions on business loan proposals and it is also true that sometime due to bad lending by bankers and/ or sometimes due to ill-motivated borrowing by businessmen , assets of banks goes bad and give rise to Non-performing assets and fall in profitability for banks in general. But this reason cannot be attributed for denial of loan to business sector.
It is the duty of state as well central government to provide support to good bankers in providing lending and support in making recovery from willful and bad borrowers. It is the duty of the government to use their administrative and legal power to deal with unscrupulous bankers and borrowers so that honest bank officials feel motivated in making good loans . Government should punish bad officials of banks who sanctioned loan in greed of their self interest and who promoted culture of bribing and flattery in promotions and lending .Government should send a clear message down the line that there is place for flatterers and bad lenders in career path.
At the same time , RBI has to frame credit policy keeping in view the national priorities and not only profit motto or safety in lending. If needed , RBI should decide interest rate for various sectors for credit growth along with target for such growth for different sectors and every banks should uniformly abide by this principle of uniform interest rate structure.
So far as interbank competition is concerned, each bank may increase their business by improving their quality of service. There is no sense in achieving the target or increasing business by sacrificing interest of the bank or by lending to bad borrowers for the sake of bribe or by giving unethical concessions in interest rates and other service charges.
There is no other option for RBI and the Government than to decide national priorities for lending and suitable uniform interest rate appropriate for each sector . Private and PSBs both should abide with such policies wholeheartedly. After all it is the public money which private and PSBs both use for lending and hence they are supposed to act for the benefit of then people not only to earn profit and profit only. Profits and incentives may be a motivating force for bankers but they cannot be allowed to misuse public money to increase their personal wealth or beautify their personal career.
I once again praise good advice given by RBI Governor to lenders to reduce interest rate for businesses.
I submit below the news pertaining to advice given by RBI Governor to lenders for reduction of interest rate for business.
Cut lending rates for business, RBI tells banks-Times of India 12.02.2017
RBI governor Urjit Patel said on Saturday that banks should extend the benefit of lower interest rates beyond the retail sector, indicating that lenders should pare the cost of loans for companies.
Patel said banks had benefited from RBI's reduction in policy rates as well as the inflow of low-cost deposits in current and savings accounts in November and December. "The average lending rate reduction (by banks) has been less. We feel there is some scope for further reduction in lending rates and... for sectors like housing, personal etc, the reduction has been much more than for other sectors by the same bank," he said.
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