Monday, December 31, 2007

Kerala under total banking but the poor yet to benefit

KERALA, with its penchant for setting records, has chalked up another first. It now has the distinction of being the first Indian State to achieve complete banking coverage. However, the benefits of the banking system are yet to trickle down to lower levels.

India's Minister of State for Finance Pavan Kumar Bansal, after a meeting with leading bank executives at Thiruvananthapuram last week, announced the successful completion of the campaign to bring all of Kerala under banking cover. At least one member of every family now has a bank account. When the campaign was launched nearly 1.2 million out of 6.7 million families in the State did not have bank accounts.

The minister set a new goal for commercial banks in the State. He asked them to ensure that bank loans are available to everyone who needs them.

Banking in Kerala has a long and glorious tradition. As in the rest of India, rural banking received a fillip in the State following nationalisation of 14 top commercial banks in 1969.

Banking in the State received a further boost in the wake of large-scale migration to the Gulf countries in the 1970s. As the migrants sent their savings home, deposits started piling up in banks in both urban and rural areas.

At one stage, Non-Resident Indian deposits accounted for a substantial part of bank deposits in the State. Later domestic deposits caught up with NRI savings. Now domestic deposits stand at a much higher level than NRI savings. At the end of September, commercial bank deposits totalled Rs.971.13 billion. Of this, only Rs.316.90 billion (32.6 per cent) were in NRI accounts.

While domestic deposits continue to rise, NRI deposits are falling owing to increase in living costs in the Gulf countries and appreciation of the Indian rupee against the Gulf currencies.

In the 1980s and 1990s, as bank deposits grew by leaps and bounds, advances did not keep pace. This led to continuous decline in the credit-deposit ration.
At one stage, it dropped to about 40 per cent and banks came under political pressure to raise it. The banks responded to the demand. Last year the credit-deposit ratio stood at 70 per cent. It is expected to go up to 72 per cent this year.

The rise in bank advances has to be seen against the background of the growth of the State's economy. The annual growth rate now exceeds nine per cent. The service sector accounts for much of the growth. The agriculture sector has actually recorded negative growth, and the growth rate of the manufacturing sector is small. Quite naturally the benefits of the accelerated growth do not reach large sections of people who are engaged in agriculture and industry. They also do not get adequate attention from the banking system.

Guidelines drawn up by the Central government require commercial banks to earmark a part of the credit to the priority sector, which includes farmers, artisans and small businessmen.
Actual disbursal of credit to this sector till September this year was Rs125.11 billion, which is just 41.6 per cent pf the target. As against a target of Rs47.49 billion set for lending to small industries, credit provided was a mere Rs9.27 billion. This was Rs660 million less than what was disbursed last year.

The guidelines also require banks to set apart 17 per cent of the credit for minorities. This has been done in the light of the findings of several studies that the weaker sections of the society do not get a fair deal from the banks. The Sachar Committee, which looked into the condition of the Muslims, found that members of that community, too, experienced difficulty in this regard.

On a superficial view, Kerala's minorities appear to be better off than their counterparts elsewhere inasmuch as they received Rs142.39 billion, which is about 21 per cent of the amount disbursed by banks as loans. However, it needs to be remembered that about 45% of the state's population belong to the minorities and they play a major role in the economic sphere.

The Dalits and the Adivasis, who constitute 11 per cent of the population, are virtually out of the banking system. They received only Rs10.70 billion, which is just 1.6 per cent of the amount disbursed. Often they are unable to take advantage of credit facilities as they lack land or other assets to furnish security demanded by the banks. --Gulf Today, Sharjah, December 31, 2007

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