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Holy or unholy? Small is ‘more’ beautiful Why any time money? Cautious and considerate Financial inclusion vs unclaimed deposits Drastic decline in asset quality Nothing much can happen…. Monetary policy continues to adopt dis-inflationary path A development bank for BRICS Insatiable appetite for credit Governance in Reverse Gear? Reaching out: is it slowing down? Capital base of regional rural banks raised Targets continue to be ad hoc Merger mania haunts banks A new development bank rising in the east… Managing NPAs... Reaching the Unreached… One down in private sector Small finance banks offer high interest rates Small finance payment banks... Well-lived... Banking overhauling or reorganisation? Growing gainfully Needed a Banking Atlas Anytime banking to anywhere banking Hesitancy in announcing year-end results Cradle of banks to a smart city... Lacklustre credit expansion Indian customers are tech savvy Payment banks have arrived It’s a war on black money, support it. Fund healthcare clinics in villages... LVB- A supermarket of financial services Stage set for Indian ‘avatar’ of foreign banks Cut in repo rate – lower than expected Drop in SLR- sparing lendable resources Bank deposits account for 46.3 per cent of household savings What is the priority – mergers or NPA reduction? Too big to fail and too small to sail Growing volume of stressed assets… Banking in Telangana Who is the real beneficiary? Greet Lakshmi the banking robot New bank licences, at last... Thirty more cities seek to become SMART Emerging crisis Another route for achieving financial inclusion From lazy banking to easy banking How ‘secure’ are the secured loans? Grows Bigger All that glitters is not gold... Bottomlines shrink, bad loans rise... Good, bad and ugly United India Insurance - Rs 110 crore losses have been claimed till now due to floods in Tamil Nadu Why priority status? The paradox: clamour for the Goliath and David Perhaps small is more beautiful than big! A bank for women, by women Aadhaar, niraadhaar and banking Mega merger is on Banking on Risk Big bank merger, bigger expectations The collaboration suite of cyber criminals Smart banking in smart cities New capitals of Migrant banks Two banks: their jubilees and performances Ferrying digital banking to Lakshadweep How okay are new banks? Rationalised Just 660 days! Target over-ambitious... Ernakulam excels...
 
Targets continue to be ad hoc
The recent guidelines issued by the Reserve Bank of India keep the 18 per cent target for agricultural advances and 40 per cent target for total priority sectors unchanged. Ad hocism continues to be the basis.

THE TARGETS ARE applicable to all Indian banks without differentiation. Only foreign banks have some relaxation. Though many committees have deliberated on the ‘priorities,’ no committee has found it necessary to explain the basis of pegging the priority sector target at 40 per cent of the Adjusted Net Bank Credit.

The target for agricultural advances bears testimony to this. It was fixed at 17 per cent until one of the Union Finance Ministers hailing from the cow-belt raised it to 18 per cent; it continues even now.

 

Single target for banks across the spectrum

Banks are now expected to lend at least 8 per cent of the advances to small and marginal farmers. This stipulated target should be reached gradually in two stages that are either reaching 7 per cent by March 2016 or by crossing 8 per cent by March 2017.  While the objective is laudable, expecting all banks to reach this target without considering their branch distribution pattern and the regional differences in the conditions of small and marginal farmers does not ring right. Measuring the performance of all banks with a single yardstick is not a prudent method of monitoring targets.

Leading banks are annually preparing the District Credit Plans for all the 630 odd districts.  This is costing a lot. Though some of them have degenerated into form-filling exercises, they do contain useful village-level data. Sadly, they are rarely used for deriving the credit targets on a realistic basis. It is not known, whether these credit plan documents reach the Rural Planning and Credit Department (RPCD) of the Reserve Bank of India (RBI).

It would be a useful exercise if RPCD can collate the data available in these plans to estimate the credit needs of marginal farmers in each district initially. In that case, the credit targets for each district and each state can be derived more realistically, rather than having a single target for the banking sector at the national level. In this process, the targets could be different for different banks in different states. 

 

Kid-glore penalties

Undoubtedly penalties are prescribed for not reaching the sector targets, but they appear to be painless cosmetic surgeries. Like trying to discipline the errant students, banks are warned that RBI would assess their performance in this regard every quarter rather than the proposed annual assessment that is with effect from 2016-17.

The other punishment is directing banks to invest in the RIDF managed by NABARD, an amount equal to the shortfall in fulfilling the priority sector target. The only hitch is that the rate of interest applicable as fixed by the RBI may not be remunerative to banks. But banks would be free from the emergent worries of NPAs in the amount lent to priority sectors. More stringent penalties may have to be imposed to ensure that banks do not discard the priority accorded to the priority sector advances. However, before this is done, we must rationalise the basis of fixing the uniform targets to all banks.

RPCD should build up the targets from the bottom. There could be state-wise targets, which could be disaggregated into bank-wise targets by the State Level Bankers’ Committee. The need of the hour is not a high-level committee to make incremental changes in the sub-targets. Without replacing the present system of target fixing, an experiment may be made to build up sectoral targets for a state.

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