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