Minorities finally in Banks’ priority sector lending

Khabrein News Desk
www.khabrein.info New Delhi, May 21: Giving in to pressure from the UPA government, the Reserve Bank of India has included 'minority communities' in the list of 'weaker sections' for the purpose of priority-sector lending by banks. Domestic banks, both government-owned and private, are mandated to lend 10 percent of their total loans to 'weaker sections'. Till now the list of weaker sections included scheduled castes, scheduled tribes, small and marginal farmers, artisans and urban poor too distressed to repay their debt to money-lenders. This announcement would benefit a large section of minorities that include Muslims, Christians, Buddhists, Parsis and Sikhs.
Initially the government had asked the Reserve Bank of India (RBI) to earmark approximately 6 percent of the total loans lent by banks in India to minority communities. But faced with stiff resistance from both RBI and Indian banks Association, the government asked the RBI to include minorities in the list of weaker sections.
In a notification issued recently, RBI said in states, where any notified minority community/communities is, in fact, in majority, then only other notified minorities will be included in weaker sections. These states/union territories are Jammu and Kashmir, Punjab, Sikkim, Mizoram, Nagaland and Lakshadweep, the guidelines added.
However, RBI has not fixed any specific target for lending to the minorities. The new guidelines came after the Finance Ministry asked the Reserve Bank to amend the priority sector norms to include minority communities under "lending to weaker sections".
The question of inclusion of minorities in the weaker sections was raised at Finance Minister P Chidambaram's meeting with public sector bank chiefs and Reserve Bank of India Deputy Governor Usha Thorat last month. Chidambaram after the meeting had said: "The RBI has agreed to change the master circular on priority sector lending to include five minority communities under lending to weaker sections."
Domestic banks are required to give 40 percent of their total loans to priority sectors which include agriculture, housing, small-scale industries and weaker sections. While the agriculture sector constitutes half of the priority-sector lending or 20 percent of the total bank loans, weaker sections are mandated to be given 25 percent of the total priority-sector loans or 10 of the total bank loans.
In 2006-07, commercial banks gave Rs, 4,10,285 crore as loans. As per RBI guidelines, of this, around Rs 35,000 crore would have been given to weaker sections, which would be a little less than 10 percent of the total credit, said a banker. This is because foreign banks are not mandated to give loans to weaker sections from their total priority sector lending requirements of 32 percent of their total credit.
So far Muslims received a very minimal amount on loan from banks irrespective of banks being private or government sector bank. According to the Sachar report, the average bank loan disbursed to a Muslim is two thirds of the amount disbursed to other minorities. "Some banks use the practice of identifying negative geographical zones on the basis of certain criteria where bank credit and other facilities are not easily provided". In terms of intending borrowers, the Muslims numbered 9.41 percent, but the actual disbursement of loans to them came to 3.73 percent. For SCs the intending borrowers were 20.7 percent and they received loans to the extent of 12.7 percent. The loans never extended one hundred thousand Rupees.
The Sachar Panel had recommended the government to, Providing financial and other support to initiatives built around occupations where Muslims are concentrated and that have growth potential and also increasing employment share of Muslims, particularly where there is great deal of public dealing.
Earlier in a discussion in the Parliament, Communist Party of India (Marxist) leader Brinda Karat charged the Finance Minister with "misleading" the House and not implementing even the Prime Minister's instructions on November 24, 2006, conveyed through a letter, for 15 per cent lending to minorities. Ms. Karat said she wrote a letter to Chidambaram on the subject on December 20, 2006. In his reply on January 3, 2007, the Minister said he had called for the file. "If he does not listen to the Prime Minister, will he listen to us, members?" Chidambaram in his reply said it was unfortunate that Ms. Karat's letter was not brought to his notice earlier. He said the Government was talking to the RBI and the Indian Banks Association for implementing the lending guidelines. (With input from agencies)