The Hindu Business Line : Lower interest rates to self help groups opposed

Rural focus
Banks asked to create separate cadre of employees exclusively for rural operations.
"Credit plus" mechanism mooted for the purpose of helping farmers to repay their loans better.

Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, flanked by Mr K. Ramakrishnan (left), Andhra Bank CMD, and Mr V.P. Shetty, IDBI Bank CMD, at Bancon 2006 in Hyderabad on Saturday. - K. Ramesh Babu

Hyderabad , Nov. 4

The Chairman of the Economic Advisory council to the Prime Minister, Dr C. Rangarajan, has opposed reduction of interest rates to self help groups in the country.

Delivering the special address at Bancon 2006 here on Saturday, Dr Rangarajan said: "They (SHGs) should be provided credit at moderate rates of interest. But lowering the rate of interest defeats the very nature of these groups."

The SHG concept has worked well so far. However, he said that they needed to move forward. SHGs currently cover about 32.96 million households.

However, he said: "SHGs need to graduate themselves from providing consumption/agricultural credit to micro enterprise level economic activities for generating a higher income level. My advice is that you should upgrade from pappads and pickles to a higher level of economic activity."

Rural Credit

Lamenting on bank employees' attitude towards rural service, Dr Rangarajan advised banks to change their attitudes. He called on banks to create separate cadre of employees exclusively for rural operations.

In addition, he said lending/deposit procedures should be changed.

Above all, he said there was case for institutional changes in the banking sectors' rural approach and reorganising the rural credit system.

He also said that the 45,000 rural branches in the country should be reorganised in such a way to increase their outreach. For the purpose, he advised bankers to introduce specialised financial products and reach out to farm households with holdings of less than one hectare.

GDP Growth

Dr Rangarajan said that rural bank branches should evolve a system that not only provided credit but also allowed farmers to earn better. He suggested that rural bank branches should evolve a "credit plus" mechanism for the purpose of helping the farmers to repay their loans easily.

He added that if the GDP growth rate was to be sustained, then rural India would have to be involved. He opined: "If the growth process has to become widespread and sustained, we need to bring every section of society into the organised banking fold."

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Lower interest rates to self help groups opposed