Small Change for Banks

THERE is a fear that with the focus on the bottomline under the dispensation of financial sec tor re forms, commercial banks would disfavour small borrowers who are said to have higher servicing costs, Evidence shows thai the growth of advances to the household sector (consisting of individuals and unincorporated enterprises) has been considerably below that 10 corporate enterprises in the public and private sectors. Between March 1991 and March 1993, bank credit to the household sector rose by 22 per cent compared to a rise of 40 per cent and 52 per cent in that to the private and public corporate sectors, respectively. Likewise, there has been a significant decline in the share of priority sector advances in total bank advances and the authorities have tried to ease the enforcement of this major social goal by enlarging the scope of the priority sector (by including indirect agricultural credit, credit for larger small-scale units and export credit in respect of foreign bank branches) and by permitting banks to transfer the shortfall in favour of the Small-Scale Industries Development Bank of India (SIDBI) and the National Bank for Agriculture and Rural Development (N ABARD). Despite these relaxations, advances to agriculture constituted only 14.3 per cent of net bank credit at the end of March 1996, which was not only significantly lower than the target of 18 per cent but also lower than what it was (15.1 per cent) two years ago at the end of 1993-94. Similarly, the share of all priority sector advances in total net bank credit has remained at 37.8 per cent for the past three years, or well below the 40 per cent target.