Millennium Post

Is banking system ignoring where credit is due?

When Mohammed Pervez, 25, wanted a small loan to buy a cartwheel and start his own small business of selling fruits, none of the 14 public-sector bank (PSB) branches in his town, Deoband in Uttar Pradesh, was eager to lend. After battling cumbersome procedures, he turned to the Muslim Fund Trust, which readily helped him.

Pervez is not alone. People from minority communities like his find it very difficult to get start-up credits. After the Sachar committee report on the socio-economic situation of Muslims highlighted the need to extend banking services to the community, in June 2007 the UPA government went ahead and set a target for PSBs: they were to earmark 15 per cent of the priority sector lending (known as PSL, target: 40 per cent of the overall) for all religious minorities.

However, six years later, only 11 PSBs have achieved the target, going by the data for the quarter ending September – more about which below (also see tables). Taking a serious note of the situation, the Reserve Bank of India (RBI) on 1 July 2013 issued a master circular to the heads of all scheduled commercial banks to ensure the lead banks of the 121 ‘minority districts’ (where the minority population is more than 25 per cent of the total) take proactive measures to provide bank credit to minorities. The circular said, ‘Names, designation and office addresses of the officer-in-charge of the special cell at head office and officer appointed by Lead Banks in the identified districts (minority) to look after exclusively the problems of minority communities, should be furnished by banks to the National Commission for Minorities (NCM).’

Six months down the line, the banks have done no follow-up. ‘We have not started receiving such reports so far from the lead banks of such districts,’ says Wajahat Habibullah, chairperson of NCM. The NCM, he says, often receives complaints in this regard from people.

‘If I get a call, I put them in touch with the organisations working with them. There are a number of organisations promoting banking for these minority groups,’ Habibullah says.

Muslims at disadvantage

The Muslim community, which forms 72 per cent of India’s total minority population, suffers the most in terms of bank loan approvals, according to figues propvided by the ministry of minority affairs. The data for the quarter ending June 2013 show Muslims received Rs 87,603 crore, or just 47.98 per cent, of the total minority community lending (MCL) – far lower than their proportion. Sikhs, who make up 10.13 per cent of the minority population, received 25.99 per cent, while Christians, constituting 12.71 per cent of the minority population, got 23.35 per cent of the total credit. Syed Zafar Mahmood, a former Indian Revenue Service (IRS) officer who served as the officer on special duty (OSD) to the Sachar committee, is disappointed. He says, ‘A simple circular does not matter. It will not have any impact unless things are followed up regularly on the matter of providing banking services to Muslims who suffer the most among minorities. The banks are not following the guidelines properly.’ He adds that the committee itself recommended that banks should open in areas in minority-concentrated districts.

Dismal performance

Finance minister P Chidambaram seems well aware of the situation. Addressing the quarterly review meeting on 22 October in New Delhi, he warned the bank heads, ‘Those banks which are falling short, I have told them you have to increase your lending to the minority sector by at least 2 per cent over last year so that average moves up to 15 per cent. We have identified the banks and told their chairpersons that we are watching you very carefully.’ Notwithstanding the warning, only three PSBs improved their tally in the quarter ending September. The overall average of the PSBs is still 14.93 per cent – a bit short of the target. Eleven PSBs have not met the target (five of them are in single digits), and Mumbai-headquartered IDBI Bank is the worst performer among 26 PSBs.

Though IDBI claims to have a minority cell, it has lent only 4.24 per cent of its priority sector lending to minorities. Pradeep Shankar, a former CMD of State Bank of Indore, argues that banks fail to meet the MCL target because most of their branches are in urban and commercial areas. ‘The banks are still not actively opening branches in minority-concentrated areas. IDBI Bank is predominantly concentrated in urban areas. So it regularly fails to meet the target of MCL,’ says Shankar, now a director at Resurgent India, a financial services company.

By arrangement with Governance Now
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