Bankers urge the Centre to restore short-term crop loan subvention to the original level of 2 per cent

Finance Minister Pranab Mukherjee on Tuesday maintained that even as the government is trying to bring down the cost of banking intermediaries with the help of the Reserve Bank of India (RBI) for increased penetration in rural areas, there is a lot more that needs to be done to achieve financial inclusion.

Initiating a discussion with bankers and financial services providers at a meeting here as part of his pre-budget consultation series, Mr. Mukherjee pointed out that it was the global financial crisis that had brought the banking system in to sharper focus and the fact that India did not go through any financial turbulence — as a result of the earlier phase of financial deregulation — was a testimony to the government's ‘consistent view' that reforms in global standards have to be adapted to local conditions.

“However, the cost of banking intermediaries in India is high and bank penetration is limited to only a few customer segments and geographies. The government is trying to address this in collaboration with the RBI, but much more is needed to be done,” he said.

Among the top bankers who attended the meeting were O. P. Bhatt from State Bank of India, K. R. Kamath from Punjab National Bank, Arun Kaul from UCO Bank, R. V. Verma from National Housing Bank, Rakesh Singh from NABARD and Uday Kotak from Kotak Mahindra.

Mr. Mukherjee stressed that financial inclusion was a key determinant of sustainable and inclusive growth as access to affordable financial services — especially credit and insurance — enlarged livelihood opportunities and empowered the poor. Mr. Mukherjee told the bankers that as part of the financial sector reforms, the government had already set up an apex-level Financial Stability and Development Council (FSDC) to strengthen and institutionalise the mechanism for maintaining financial stability. This council, he said, would undertake macro-prudential supervision of the economy and address inter-regulatory coordination issues without infringing on the autonomy of market regulators.

Alongside, it had also been decided to set up a Financial Sector Legislative Reforms Commission (FSLRC) to rewrite and clean up the financial sector laws and bring them in line with the requirements of the sector, he said.

Providing inputs to the Finance Minister to help in his budget formulation, the bankers urged the government to restore short-term crop loan subvention to the original level of two per cent and also gave their suggestions on interest rates and farm credit. They also pitched for permitting banks to float tax-free infrastructure bonds to help meet the long-term funding needs of the sector which invariably have long gestation period and require loans for 15-20 years.


Pranab pitches for deeper penetration of banksJanuary 18, 2011

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