Union Finance Minister P. Chidambaram said on Tuesday that the southern States are “doing much better” than those in north India in terms of achieving financial inclusion. Speaking to the media after a meeting of Chief Ministers and Finance Ministers of the five southern States to review the flow of bank credit, Mr. Chidambaram said, “Broadly, the conclusion of the meeting is that the southern States are doing very well in terms of credit delivery and in terms of the expansion of the banking network.”
The chief executive officers of public sector banks and financial institutions also participated in the meeting, which was attended by the Chief Ministers of Andhra Pradesh, Puducherry and Karnataka and the Finance Ministers of Kerala and Tamil Nadu.
The Government, Mr. Chidambaram said, will make it mandatory for all States to make all cash transfers and delivery of subsidies through the Electronic Benefit Transfer (EBT) scheme, which will be implemented across the country in a phased manner. Fifty one districts in 16 States would be covered by the EBT scheme from January 1, 2013, he said. “State governments can also use the EBT to transfer benefits and subsidies to beneficiaries,” he added. Eleven of the 51 districts that will adopt EBT in phase 1 are in the southern States, he observed.
Mr. Chidambaram added the southern States are better off in terms of the flow of credit to agriculture, credit for education and advances made by the banking sector to weaker sections.
Asked to comment on the differences between him and the RBI Governor on the issuance of fresh banking licences, Mr. Chidambaram termed it “a media-created” issue.
Drought, interest rate
The impact of the drought this year figured “indirectly” at the meeting. He said the leadership of the State governments wanted a clarification on what will be the interest rate on loans that have been rescheduled during the current year because of the drought or other natural calamity. “Finance Ministry officials have clarified that the original interest rate will apply on rescheduled loans,” he said.
Loan waiver not raised
Asked if the rising proportion of non-performing assets (NPA) in banks’ portfolios are likely to impair their ability to lend to the States, Mr. Chidambaram said the banks had assured the leadership of the States there would be “adequate flow of credit”.
“In fact, a part answer to the slowdown is to accelerate the flow of credit,” he remarked. He said none of the States raised the issue of a loan waiver for crop loans taken by farmers.
Chief Minister Jagadish Shettar said the issue of “inadequate” Central assistance to combat the drought this year was not discussed at the meeting. Earlier in the day, some business leaders met Mr. Chidambaram and urged for speedy clearance of the second phase of the Bangalore Metro project.
Tamil Nadu Finance Minister O. Panneerselvam complained that the credit the government agencies draw from banks to procure paddy to meet the needs of its Public Distribution System are not classified as “priority sector” loans.
Observing that this results in higher cost of borrowing, he urged for the “reclassification” of loans for such purposes.