A State government directive to cooperative banks to issue short-term loans sans security is unlikely to yield any positive outcome.

Banking sector sources told The Hindu here on Sunday that the recent directive to cooperative banks to issue loans up to Rs.5,000 without security and up to Rs.10,000 against one guarantor was an unviable proposition. Considering the growing rate of non-performing assets (NPAs), the Reserve Bank of India (RBI) has instructed banks against disbursing unproductive loans.

Primary Cooperative Banks (PCBs) without own funds have to avail themselves of loans from the district cooperative banks for their lending operations. On clearing unproductive loans, the PCBs will have to bear the burden and their financial health will become even more precarious. The National Bank for Agriculture and Rural Development (Nabard) has already stopped its refinance support to the cooperative banks, mainly due to their inability to stop the surge in the rate of NPAs.

Commercial banks too have not responded to the directive.

The punitive measures enforced by RBI against loan defaulters and also against bank officials citing ‘staff lapse’ are prompting them to shy away from the responsibility. Instead of assessing the merit of each case, all defaulters are treated in the same manner. Banks have been directed to take stringent action against all defaulters who fail to repay even two or three instalments.

This is against the convention of giving a breather to genuine cases to clear the arrears, sources said.

But for business and trade purposes, none of the banks at present have a slot for sanctioning short-term personal or consumer loans.

The government will have to initiate meaningful steps to prevent the common man from seeking the help of money lenders, sources said.

In order to minimise credit risk, disbursal of subsidy-linked loans through government departments like the Prime Minister’s Employment Generation Programme (PMEGP) or Credit Guarantee Fund Trust for Micro and Small Enterprises which mitigates the risk of loans should be considered to overcome the present crisis.

But the procedures for issuing such loans should be reduced to the minimum, sources said.

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