High NPAs remain deterrent for bank lending in NE: RBI

The Reserve Bank of India (RBI) has said a high level of non-performing assets (NPAs) has been a stumbling block for banks extending loans in the North Eastern states of the country. The central bank said there was a need to improve credit culture and asked banks to increase staff strength.

“A deterrent for bank lending is the high level of non-performing assets (NPAs) in the region (North-East). This has been, in part, due to the unaviability of some of the activities financed by banks and a lack of adequate engagement with the borrowers,” Deepak Mohanty, executive director of RBI, said in a speech at the Gauhati University.

“There is, therefore, a need to improve credit culture in which financial education could play a vital role. In addition, banks will have to augment the staff strength in their branches with an emphasis on staff with knowledge of local customs and practices,” he said.

Mohanty said the group lending model could be successful for credit delivery in the region and for that bank linkages with self-help groups (SHGs) should be promoted. The central bank said the National Bank for Agriculture and Rural Development (Nabard) had an important role to play, not only in the promotion of SHGs, but also in capacity building, along with SIDBI and the state government agencies concerned.

Mohanty also said banks could explore innovative structures for housing loans with a greater emphasis on group lending because expansion of housing loans remained poor as mortgages could not be created in many parts of the North Eastern States (NES).

In order to speed up the financial inclusion processes in NES, RBI had relaxed the branch authorisation policy and permitted domestic scheduled commercial banks (other than Regional Rural banks) to open branches in rural, semi-urban and urban centres in NES and Sikkim without prior permission from the RBI. “However, the progress towards opening branches has been slow because of a lack of proper infrastructure in the identified centres,” said Mohanty. He said 55 per cent of the finance in the region was availed from the non-formal sector, which was significantly higher than the all-India level, with the share of the informal sector at 42 per cent.

In terms of the region’s fiscal state, he said it was important for NES to improve the quality of their expenditure with greater emphasis on capital expenditure for sustaining the fiscal consolidation process. “There is also a need for NES to improve their own tax revenue,” he said. RBI said the North-Eastern Region had immense potential and the need was to identify the opportunities and recognise the challenges to work towards sustainable and inclusive growth of the region, with greater penetration of the formal financial sector.

Source: Business Standard