Credit culture: What's that?

Many bankers are complaining about deteriorating credit culture. The villain is farm loan waivers. But some of the NBFCs too are contributing to it

- TAMAL BANDYOPADHYAY

A few months ago, in the run-up to the general elections, a large bank could not continue with the recovery process of bad loans given to farmers and micro, small and medium industrial units in one region of an Indian state. The recovery agents were denied entry in that region by the workers of a political party. That's not the end of the story. The party even worked out a loan-waiver formula, with the help of a chartered accountant, and circulated it among the borrowers, explaining who wouldn't have to pay how much.

Later, at a state-level bankers' committee (SLBC) meeting, a senior minister of that state told the bankers to start giving loans to farmers without checking their credit score.

SLBC is a body of lenders that work, coordinate and consult each other on banking development and social welfare initiatives in a state. It's part of the Reserve Bank of India's (RBI's) lead bank scheme. There is a lead bank in every district of India. The purpose is to ensure effective and efficient use of banking facilities.

The bankers did not buy the senior minister's idea. They told the minister that if they needed to sanction and disburse loans to farmers without checking their credit score, they would adopt the so-called service area approach (SAA). A prospective borrower would need to collect no-objection certificates from local bank branches as a precondition to get the loan. The SAA scheme was introduced in 1989 to increase productive lending. The banks could stymie the minister's idea after the RBI intervened.