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Wednesday, November 05, 2003

Don't uncork the bubbly just yet

Subir Roy takes us through, the opportunities and problems for the new RBI Governor. The good news is that bank lending seems to be going up, the bad news--and old news--is that rural credit is still a problem. So is credit for small businesses. I was talking about this to a friend of mine who exports leather garments. The banks still give small businesses a hard time.

In the search for a banking system which will serve the needs of broadbased growth, attention has inevitably turned to rural credit. Dr Reddy has candidly admitted that so many institutional innovations have been tried, from bank nationalisation to supporting the cooperative credit movement, but the credit needs of the rural Indian go unmet by the organised sector.

He has been bold enough to rhetorically declare that he would happily allow the panchayats to lend if they could handle the job. Rural lending, along with support to micro credit organisations, offers a key growth opportunity to banks which have lost their prime corporate customers through the process of disintermediation.

Other than rural borrowers, smaller businesses also make up a key segment which has largely been left out of the party. Rates of interest have gone down for large companies and those seeking personal loans but not for the smaller businesses.


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