Govt looking to leverage regional rural banks for MSME, housing loans in rural India: Report

Govt looking to leverage regional rural banks for MSME, housing loans in rural India: Report

Credit and Finance for MSMEs: The development comes amid Department of Financial Services (DFS) highlighting the issue of educational loans by public sector banks (PSBs) being slowed because of higher defaults and the ongoing struggle of the pandemic hit MSMEs.

Credit and Finance for MSMEs: The government is looking to tap into the 15,000-odd strong network of the 43 Regional Rural Banks (RRBs) in India for credit access to rural consumers, according to a report by The Indian Express. The move would involve mandating RRBs to cater to the credit need related to education, housing and small businesses in the hinterland by expanding their portfolio beyond the mainstay of agricultural loans.

The development comes amid the Department of Financial Services (DFS) highlighting the issue of educational loans by public sector banks (PSBs) being slowed because of higher defaults and the ongoing struggle of the pandemic hit MSMEs.

The initiatives and targets by the government will be under the Enhanced Access & Service Excellence (EASE) reforms carried out by the centre, the report said citing government sources. EASE reforms for PSBs were launched in 2018.

“Rural banks, for instance, would be asked to look beyond crop loans and also provide loans for tractors, small businesses in rural areas and education and housing loans too in rural areas. Rural banks figure last in the list of banking options for people even in rural areas, who prefer a public-sector bank or even private banks and that needs to change. All these will be part of EASE reforms,” a government source told The Indian Express.

Another source said the government wants the Indian Banks’ Association (IBA) to guide rural banks. “The IBA currently does not have expertise to guide rural banks and the association may look at creating an RRB division at a later stage to guide them through the process,” another official said.

The RRBs will be supported to increase their competitiveness and also become more friendly to businesses under the EASE programme which is in its fifth phase currently. Moreover, PSBs aim to boost profitability, asset quality, customer service and digital capabilities under the programme which is showing results as banks are working towards digitising their operations.

Further, the programme would also bring focus on digitising operations and connecting RRBs with each other. Beginning with the likely plan to integrate the backend systems of RRBs, which are financed by the same PSBs, in a particular region, there could be larger integration of all RRBs later, according to one of the officials cited above.

During the financial year 2020-21, 30 RRBs out of total 43 had registered net profits, with Rs 1,682 crore in consolidated net profits reported during the fiscal. This came after two consecutive years of losses during the Covid period. Now with the EASE programme, the government intends to enhance the RRBs’ profitability ahead.

However, the EASE initiative is not the first time the government is trying to reform RRBs. The government brought a set of reforms in the 1990s, after which it started a consolidation programme in 2005-06 which led to a drop in RRBs count to 43 in FY21 from 196 in 2005.

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