http://www.ifmr.co.in/blog/2012/04/06/directed-credit-our-response-to-nair-committee/
My comments to IFMR analysis of the committee's recommendation is appended.
On 07 April 2012, in an interview to CNBC, Mr Vijay Mahajan of Basix mentioned that credit for the poor comes as the fourth item of priority. First comes the safe keeping of money, second comes housing, third comes insurance and fourth comes credit. This fourth item in the line of priority is provided by the MFIs. So, this is the least one needed for the poor and priority sector loans are not only for poor but also for others. This is one situation. Banks, particularly, the new generation banks have innovative ways of increasing their priority sector lending portfolio thro' structured financing of loans to MFIs. From the recommendation of the Nair Committee for considering loans to MFIs as part of PSL one gets a feeling that the particular TOR of the committee was created to come with a positive recommendation and used the committee to give a stamp of approval. If we look at the history of PSL which came after the social control of private banks followed by nationalisation of the first batch of banks, one can find that there was genuineness in RBI's action to make the banks to do that social banking. But, somewhere down the line, various sub-sectors were added and virtually the PSL was diluted so much. Still, banks do not respond positively. Even assuming that banks are allowed to take credit for PSL for financing to MFIs, what is the guarantee that they will fulfill the PSL target. What are we trying to achieve through PSL? Are we keen to achieve the target or are we keen to ensure that adequate credit goes to such vulnerable sections and sectors? It looks that all efforts are to see that somehow the targets under PSL are achieved and not the concern for ensuring credit to reach such sectors which need funds. Banks are prepared to convert a part of their loans to King Fisher airlines (which is now over Rs.6000 cr +) in to equity at a superficially hiked price of Rs.60+ per share which is quoting now at less than Rs.20 a share. Thus lost 66% of their debt (which is depositors' money) not to speak of interest loss on the debt conversion. With higher debt on account of KFA, the govt had to infuse more capital to these banks. Still, no lessons learnt. But, when it comes to financing a needy sector we are talking of capital erosion. Let us stop talking semantics.
