‘No exception will be granted to LIC or GIC vis-a-vis bancassurance’

Updated: Jan 22 2002, 05:30am hrs
His farming background comes to the fore when minister of state for finance Balasaheb Vikhe Patil warms up to discussions on rural credit, rural insurance, etc. He took time off to talk to Harjeet Ahluwalia of The Financial Express in the midst of preparing for an international conclave to check out quick means of transfer of technology and credit delivery mechanisms for the rural populace. Excerpts:

How have public sector banks (PSBs) performed so far in the current year Do you think there is any let-up on the NPA (non-performing assets) front

The deposits of PSBs were Rs 852,258 crore and Rs 902,959 crore, respectively, as on March 31, 2001, and September 20, 2001. The deposits in the first half of this year have shown a healthy growth despite the general drop in interest rates. On an annual basis, the current year’s growth is higher at 18.6 per cent compared with 15.4 per cent in the same period of the previous year.

Advances in the corresponding period were Rs 421,417 crore and Rs 447,009 crore, respectively. While net food credit increased 50 per cent, non-food credit showed a marginal increase. The slower growth in non-food advances was on account of slackness in industrial growth and overall slowdown in the economy. The position is expected to improve in the second half of the current year as busy season drawings take place.

The gross NPAs increased from Rs 53,066 crore at end-March 2000 to Rs 54,547 crore at the end of March 2001 and Rs 56,608 crore at end-September 2001. NPAs are rising owing to poor performance in some of the industrial sectors, like textiles, steel, cement, etc.

All PSBs, except Indian Bank and Dena Bank, recorded net profits.

Have rural lending targets been met

PSBs as a group achieved the target of 40 per cent of net credit for lending to the priority sector in each of the last three years. As at the end of March 2001, net bank credit was Rs 340,887.93 crore, while total priority sector lending stood at Rs 146,545.96 crore, or 42.99 per cent.

What is the status of the Bill to reduce government stake in PSBs Will not delays impact their bottomlines

The Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws Amendment Bill, 2000 seeks to reduce the minimum prescribed shareholding of the central government to 33 per cent in nationalised banks to enable them to raise fresh equity from the market. The Bill was introduced in the Lok Sabha on December 13, 2000, and has been referred to the Standing Committee on Finance. The report is still awaited.

The Reserve Bank has estimated that assuming the economic growth at the current rate and capital adequacy norms at 9 per cent, except three weak banks, Indian Bank, Uco Bank and United Bank of India, the remaining banks would require capital of at least Rs 10,000 crore over the next five years.

Are you happy with the Kisan Credit Card (KCC) Banks have expressed the fear that large-scale defaults could not be ruled out in the future.

The scheme, introduced in August 1998, has made good progress. About 1.89 crore cards have been issued up to the end of September 2001. Cooperative banks have issued about 1.26 crore cards (66 per cent) followed by commercial banks with 0.53 crore (27 per cent) and regional rural banks (RRBs) 0.12 crore (7 per cent). The achievements of the scheme are monitored monthly by the government and the RBI.

The question of large-scale defaults under the scheme does not arise as pre-emptives have been built in: The card is valid for three years subject to an annual review which may result in continuation of the facility/enhancement of the limit or cancellation/withdrawal of the facility depending on the performance of the borrower. Further, cards are issued only to eligible farmers who have a good track record and are not defaulters to any bank. The revolving cash credit facility provides cash withdrawal for pre-harvest season and repayments are made after the harvest. Prudential norms are also applicable to KCC. If a KCC account is out of order for a period of two crop seasons, it is treated as NPA.

Incidentally, banks have not reported any increase in defaults under crop production loans after the introduction of KCC, which is only a flexible credit delivery mechanism for meeting the production credit needs of farmers.

Has there been any perceptible change in lending to women over the year

Banks have been advised to achieve a target of 5 per cent of their net credit for lending to women by March 2004, instead of March 2006 as originally envisaged. Five PSBs — Andhra Bank, Bank of Maharashtra, Canara Bank, State Bank of Mysore and State Bank of Hyderabad — have already exceeded the 5 per cent target. A new system has been floated for collecting data on lending to women, which was hitherto not readily available with the banks. In future, the data reporting system will give information about lending to women under priority sector, micro credit, small-scale sector, government-sponsored programmes and others.

There is apprehension that the Insurance Act amendments may languish till the monsoon session of Parliament...

The Insurance (Amendment) Bill 2001 was introduced in the Lok Sabha on August 16 and the Speaker referred it to the Standing Committee on Finance on August 27 for study and report. It was expected that it would consider the Bill and submit its report in the winter session. However, they had taken evidence from the representatives of the Indian industry, unions and associations of insurance companies, etc., but are yet to take evidence from the ministry of finance and IRDA (Insurance Regulatory and Development Authority). It is expected that they would do this soon and that the report would be submitted in the beginning of the Budget session.

Is rural insurance making the type of inroads that liberalisation was aiming at

Section 32B and 32C of the Insurance Act, 1938, specifically mention the obligation of all insurance companies to undertake such percentage of life and general insurance business in rural or social sector to be specified by the IRDA. Already, IRDA has notified the regulations on the obligations of insurers in this regard.

Cooperative societies, panchayats, regional rural banks, rural agents, etc., are being encouraged to take up the profession of insurance agency to increase the spread of insurance business in rural areas.

Nationalised insurance companies have brought out a variety of policies to cover the lives and rural assets of rural public. According to the new definition of rural areas by IRDA, LIC has 18 per cent of its policies in rural areas. The new companies have also brought out a variety of products, but it is too early to assess their performance because most of them commenced business during this financial year.

What role does the ministry have in mind for promoting bancassurance Will wide cross-holdings be allowed or will LIC and GIC be the exceptions

IRDA has had wide-ranging discussions on introduction of bancassurance as an additional distribution channel. After the passage of the amendment Bill, the authority will be in a position to frame detailed regulations for introduction bancassurance model which may use the extensive network of banks for marketing insurance products. No exception will be granted to LIC or GIC. All rules and regulations would be applicable to nationalised insurance companies as well as the new private players.