Regional rural banks fall for consumer loans

The consumerism wave has now engulfed rurals banks in the country. Following the footsteps of commercial banks, even regional rural banks (RRBs) are ramping up consumer durable loans.

Loss-making RRBs find durable loans profitable as they charge 14 to 17 per cent interest rate against 9 per cent offered on agricultural loans.

According to the Reserve Bank of India data, RRBs accounted for almost the entire growth of Rs 381crore in consumer durables loans by the banking industry in 2004-05.

Their consumer durable loans portfolio increased by Rs 362 crore to Rs 967 crore in 2004-05 from Rs 605.46 crore as on March 31, 2004.

A senior banker said, "RRBs financing agricultural operations are highly constrained by the cap of Rs 50,000 for a single farmer at a low interest rate of 9 per cent. In contrast, they are able to charge interest rates in the range of 14-17 per cent for personal loans."

Customers normally approach commercial banks for personal loans and use them for buying consumer durables and, hence, these transactions do not reflect in consumer loan statistics.

The banker said the outstanding consumer durables loans portfolio of RRBs is now higher than the aggregate outstanding consumer durable loans of the State Bank of India group, private and foreign banks.

Bankers also said that rural branches of banks extended larger credit than their urban/semi-urban counterparts for consumer durables. The average sanctioned credit amount by these branches was Rs 54,357 crore.

Bankers attribute this phenomenon to the rising demand in rural markets for consumer durables and the increasing NPA levels in farm lending.

"Demands for such goods is on a high as the rural population is getting an insight into urbane lifestyles. The increase wealth creation and growing job opportunities have given the power to rural population to emulate their urban counterparts," said a banking sector analyst.