Rural India ready to swipe

RBI moots one-time settlement for small borrowers.

In an attempt to take banking services to the common man, the Reserve Bank of India (RBI) today asked banks to provide one-time settlement for small borrowers and introduce a general credit card scheme for rural and semi-urban areas.

With a view to giving small borrowers an opportunity to settle their non-performing accounts with banks, the RBI has introduced the one-time settlement procedure for a principal amount of up to Rs 25,000, whose recovery had become doubtful till September 30, 2005. This provision will enable borrowers to get fresh finance.

The share of small borrowers in the total non-performing assets (NPAs) of the banking sector is small. However, the total number of NPA accounts from this category was large, Union Bank of India Chairman and Managing Director Cherian Varghese said.

The second measure calls for general credit cards that will operate like the kisan credit card and have no link to end-use of funds or security. The cards could also be used for withdrawing cash against sanctioned limits, said the RBI.

Under the scheme, women would be given preferential treatment and 50 per cent of an outstanding amount would be treated as indirect finance for agriculture, it added.

To ensure such credit cards are issued to the semi-urban and rural mass, banks have been asked to use the services of local post offices, schools, primary health centres, local government functionaries, farmers' associations and local clubs.

A public sector bank executive said since loans extended through general credit cards would be without security, they would be like personal loans and, therefore, credit evaluation of customers would be crucial.

Further, "no-frills" accounts have been extended to regional rural banks (RRBs) with simple know-your-customer (KYC) norms. They may explore the provision of a small overdraft facility for such accounts without having to establish any link with purpose.

In order to make RRBs important vehicles of credit delivery in rural India, the RBI has announced a special package designed to give a fillip to their resource base. These measures will enable them to avail credit from sponsor banks at reasonable rates of interest, access to inter-RRB term borrowings and also to the repo/CBLO markets.

RRBs can set up ATMs, issue debit and credit cards and also handle pension accounts and government business as sub-agents of banks, said the RBI. The central bank will consider, on merit, requests from RRBs for opening of currency chests.

Varghese said people were not going to open accounts or obtain credit cards just because the facility was available. Banks would have to find customers for these services, he added.

The RBI has recently advised all banks to make available basic banking "no-frills" accounts either with zero or low balances as well as charges that will make such accounts accessible for a greater number of people. According to the directive, banks have been asked to open accounts with minimum balance rather than a zero balance.