Economist urges easier lending norms

Relaxation of controls on lending in public sector banks both by reducing public ownership and reforming incentive structure is a urgent requirement pointed out Professor Abhijit Banerjee, the Ford Foundation Professor of Economics at Massachusetts Institute of Technology at a meeting organised by ICICI Bank.

Lack of incentive for credit promotion along with fear for possible CVC investigation in case of default causes around a 3-5 per cent fall in credit, said Banerjee.

Talking on "Role of Financial Sector for Promoting Growth in India" "" he said that creation of a regulatory body to encourage financial innovations can cause a significant improvement in the sector.

Innovations in micro credit, insurance scheme against rainfall and foreign price fluctuation will fetch adequate benefit for the overall economy and help poor to successfully hedge against substantial risk , he added.

Reform of property rights and the court system to enforce contract more effectively and creation of an elite bank regulatory body , either within RBI or separate, for ensuring proper following up of overall risk management protocols is a requirement of the day, he said.

Citing some of his recent studies, the professor pointed to several anomalies and avoidable losses that public sectors banks are facing toady.

"People are thoroughly undeserved by the banking sector" and stringent lending laws has added to the present sub-optimal use of the resource and opportunity, Banerjee added.

Under investment by common people in response to the lack of credit and hedging opportunities is prevalent, even in some states farmers considers holding of bullock as an better investment, he pointed out.

Innovation, proper planning and target oriented schemes in the financial sector can significantly contribute to the nation's growth , said the well known economist.