An appetite for rural lending

DINNER WITH BS/ RANJANA KUMAR

Ranjana Kumar

Had she not been a banker, Ranjana Kumar could have been a professional Kathak dancer. By the time she was in university in Hyderabad (Osmania) studying sociology and public administration, she was already an accomplished dancer and even won a scholarship from the Sangeet Natak Academy for a princely Rs 250 a month.

Not that any of this has harmed Kumar's performance in her chosen profession of banking. Indeed, she has an uncanny knack of stealing the limelight just when it is least expected.

After a successful 15-month stint at Canara Bank as an executive director in 1999-2000 (the bank had no chairman at that time), when everybody thought that she would be asked to head a big bank, Kumar was made chairperson of the troubled Indian Bank. Instead of making a fuss about the assignment, she turned around the bank in three years.

Again, in November last year when rumours were rife that she would be rewarded for the Indian Bank turnaround with a shift to Mint Road as deputy governor, she found herself at the National Bank for Agriculture and Rural Development (Nabard) "" possibly the most unglamorous posting in the Indian financial world.

But once again she finds herself at centrestage, thanks to the new government's thrust on agricultural lending. "I take things as they come and try to make the best of them," said Kumar, raising a glass of water and saying, "Cheers."

We were at Masala Bay, the Indian restaurant at the Lands End hotel in Mumbai's Bandra surburb. She declined bottled mineral water, opting for ordinary water instead. As she pointed out, she doesn't always get mineral water when she is travelling. "We must be tough. Why get into the habit of drinking only mineral water?"

It hasn't, however, been visits to rural India that have postponed two attempts to take Kumar out to lunch, but sudden urgent calls to New Delhi. Finally, we decided to meet for dinner "" in itself a novelty of sorts for her. "This is my first night out in Mumbai in eight months," she said.

We ordered fresh lime soda and browsed the menu for a starter. I suggested that we should have gone to a Kashmiri restaurant, since she is a Kashmiri Indian Air Force officer's daughter married to a Hyderabad-based north Indian businessman. But no, she doesn't miss Kashmiri food.

As she explained, "You miss Kashmiri food if you are a meat eater. I turned vegetarian 18 years ago. My husband and I walked up to Tirupati and took a vow not to eat non-vegetarian food till we returned there. That only happened three-and-a-half years later. By that time, we got used to eating vegetarian food," she said.

We settled for aachari broccoli for a starter and alu katliyan and langarwali dal with tandoori roti that we shared. On her insistence, I asked for a chicken dish, bhatti ka murg, for myself.

Life in Nabard so far has been testing. As Indian Bank's first non-south Indian chairperson, Kumar was keen to lower barriers and reach out to all employees. She is following the same formula at Nabard.

About 20 per cent of the employees at Nabard headquarters in Mumbai have been asked to go to regions where the real business is and Kumar is in touch with the regional managers everyday.

As she pointed out, "As Nabard chairperson, I don't need to know crops and soil. But I need to know people in my organisation who understand these and make best use of their knowledge."

I opened with the obvious question: would it really be possible for banks to increase loans to the agriculture sector by 30 per cent without hurting their profits? Her answer was a firm yes to ramping up loans and no to impact on profitability.

"Commercial banks don't monitor farm loans because they are small and the transaction cost is too high. But if you monitor the loans closely and are willing to modify the facility as the situation demands, you will make money." Her point is that small farmers are not wilful defaulters and 75 per cent of the farm loans are given to small and marginal farmers.

From her experience as a commercial banker, she believes that the commercial banks can do much more toward agricultural lending than they are doing.

What is Nabard doing? I asked her. "I noticed that the commercial banks were not taking refinance from Nabard. So we set up a core committee of select banks to address all the issues. I also cut the refinance rates and made them cheap," she said.

Commercial banks now can avail of the Nabard refinance at 5.5 to 6.5 per cent. For cooperative banks, it is even cheaper at 5.25 to 6.25 per cent. "To do that, I have even taken a hit on the balance sheet since we are giving refinance at a negative spread. My main concern today is how to access cheap funds," Kumar said.

Nabard is raising money from the market at around 5.4 per cent and the RBI line of credit comes at 6 per cent. Then there is the tax-free bond at around 5 per cent. "If this is my cost of funds, how do I offer cheap refinance to the intermediaries? The cooperative banks in particular will be wiped out because the commercial banks are weaning away their clients by offering cheaper loans. Can you believe the cooperative banks are not getting any new customers?" she asked.

Kumar admitted that the state of affairs in the cooperative sector is "alarming" with 142 out of 367 district cooperative banks having eroded their capital with accumulated losses. "There are issues of corporate governance, transparency, audit, asset liability management and so on. But these banks understand local issues. They should be there. Maybe we need to restructure them," she said.

Kumar was equally emphatic that the RRBs must change their role. "They have forgotten lending. There are 14,400 branches of 196 RRBs but they all put their money in government securities," she said. She has a lot of plans for Nabard, too. Since agriculture is a state subject, she has started meeting chief ministers, although her priority is educating the farmers.

"Nabard should be a bit more aggressive. The farmers must get the right price for their produce and that can be ensured by the state governments," she said. Kumar is also roping in the self-help groups and repositioning the existing 9,000 "Farmers Clubs" across the country. "The existing farm loan schemes are good but the problems crop up at the implementation stage. We must address them," she said with passion.

How does she plan to do that? "We have started by revamping the district level technical committees (DLTCs) that decide on the 'scale of finance' for agriculture loans. There are set formulae on how much bank loan a farmer can get for various agriculture activities. They are very rigid. We must have a flexible approach if we want to free the farmers from the clutches of the money-lenders." As she pointed out, a third of farm lending is financed by money-lenders at high interest rates between 20 and 30 per cent.

Kumar also made a strong pitch for bringing down the cost of insurance cover. "If we don't do that, even if they get cheap loans after loading the insurance expenses, the cost of loan works out to as high as the rate they pay to money lenders," she pointed out.

As the meal drew to an end, Kumar declines dessert and coffee in favour of a paan. Would Nabard ever be able to free farmers from the shackles of money-lenders? "We will try. But to do that, we need to change the age-old policies that were made at the time of food shortages while we have surpluses now. For instance, look at the lead bank scheme under which a farmer cannot leave his bank and approach another unless his bank gives a no-objection certificate. Farmers must have choices to shop for loans the way consumers in urban India have," she said.

Kumar is also in favour of banks offering personal loans to farmers. "Otherwise, how can one take care of a farmer's personal needs like his daughters' dowry, son's education and wife's medical expenses? We need to offer these loans. Otherwise, they will keep going to the money lenders," she said.

As we wrapped up, I asked her a last question. Being a woman, does she enjoy some advantages in this field? Her answer: "There is no advantage or disadvantage to being a woman. What is important is how committed you are. As a chief executive, you are the most watched person. What matters is performance, not gender. I have never been conscious of being a woman at the workplace."