Finance Minister Palaniappan Chidambaram, now on a mission to rescue the economy and the budget from going under water, on Saturday went out to woo the middle classes – the classes most unhappy with the UPA’s failures on corruption, inflation and governance.
The major promises he made included reducing EMIs for consumer durable loans, compulsory education loans for eligible students, doubling the number of ATMs, and enabling all ATMs not only to disburse cash, but also receive cash.
But he did not leave out his rural base. He announced the conversion of over 11 crore Kisan credit cards into debit-cum-ATM cards, and pointed out that 60 percent of farm loans were being given out at just 4 percent interest (including a 3 percent government subsidy). He expressed happiness that bank credit to agriculture may top Rs 6,00,000 crore this year – well above the target set by the government.
At a meeting with bank CEOs, Chidambaram stressed the need to revive the economy by stoking demand for consumer durables – which holds the key to raising manufacturing output. “People must buy consumer durables,” he said. Pointing out that “the middle class is postponing purchases” he urged banks to start lowering EMIs – the key to durable purchases in many middle class homes.
Giving the example of State Bank of India, he said the bank was giving four-wheeler loans at the rate of 400 a day when the EMI per lakh was Rs 1,766. When the figure was brought down to Rs 1,725, the number of loans rose to 700 a day. Then came the magic number: at an EMI of Rs 1,699, loans just went through the roof at 1,200 a day.
Chidambaram’s advice to banks: “I urge banks to keep EMIs affordable to stimulate purchases.”
But will banks end up having more bad loans if they keep lowering EMIs and lending to agriculture? The finance minister said that bad loans (non-performing assets) are “not alarming” right now. He was sure that as the economy picked up, bad loans would come down.
Bankers also told him why businesses were not lending: lack of fuel supply agreements for power plants, lack of clearances for coal mining, land acquisition problems, and delayed payments by government entities like NHAI and state electricity boards. He said as these problems get addressed in the days ahead, business would start investing.
“The health of the banking system is extraordinarily good” compared to other countries, thanks to good regulation and good policies. The challenge ahead was to ensure that the Rs 11 lakh crore that people kept in cash comes into the system. Which is why he wanted the number of ATMs to double from 63,000 now.
On educational loans, Chidambaram said that new guidelines will be released under which no bank will be able to deny loans to students who meet the basic eligibility criteria in terms of marks and admissions. “An educational loan is a student’s right,” he said, and said no loan officer will be able to deny loans in future. If a loan is not given, the decision can be taken only level higher. Any increase in loan rejections would be considered a breach of this understanding and branch heads may face action for this lapse.
Chidambaram said financial inclusion was critical, and said a bank account is “every citizen’s right.” No bank had any business denying this.