Don’t ignore small borrowers: RBI

In the period between March 2001 and December 2003, deposit rates have come down by almost three per cent, while in the case of lending rates, it is just one per cent. There could be a backlash, Reddy said.

Reddy also warned banks, particularly public sector banks, of ignoring the interests of savers. Banks would lose business and deposit growth is actually going down. “We need to look the issue seriously,” he said.

The Governor also questioned the credit delivery mechanisms to the rural households. He was particularly unhappy with the public sector banks which have a poorer credit-deposit ratio than their private sector peers. However, to be fair to the PSU banks, Reddy mentioned the lack of level playing field between the public and private banks.

“Public sector banks are saddled with non-performing assets (NPAs) and large number of employees at a time when the sector has been thrown open to the private players,” he said.

On the lending rate front, he mentioned that banks have failed to offer lower rates to good borrowers.

Citing an example he said: “A borrower like FCI (Food Corporation of India), which has a good track record as a borrower, was also not getting loans at a sub-PLR rates. State governments too are complaining. So, one can imagine the situation of the small borrowers, who are still being charged higher rates, well above 11 per cent.”