Return
to Story Page
To print: Select File and then Print from your
browser's menu
Treating bank loans to non-banking finance companies (NBFCs) for financing truck operators as part of priority-sector advances is a pragmatic step. The policy should help banks meet priority-sector targets, while NBFCs will now have a source of funding. The efficiency of lending as a form of financial intermediation depends on the relationship the lender has with the borrower, which reduces the information asymmetry between the two. In plain language, the closer the lender is to the borrower, the less the chances of deliberate default. While the general track record of NBFCs as far as asset quality is concerned has been a horror story, there have been some among the tribe who have been remarkably successful in the truck-financing niche. Their recoveries speak for themselves, with some of them notching up recovery rates of over 90 per cent. Contrast this with the bitter experience commercial banks have had in financing transport operators, and there is a strong possibility that if care is taken to select the Treating bank loans to non-banking finance companies (NBFCs) for financing truck operators as part of priority-sector advances is a pragmatic step. The policy should help banks meet priority-sector targets, while NBFCs will now have a source of funding. The efficiency of lending as a form of financial intermediation depends on the relationship the lender has with the borrower, which reduces the information asymmetry between the two. In plain language, the closer the lender is to the borrower, the less the chances of deliberate default. While the general track record of NBFCs as far as asset quality is concerned has been a horror story, there have been some among the tribe who have been remarkably successful in the truck-financing niche. Their recoveries speak for themselves, with some of them notching up recovery rates of over 90 per cent. Contrast this with the bitter experience commercial banks have had in financing transport operators, and there is a strong possibility that if care is taken to select theNBFC, banks could prevent an increase in priority-sector NPAs.
Such indirect financing needs to be extended to more sectors. Many poverty-alleviation programmes, for instance, are best served by NGOs. Allowing these organisations a source of funding could prove to be the least expensive way of disbursing funds for such programmes. Agricultural credit, too, could well be disbursed through village moneylenders, provided, of course, care is taken to prevent usurious rates of interest. Banks are unwieldy vehicles for lending to small businesses and peasants, and their staff have little local knowledge. These defects can be remedied only if the lending organisation is one with its roots in the community which it serves, and which can deliver services at low costs.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------