Government seeks to leverage regional rural banks for MSMEs and housing loans in rural India: report

Credit and financing for MSMEs: According to a report by The Indian Express, the government is seeking to tap into the strong network of some 15,000 regional rural banks (RRBs) in India for access to credit for rural consumers. The move would involve mandating RRBs to address education, housing and small business credit needs in the hinterlands by expanding their portfolio beyond the agricultural lending pillar.

The development comes amid the Department of Financial Services (DFS) highlighting the issue of education lending by public sector banks (PSBs) slowed due to rising defaults and the continued fight of the pandemic that hits MSMEs.

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The government’s initiatives and targets will be within the framework of the centre’s Improved Access and Service Excellence (EASE) reforms, the report said citing government sources. The EASE reforms for PSOs were launched in 2018.

“Rural banks, for example, would be asked to look beyond crop loans and also provide loans for tractors, small businesses in rural areas and loans for education and housing also in rural areas. rural. Rural banks are last in the list of banking options for people even in rural areas who prefer a public bank or even private banks and this needs to change. This will all be part of the EASE reforms,” a government source told The Indian Express.

Another source said the government wants the Association of Indian Banks (IBA) to guide rural banks. “The IBA currently does not have the expertise to guide rural banks and the association may consider setting up an RRB division at a later stage to guide them through the process,” another official said.

RRBs will be supported to increase their competitiveness and also become more business-friendly under the EASE program which is currently in its fifth phase. Additionally, PSBs aim to increase profitability, asset quality, customer service and digital capabilities as part of the program that is delivering results as banks strive to digitize their operations.

In addition, the program would also focus on digitizing operations and connecting RRBs to each other. Starting with the likely plan to integrate the backbone systems of RRBs, which are funded by the same PSBs, in a particular region, there could be greater integration of all RRBs later, according to one of the officials quoted. above.

In the 2020-21 financial year, 30 RRBs out of a total of 43 recorded net profits, with Rs 1682 crore of consolidated net profits reported during the financial year. This came after two consecutive years of losses during the Covid period. Now, with the EASE program, the government intends to improve the profitability of RRBs in the future.

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However, the EASE initiative is not the first time the government has attempted to reform RRBs. The government introduced a series of reforms in the 1990s, after which it launched a consolidation program in 2005-06 which led to a drop in the number of RRBs to 43 in FY21 from 196 in 2005 .