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RBI governor calls for sustainable credit expansion

He underscored the need for building new institutions in rural areas to ease access to credit

Policy Pulse
Publish Date: Jul 18 2016 10:52PM | Updated Date: Jul 18 2016 10:52PM

RBI governor calls for sustainable credit expansion

Reserve Bank of India Governor Raghuram Rajan has  called for manageable and sustainable credit expansion in the country on Monday, saying all avenues for this should be explored.

 
He underscored the need for building new institutions in rural areas to ease access to credit. 
 
Rajan was also in favour of exploring the options of banks working with money lenders while addressing concerns associated with such an arrangement.
 
The RBI governor was speaking at the national seminar on 'equity, access and inclusion -- transforming rural India through financial inclusion' at the National Institute of Rural Development in Hyderabad.
 
He also pointed out that number of emerging markets have credit to GDP ratios of 100 to 120 per cent. China is closer to 150 per cent.
 
"We need to find ways to expand credit without the over indebtedness, the over borrowing as well as the pains associated with it. We are working on different ways to do it," he said.
 
After being asked if banks should join hands with money lenders to encourage financial inclusion, Rajan said it was definitely worth exploring to the extent that it can provide credit for reasonable prices without the extralegal recovery mechanisms that sometimes moneylenders are accused of using.
 
On cooperative bank system, Rajan explained it as a corner stone of the financial system, saying it reaches parts of the country which other financial institutions do not reach.
 
"We have to understand why cooperatives departed from cooperative spirit of cooperative system. We have to try and bring them back to achieving worthwhile goals of cooperative movement," he said.
 
On a question about micro-finance institutions, Rajan said they were providing valuable services in different parts of the country.
 
With the advent of small finance banks, there was possibility of successful micro-finance institutions to migrating into banking form and thereby getting access to cheaper finance by which they continue their activity on broader scale, he said.
 
"The idea is not that micro finance institutions get small bank license and abandon their primary activity but they now have the ability to expand them and pass on benefits of cheap financing to their customers," Rajan added.