Banks not lending only to selected few, anymore

In order to spread their risk amongst more borrowers, the public sector lender has started to reduce the proportion of the loan lent to their top borrowers. As an attempt the risk, during the last fiscal the lenders reduced the concentration of deposits by their top depositors.

Concentration of funds with a few customers increases the risk for lenders; however it is beneficial for a bank to cater to a few customers and to make maximum profits out of them.

Along with State Bank of India, the largest lender in the country few other public sector bank like Bank of Baroda, Punjab National Bank, Union Bank and Oriental Bank of Commerce have also brought down the proportion that they have lent to the their top customers.

Corporation Bank to lend directly to the farmers

According to the guidelines of the Reserve Bank of India, it is mandatory for all the banks that out of the total lent amount by a bank, 40% must be lent under priority sector lending and out of that 40 percent at least 18 percent must be lent to agricultural activities.

All the banks are required to maintain the lending accounts as prescribed by the Central Bank otherwise banks have to deposit the difference in the amount with NABARD that pays interest as low as 4 percent. Corporation Bank is way short of the target and so it has planned to lend to the farmers directly for the current financial year to meet the targets.

The Chairman and managing Director of Corporation Bank Mr. Ramnath Prdeep said “We had reached a compliance level of 14 per cent (against a target of 18 per cent). But because of disqualification it has come down to 8 per cent.”

About depositing with NABARD, he said “I am incurring a loss of Rs 500 crore on account of this. We are paying depositors an interest rate of 9.5 per cent while the amount deposited with Nabard will earn only 4 per cent.”