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Risk of concentration of credit


 Danendra Jain


Do you believe in saying that every bank under public sector has financed more than 50% of total advances of the bank to top 100 borrowers of that bank?

Banks in general are likely to face risk of concentration of credit in near future. Already lending under Aviation sector, builders, Micro Finance Institutes, Education Loans, power sector, electricity boards , diamond dealers are facing problems and slowly lending to Business giants like Kingfisher or Indian Airlines are NPA or the verge of NPA.

Ninety percent of Total advances of banks are in the hands of 10% of borrowers and 10% of total advances are shared by 90% of borrowers.

Ninety percent of total Non Performing assets of the banks pertain to top 100 bad borrowers.

Will you believe in saying that more than half of executives of the banks have been found guilty of irregular lending or bribe based lending but have been acquitted and junior level officers have been made scapegoat?

Do you know that lending to Priority Sector or to weaker section or to farmers have been consistently coming down in all banks and especially in public sector banks?

But to meet the target set by RBI for lending to Priority Sector or to weaker sector or under agriculture sector , RBI and Government of India together have permitted banks to classify lending to rich class or to big borrowers as lending under Priority sector.

Banks were nationalized for making it accessible to weaker section of the society and to involve it in social banking but now they are transformed into profit making banks discarding the real goal of nationalization. Under the umbrella of reformation, Public sector banks are now interested more in top 10000 borrowers, roughly 300 to 500 borrowers in each bank. Deposit made by crores of small depositors is given to hardly 10000 top businessmen of the country. When these high value advances goes bad , the blame will go to Global recession or bad weather or rise in interest rate .None of bankers are held accountable.

When NPA goes beyond control of the bank, they are written off or sold to other companies. When capital adequacy ratio is affected adversely, government of India infuses fresh capital or FIs like LIC are motivated to purchase share of the bank to increase tier I capital. Ultimately entire burden goes on the shoulder of common men in way of tax or curtailment in subsidy to farmers.

Finance to relatives of bank employees is known to all , but none in the country know how much of bank's total lending is given to relative of Ministers, central or state level ministers, or to relative to top ranked politicians. And how much of such loan is bad but no action has been initiated by bank in fear of repercussion. Lacs of cases are pending in courts of law for decades together against powerful persons but no effective action has ever been taken .

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