The Telegraph
Since 1st March, 1999
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Return of loan melas
- Facelift: Govt woos poor with Rs 700 crore, moves ministers around

New Delhi, Nov. 18: The United Progressive Alliance government today announced plans for a new wave of “loan melas” for the poor, which could see state-run banks disburse cheap loans of more than Rs 700 crore among cobblers, barbers and the like.

A meeting of bank chiefs with finance minister P. Chidambaram agreed that all of the country’s 67,000 state-run bank branches will give away 10 loans each to “poor micro-entrepreneurs” at a differential interest rate of 4 per cent.

“We have decided to give these loans to people like cobblers, barbers, plumbers, etc, who are otherwise suffering from financial exclusion,” Chidambaram said after a six-hour discussion of state-run banks’ problems.

The normal, long-run lending rate for blue chip customers stands at about 8 per cent. The burden of the difference between the normal rate and cheaper interest for the weaker sector will have to be borne by the banks, officials said.

Bankers say a quick back-of-the-envelope calculation shows the loan bonanza to be more than Rs 700 crore.

Chidambaram said the banks would start a general credit card for non-farmer villagers with small credit limits. Farmers already enjoy the benefit of a kisan credit card, but a large number of villagers who earn a livelihood from handlooms, crafts, etc, remain outside the credit net.

Many of the bank CEOs present saw the move to give away loans and credit cards as a populist one, similar in some ways to the loan melas held two decades ago when Rajiv Gandhi was Prime Minister. The melas had then landed many banks into financial difficulties.

“This will not be such a large-scale thing (compared with Rajiv’s melas). But the opportunity for local-level political patronage, when you distribute some 6.7 lakh loans of Rs 10,000-25,000, is quite large,” a banker said.

During the mid-1980s, Rajiv Gandhi’s Congress government had organised massive loan melas where needy farmers and entrepreneurs were given loans with minimal collateral or documentation. The then junior finance minister, Janardan Poojary, became the public face of the melas.

Most of these loans were never repaid, leading to huge losses and eventual loan write-offs by the state-run banks that had given these loans. Most bankers with state-owned banks fear a repeat.

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