Access to Credit
1. Introduction
Access to credit is critical for individuals, households
and firms for consumption, production and investment needs. Iniquitous
access to public and private banking institutions across Socio-Religious
Communities (SRCs) can perpetuate disparities. This chapter analyses the
extent to which the Muslim community has had access to the banking and
credit facilities across various parts of India during the recent five
years.
After a careful study of the Prime Minister’s 15 Point
Programme in 44 minority concentration districts (59 bank branches) the
Reserve Bank of India (RBI) found lack of thrust for increasing the credit
flow to minority communities in the lead banks (Circular No. RPCD No.
SP.BC.13/09.10.01/2001-02 dated 13 August 2001). The study noted that no
officers were designated to cater to the special needs of the minority
borrowers in most districts. Even the District Consultative Committee
meetings were not held in about half of the districts; and the banking
staff was not sensitized to address the exclusive needs of the minority
communities. While development programme publicity was absent, it found
that even the most important Entrepreneurship Development Programmes were
also not promoted. Realizing the limitations enunciated above, the RBI
took corrective measures from time to time. This chapter examines the
extent to which Muslims have been able to benefit from such measures.
2. Priority Sector Advances of Scheduled Commercial
Banks
Priority Sector Advances (PSAs) extended by the Scheduled
Commercial Banks (SCBs) form a large part of credit flows from the banking
system. (The priority sector broadly comprises agriculture, small scale
industries, other activities/borrowers, such as small business, retail
trade, small transport operators, professional and self-employed persons,
small housing, education loans, micro credit and so on.)
The RBI collects data about relevant details of these
advances on a regular basis, which is analysed below. Additional data
sought by the Committee from the RBI and SCBs are used to analyse the
sectoral profile of advances and deposits to ascertain the share and
participation of Muslims.
SCBs in India are categorized into five groups according
to their ownership and/nature of operation: (a) State Bank of India and
its Associates; (b) Nationalised Banks; (c) Regional Rural Banks; (d)
Foreign Banks; and (e) Other Indian Scheduled Commercial (private) Banks.
As on 31 March 2005, the deposits of SCBs were Rs. 17,53,174 crores and
bank credits were Rs. 11,57,804 crores. The priority sector advances (PSAs)
amounted to Rs. 3,45,627 crores (excluding those by RRBs).
From time to time the RBI issues guidelines and directives
to banks on priority sector lending and advances. The RBI while
prescribing a modified reporting system has advised a target of 40% of all
aggregate bank advances to be directed to PSAs. All SCBs file identified
district and state specific data on PSAs made to members of specified
minority communities vis-à-vis overall priority sector advances for the
half year ending on 30 September and 31 March each year. The specified
minority communities are: Christians, Muslims, Neo-Buddhists, Sikhs &
Zoroastrians. In the analysis below an effort is made to create simplified
and aggregate categories which are amenable to assessing the
relative positions of the SRCs.
The data analysed below was provided by the RBI for 27
Public Sector Banks (PuSBs) and 29 Private Sector Banks (PrSBs). In this
analysis detailed estimates are presented separately for PuBSs and PrSBs.
The client categories or the beneficiaries are divided into three groups:
(a) Muslims; (b) Other Minorities; and (c) All Others; data is analysed to
examine the flow of credit to Muslims relative to other groups. As the
Committee was unable to obtain data on loans applied for, it has relied on
three indicators, namely, number of accounts, amount outstanding and the
amount outstanding per account. The share of Muslims in number of accounts
is an indication of whether they are able to access PSAs. However, it does
not take into account the volume of credit; this is obtained from the
share of Muslims in amount outstanding. Combining these two parameters, we
obtain the third indicator, amount outstanding per account. This gives the
average size of the loans – whether ‘Muslim PSAs’ are larger or smaller
than PSAs of other SRCs.
It is important to note that while all 29 PrSBs have a
share of only 3% in total number of accounts, their combined share in the
amount outstanding is 15% or Rs. 329 crores on an average over the period
of study. While the share of Muslims as account holders is satisfactory at
the all-India level, there is a 12% deficit (compared to the population
share of Muslims) in the 44 minority concentration districts. If the
quantum of priority sector advances is considered, one finds a deficit of
about 9 percentage points at the all-India aggregate level and an even
higher deficit of 25 percentage points in the 44 minority concentration
districts. On the other hand, while the share of ‘Others’ in account
holders is roughly the same as their share in population they have a 10
percentage point advantage in PSA. The condition of ‘other minorities’ is
also relatively better, particularly in the 44 minority concentration
districts, where their share in accounts and amount outstanding is twice
that of their population share.
While these trends can be observed for both public and
private banks, the share of Muslims in amount outstanding is 2% higher in
PrSBs. Overall, PrSBs have a substantially higher average size of amount
outstanding per account for all the SRCs considered. For example, while
the amount outstanding was Rs. 19,837 for Muslims, Rs. 40,686 for other
minorities and Rs. 59,055 for ‘Others’ in PuSBs; the respective amounts
were Rs. 1,11,634, Rs. 2,01,840 and Rs. 2,74,911 in the PrSBs.
Muslims constitute about 12% of All Scheduled Commercial
Banks (ASCBs) account holders. While this is close to their share in
population the share of other minorities in accounts is slightly more than
8%. This is considerably higher than their share in population of 5.6%. It
is noteworthy that the share of Muslims in the ‘amount outstanding’ is
only 4.7% compared to as high a share of 6.5% for other minorities.
Even though advances from the PuSBs are higher in
magnitude compared to PrSBs the latter are performing better in respect of
extending advances to Muslims vis-à-vis other communities. For instance,
the Muslim share in amount outstanding is 4.6% in PuSB which is much lower
than 6.6% in PrSB. In absolute terms, the amount outstanding as at the end
of March 2005, for Muslims was Rs. 15,685 crores, while for other
minorities it was Rs. 19,671 crores, as against the total PSAs of Rs.
3,28,755 crores by all scheduled commercial banks.
One of the interpretations of the difference in percentage
share in the number of accounts and the amount outstanding is that, while
Muslims are able to get loans sanctioned, the amounts obtained for on
average are small in comparison to other groups. On an average the amount
outstanding per account for Muslims is about half that of other
Minorities. The amount outstanding per account for Muslims in private
sector banks varies from Rs. 41,085 in March 2001 to Rs. 1,30,224 in March
2005 as compared to Rs. 15,581 to Rs. 28,747 in public sector banks during
the same period. On an average, the amount outstanding per account is
higher for each SRC in PrSBs as compared to PuSBs. Even within PrSBs, the
Muslims tend to get smaller loans than other SRCs.
2.1 State Level Analysis
An analysis of four major states with a large number as
well as proportion of Muslim population namely West Bengal, Kerala, Uttar
Pradesh and Bihar presents a depressing scenario. For example, in West
Bengal, just above 29% of accounts are held by Muslims, 4% more than their
share in population; but the share of amount outstanding is an abysmal
9.2%. In case of Kerala the respective shares are 22% and 16% for Muslims
— which is lower than their share in population of 25%. A similar
situation is found in Uttar Pradesh and Bihar — where the share of Muslims
in number of accounts is more or less comparable with their population
share, but in terms of amount outstanding their share is significantly
lower.
The situation in other states is broadly similar. The
state-level situation is similar to the one noticed at the national level;
RBI’s efforts to extend banking and credit facilities under the Prime
Minister’s 15 Point programme has mainly benefited other minorities,
marginalizing Muslims.
Analysis of the amount outstanding per account in the four
major states reiterates the fact that while Muslims have a relatively fair
share in the number of accounts, their share in amount outstanding remains
low. This is also reflected in the amount outstanding per account which is
the lowest for Muslims among the three SRCs compared in this analysis. The
state which shows a somewhat lower gap between amount outstanding per
account of Muslims and Other Minorities is Kerala; the differentials are
very high in West Bengal and Uttar Pradesh.
The conditions are similar in all the remaining states
except Maharashtra and Tamil Nadu, where the amount outstanding per
account for Muslims is higher than for other minorities. This analysis
again suggests that while banks are being able to direct credit to
minorities, they are not being able to do so specifically for Muslims.
This requires closer re-examination which will be undertaken in the
analysis of the subsequent section.
2.2 District-wise Analysis
Data on priority sector advances by all scheduled
commercial banks was also made available by the RBI for the 44 minority
concentration districts covered by the Prime Minster’s 15 Point Programme
for the half years ending March 2001, 2002, 2003, 2004 and 2005.
The share of Muslims in accounts in ASCB over the period
analysed averages only 20.6%, which is lower compared to their population
share of 32.8%. The share of other minorities at 5.0% is higher than their
relative share in population of 2.0%. The share of Muslims in amount
outstanding is far lower at 8.0%. However, this is not the case with other
minorities whose share in amount outstanding is at 3.8%.
In the selected 44 minority concentration districts, the
advances from the Public Sector Banks are much larger in magnitude
compared to Private Sector Banks. However, in terms of relative advances
to Muslims vis-à-vis others, the PrSBs are performing better. The share of
Muslims in amount outstanding is 7.9% in PuSBs as compared to 9.9% in
PrSBs. In absolute terms the amount outstanding as at the end of March
2005, for Muslims was Rs. 3,535 crores and for other minorities Rs. 1,666
crores, as against the total PSA of Rs. 44,417 crores by ASCBs in the 44
minority concentrated districts. It can be seen that a major portion of
the accounts and amount outstanding is from the PuSBs. The share of these
banks averages 98.1%, in all accounts and 91.2% in amount outstanding. In
terms of number of accounts the share of Muslims in PrSBs is less than
that of PuSBs whereas, in terms of amount outstanding, the share of
Muslims in PrSBs is higher than that of PuSBs.
There are considerable variations across districts. To
facilitate analysis, therefore, the districts have been divided into four
groups based on the proportion of the Muslim population - above 40% (11
districts), 26-40% (12 districts), more than 22% but less than 26% (10
districts) and 22% or less (11 districts). In the first group Muslims
constituting 51.4% of the total population have a 31.7% share in number of
accounts and 11.6% share in amount outstanding. This is awfully low. Their
position is relatively better in the second group in which they constitute
34.2% of the population, whereas their share in number of accounts and
amount outstanding is 29.3% & 19.3% respectively. The credit off-take of
Muslims is again worse in the third and the fourth groups. It can be seen
that as the share of Muslims in population increases, their share in
amount outstanding tends to decrease so that the deficit between these two
shares displays an increasing trend. In all four groups, the availment of
credit by Muslims is poor with respect to their population share. The
share of Muslims in number of accounts & amount outstanding tends to be
significantly below their population shares in most of the districts,
except for few in West Bengal and Kerala and one district in Bihar.
What is interesting is that in 33 out of the 44 minority
concentration districts the share of Other Minorities in accounts is
higher than their population share (against 13 districts for Muslims). The
corresponding figures for share in amount outstanding are 32 and 4
respectively. This is in line with the earlier finding for States that the
position of Muslims is somewhat better in terms of number of accounts, but
much worse when it comes to amount outstanding.
The amount outstanding per account for Muslims has
steadily gone up from Rs. 15,463 in March 2001 to Rs. 29,671 in March 2005
in respect of ASCBs. The corresponding estimates for other minorities are
Rs. 28,781 in March 2001 and Rs. 57,844 in March 2005. Even here in
respect of 44 Minority Concentrated Districts, the Private Sector Banks
seem to be lending a higher amount per account to Muslims compared to
Public Sector Banks, as reflected in their amount outstanding per account.
While the average amount outstanding per account in the
priority sector is nearly Rs. 57,940, Muslims obtained only Rs. 21,823 and
other minorities have obtained Rs. 43,954, which is roughly twice that of
Muslims. The amount outstanding per account is much lower across all
communities for public sector banks - while the average is Rs. 54,005,
Muslims and other minorities obtained Rs. 20,343 and Rs. 40,203
respectively. In other words, Muslims receive an amount that is only 37%
of the average amount outstanding per account in this sector. In
comparison, the relatively higher amount outstanding per account is
granted by private sector banks to Muslims, which is 43% of the average in
the priority sector, reflecting the tendency of Muslims to approach PrSBs
for ‘larger amounts’.
An examination of the average amount outstanding per
account for all districts for the year ending March 2005 shows that the
outstanding amount per account for Muslims is about half the outstanding
amount per account extended to Other Minorities, and one third extended to
Others. This again indicates that Muslims are not getting a fair share of
priority sector advances.
Given the RBI directives to target credit to minorities in
these districts, a comparison of the amount outstanding per account of
Muslims and other minorities is relevant for our purposes. The amount
outstanding per account to other minorities is almost twice that extended
to Muslims. In most of the districts there is a substantial difference
between the amount outstanding per account extended to Muslims and other
minorities.
The above analysis shows that the attempts to direct
credit to minorities in line with the objectives of the Prime Minister’s
15 Point Programme have been generally successful. However, while banks
(particularly public sector banks) have been successful in extending
credit to Other Minorities, the percentage share of accounts and amount
outstanding, and amount outstanding per account of Muslims remains
disappointing. This can be seen when these parameters are compared with
their share in population or with their corresponding values for Other
Minorities.
2.3 Priority Sector Advances by Economic Sectors
This section re-examines the share of PSAs to Muslims by
segregating data according to economic sectors namely — Agriculture, Small
Scale Industries (SSI) and "Other PSAs". Data exclusive to specific banks
were received through the RBI. After subjecting the data received to
validation tests, data for 31 banks were retained for analysis.
The share of Muslims in the PSA accounts is the highest in
SSIs (11.3%) followed by ‘Other PSA’ (10.1%) and Agriculture (8.3%). In
terms of Amount Outstanding, the share of Muslims is highest for ‘Other
PSA’ (5.9%) followed by Agriculture and SSI (5.2%). The results of the
economic sector-wise and state-wise analysis are similar to the state-wise
PSA analysis narrated in the beginning of this chapter. The share of
Muslims in terms of accounts is satisfactory in all the three economic
sectors for West Bengal, Kerala, Uttar Pradesh and Bihar. However, their
share in terms of amount outstanding is far less than their population
shares in these states. In most of the other states also the share of
Muslims in accounts and amount outstanding is far lower than their
population shares.
3. Individual Deposits
In addition to the access of Muslims to PSA extended by
ASCBs, an attempt was also made to examine the deposit behaviour of
Muslims vis-à-vis the total population. A special effort was made by the
Committee to collect information on deposit for the three years ending 31
March 2003, 2004 and 2005 directly from the ASCBs with the assistance of
the RBI.
The share of Muslims in deposit accounts is again much
lower than their population share. Out of 1,800 lakh deposit accounts with
SCBs, the share of Muslims is only 7.6%; this is slightly higher than
their share in amount deposited (7.4%). But what is interesting in this
analysis is that their share in amount deposited matches their share in
accounts, which is not the case with credit.
In Uttar Pradesh and Bihar, the share of Muslims in
deposit amount is higher than their share in accounts. In West Bengal,
however, the share of Muslims in amount deposited (5.5%) is much lower
than their share in accounts (12.1%); the differences are marginal in
Kerala. In 10 out of the remaining 17 states, the share of Muslims in
amount deposited is higher than their share in accounts. This is a
satisfactory situation which is brought out more clearly in the analysis
of deposit per account. Uttar Pradesh and Bihar show higher deposit per
account for Muslims than the respective State average, Kerala shows a
marginal difference and only West Bengal shows deposit per account for
Muslims that is slightly less than half of the state average. The deposit
per account for Muslims is higher than the state average in respect of 10
out of the remaining 17 States, with the differences being marginal in two
other States. Even at the country level, the amount deposited per account
for Muslims at Rs. 28,829 is only slightly lower than the national average
at Rs. 29,369. This is in sharp contrast to the situation prevailing for
PSAs, where it was noticed that amount outstanding per account for Muslims
is about half that of other minorities and one third of others.
This shows that the Muslim community is not averse to
banking and more improvements can be brought about with specific measures
which are spelt out more clearly in the concluding part.
4. Other Specialised Banking Institutions
The Committee also got access to information on credit
flows from two specialized lending institutions - Small Industries
Development Bank of India (SIDBI) and National Bank for Agricultural and
Rural Development (NABARD). The importance of these two institutions lies
in the nature of their operations - extending credit to the small scale
sector and to the rural economy respectively. It is a matter of concern
that even in these highly specialized institutions, the share of advances
to Muslims is insignificant.
4.1 Small Industries Development Bank of India
Data relating to all advances of SIDBI for Muslims for six
years - 2000-01 to 2005-06 show that the total amount sanctioned to
Muslims during this period is a meagre Rs. 180 crores against the total
sanctioned amount of Rs. 31,806 crores. The corresponding disbursement
figures were Rs. 124 crores against Rs. 26,593 crores. The direct amounts
sanctioned and disbursed to Muslims were even smaller.
Muslims are suffering from a double disadvantage - firstly
they account for a significantly small percentage in the amount sanctioned
and disbursed and secondly, their sanctioned & disbursed amount per
account is about one third compared to the overall ratio.
4.2 National Bank for Agricultural and Rural Development
The schemes of NABARD cover small and marginal borrowers
and the weaker sections, for both farm and non-farm sectors; it has also
taken several initiatives under farm and non-farm sectors aiming to
generate/enhance employment opportunities and improve the standard of
living of rural poor through enhanced income level. Many of these measures
focus on weaker/disadvantaged sections, including Muslims. It has been
estimated that 3.2% of production credit and 3.9% of investment credit,
amounting to Rs. 291 crores and Rs. 333 crores, respectively, has been
provided to the Muslim community on an average annually during the two
years 2004-05 and 2005-06. State-wise analysis shows that except in West
Bengal, Kerala, Uttar Pradesh, Rajasthan and Tamil Nadu, the share of
Muslims in Refinance has been limited; Muslims have also received a good
share of investment credit refinance in Assam and Jammu and Kashmir.
The success of NABARD in revitalizing the rural economy
through its capacity building and assistance programmes is well known.
Moreover, as the schemes are focused towards benefiting economically weak
and vulnerable sections of the population and have significant linkages
with other sectors of the rural economy, they have considerable potential
to benefit Muslims and improve substantially their socio-economic status.
However, despite the tremendous innate potential of NABARD
schemes to transform the economic status of the rural Muslim community,
inadequate targeting and geographical planning has resulted in a failure
to address the economic problems of Muslims in rural areas.
5. Summing Up
The findings of this Chapter show that the access of
Muslims to bank credit, including the PSA, is low and inadequate. The
average size of credit is also meagre and low compared with other SRCs
both in PuSBs and PrSBs. The position is similar with respect to finance
from specialized institutions such as SIDBI and NABARD. The Census 2001
data shows that the percentage of households availing banking facilities
is much lower in villages where the share of Muslim population is high.
The financial exclusion of Muslims has far-reaching implications for their
socio-economic and educational upliftment. As was discussed in Chapter 5,
self-employment is the main source of income of Muslims. To empower
Muslims economically, it is necessary to support self-employed persons by
ensuring a smooth flow of credit to them.
The Committee was given to understand that some banks use
the practice of identifying ‘negative geographical zones’ on the basis of
certain criteria where bank credit and other facilities are not easily
provided. Such a practice is referred to as ‘redlining’ in the United
States and ‘negative zones’ by some bankers in India. It is possible that
in some of these areas the share of Muslim population is high and yet the
community is not able to benefit fully from the banking facilities.
Steps should be introduced to specifically direct credit
to Muslims, create awareness of various credit schemes through publicity
and organize entrepreneurial development programmes, bring transparency in
reporting of information about SRCs on provision of banking services. One
of the important ways to help communities living in poorer areas, both
urban and rural, is to provide micro credit, especially to women. A policy
to enhance the participation of Muslims in micro credit schemes of SIDBI
and NABARD should be laid down. This will enable Muslims to shift to
economically less vulnerable sectors, thereby ensuring a more secure flow
of income. Economic empowerment and financial security have important
linkages, in increasing demand for education as well as providing the
means for doing so. This will initiate an upward push that has the
potential to bring about improvements in socio-economic status of the
Muslim community. |
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