Nirmala Sitharaman is clear on her plans for speedy outflow of credit from bank branches in the country to reverse the economic slowdown. She has asked public sector banks to hold open houses in 400 districts and to give loans to five new borrowers for every existing customer. She wants the sextupling of the customer base to be done during the Dussehra-Diwali season. Loans will be given at lightning speed to the poor who are covered under the MUDRA scheme, to those who need housing and vehicle loans, and for small and medium businesses and industries. The local ministers and MPs would be present at these open houses.
However, she insists this will not be similar to the controversial loan melas of the mid-1980s, launched by banking minister Janardhan Poojary, where public meetings were held by banks. In a political rally atmosphere, Poojary or Congress ministers and leaders would distribute loan sanction letters to thousands. Bank unions and opposition parties had criticised the show across the country as giving away bank funds to Congress supporters. But Poojary had insisted that the doors of banks had been closed to the poor despite nationalisation, and the poor were more honest than the fat cats of the business community preferred by the banks.
Illustration: Bhaskaran
While Sitharaman is sure the banks would do due diligence before granting loans, another populist figure’s name has figured in bank boardrooms. It is that of a man who is very different from a politician, but stood up for the right of bankers as well as aggressive loan dispersals. It is O.P. Bhatt, who, as chairman of State Bank of India, launched the teaser home loans in 2008, even as the global economic crisis shook the world. Bhatt, who wanted to dominate the mortgage market and displace the housing lender HDFC from the top slot, refused to use the term teaser loans, which were popular in the US home loan market that had just crashed. Instead, he called his scheme “special loan scheme” and launched a publicity blitz which said borrowers can pay concessional interest rate for the first two years, and afterwards the regular interest for the remaining loan period. By then, prime minister Manmohan Singh had made a special visit to the White House to give tips to US president George W. Bush on how to deal with the crisis caused by the collapse of Lehman brothers and other financial entities.
Bhatt ran foul of the Reserve Bank of India, which frowned on the loan scheme, which was causing big queues in the home loan department of SBI and was being copied by big public and private banks. RBI governor D. Subba Rao and Bhatt could not see eye to eye, as the RBI said it had approved the disruptive interest regime, which had set the cat among the banking pigeons. The bickering ran on as RBI imposed higher cost on the teaser loans, while Bhatt asserted the banks had all the elbow room to manipulate the interest rates to attract more business. In heated meetings of bankers with RBI, he stood his ground. The scheme was withdrawn by his successor in May 2011. Interestingly, Pranab Mukherjee was the finance minister both when Poojary ran his loan mela scheme, and also for most of the time when Bhatt’s special loans were given out.
If the first half of October sees the disbursing of loans in 400 districts, the second half would see the splurge in consumer sales and consumption, culminating on the day the lamps will be lit across the country for Diwali.
sachi@theweek.in