CHENNAI: Taking strong exception to the RBI’s move to bring Tamil Nadu in the disincentive frame for priority sector lending, as per the directives issued on September 4, Chief Minister Edappadi K Palaniswami on Tuesday urged Prime Minister Narendra Modi to instruct the central bank to reverse the decision and restore the earlier weightage system for free flow of priority sector credit.
“This policy is unfair and regressive, and must be reversed immediately. Hard-working, law-abiding borrowers who serviced their debt on time, deserve to be encouraged by a higher credit flow,” Palaniswami said in his letter to the PM. “The entire country, and Tamil Nadu in particular, has been affected by the pandemic.
An uninterrupted flow of credit now is critical for the revival of the economy. No such retrograde action, adversely affecting it, should be taken.” The letter also stated that disincentivising good borrowers, who repay on time, is a short-sighted and counter-productive strategy, for not just the nation’s overall economic well-being, but also for the health of its banking system, which is struggling with rising non-performing assets.
CM highlights problems in RBI directive
Referring to the provision in the Master Directions to incentivise flow of priority sector credit to districts with a lower flow of credit and a higher weightage, the CM said, “Prima facie this is not objectionable. What we find unacceptable is the disincentive framework contained in the guideline for districts with a comparatively higher flow of credit and a lower weightage.” As per Annexure 1A of the Master Directions, all 32 districts in the State (prior to bifurcation) have been categorised as districts with a comparatively higher flow of credit.
“Hence, all of Tamil Nadu has been covered in the disincentive framework. In no other State have so many districts been covered. TN appears to have been singled out for particularly adverse treatment in the Master Directions,” Palaniswami added.
While attempts should be made to increase credit flow to districts where it was low, the CM said, such efforts ought to be by increasing the overall credit flow and not by attempting to divert credit from other districts/States. “The overall size of the pie needs to be increased alongside greater financial penetration,” he added.
The CM recalled that the districts in TN had received a higher flow of credit on account of the enterprise, hard work, diligence, and timely repayment of loans by households and businesses here. These households and businesses had been good borrowers, utilising the loans for the intended purpose, and servicing the debt on time. “They should not be penalized now for having abided by the rules. On the contrary, they should be encouraged to expand the economic activities in the country,” he added.