Chennai: Terming RBI’s Master Directions for Priority Sector lending as ‘unfair and regressive’, Tamilnadu Chief Minister Edappadi K Palaniswami has urged Prime Minister Narendra Modi to prevail upon the RBI to immediately reverse this decision and restore the earlier weightage system for free flow of priority sector credit.
In a letter to Modi, he said the recent Master Directions issued by RBI contain a very disturbing and discriminatory provision and Tamilnadu appears to have been singled out for particularly adverse treatment in the Master Directions for the Priority Sector lending issued by the RBI.
He said Para 7 of the Master Directions entitled “Adjustments for weights in PSL Achievement” contains a provision to incentivise flow of priority sector credit to districts with comparatively lower flow of credit with a higher weightage of 125 per cent.
“Prima facie this was not objectionable. However what we find unacceptable is the dis-incentive frame work contained in the guideline for districts with comparatively higher flow of priority sector credit with a lower weightage of 90 per cent”, he noted.
As per Annexure 1A of the Master Directions, all the 32 districts of Tamilnadu (prior to bifurcation) were categorised as districts with comparatively high flow of priority sector credit.
Stating that all of Tamilnadu has been covered in the dis-incentive frame work for priority sector lending, Palaniswami said in no other State have so many districts been covered in the dis-incentive framework.
“Tamilnadu appears to have been singled out for particularly adverse treatment in the Master Directions”, he said, adding, while attempts could and should be made to increase credit flow to districts where it was low, such efforts ought to be by increasing the overall credit flow and not by attempting diverting credit from other districts / States.
“The overall size of the pie needs to be increased alongside greater financial penetration”, he added.
Pointing out that districts in Tamilnadu have received a higher flow of credit on account of the enterprise, hard work, diligence and timely repayment of loans by households and businesses in the State, the Chief Minister said these households and businesses have been good borrowers, utilising the loans for the intended purpose and servicing the debt on time.
They should not be penalised now for having abided by the rules, by directing the flow of credit away from them. On the contrary, they should be encouraged to expand the economic activities in the country. “Hence, this policy of the RBI is unfair and regressive and must be reversed immediately”, Palaniswami said.
Hard working, law abiding borrowers, who serviced their debt on time, deserve to be encouraged by higher flow of credit, he said.
Noting that all parts of the country and Tamilnadu, in particular, have been affected by Covid-19 pandemic, he said uninterrupted flow of credit at this time was critical for revival of economic activity.
“No such retrograde action, adversely affecting flow of credit, should be taken. Dis-incentivising good borrowers who repay on time is a short-sighted and counter-productive strategy, for not just the overall economic well-being of the nation, especially when the nation is combating the impact of Covid, but also for the health of the banking system which is struggling with rising non-performing assets”, he said.