Initiatives in Rural Credit Policies under New Economic Environment

Desai B M

IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: Initiatives in rural credit policies pertain to two instruments. These are institutional development and interest rates. Some of these initiatives are right for both these instruments, while some others are not. Former for the institutional development includes new equity, prudential norms, reorganization of loss-making branches, MOUs and DAPs, hi-tech branches, enlarged scope of indirect agricultural credit, RRBs becoming full-fledged banks, SHGs, and entry of private local area banks. And the latter includes RBI’s discontinued financial support, RIDF, and closing loss-making branches. Right initiative on interest rates is their simplified structure that is linked to amount of loans only though this needs to be more consistent with the rural realities. And wrong initiatives include increases in (minimum) interest rates on loans and a hotchpotch of partially and fully deregulated interest rates. Logic and/or empirical evidence are the basis for identifying initiatives that are wrong.

Date: 1997-10-01
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