Chief Minister Edappadi K. Palaniswami on Tuesday wrote to Prime Minister Narendra Modi opposing the Reserve Bank of India's (RBI) recent master directions for priority sector lending, which covered “all of Tamil Nadu” in the dis-incentive framework for priority sector lending. He urged Mr. Modi to prevail upon the RBI to immediately reverse the decision and restore the earlier weightage system for free flow of priority sector credit.
As per Annexure 1A of the master directions, all 32 districts (prior to bifurcation) were categorised as districts with a comparatively high flow of priority sector credit. “In no other State have so many districts been covered in the dis-incentive framework. Tamil Nadu appears to have been singled out for particularly adverse treatment in the master directions,” Mr. Palaniswami pointed out. A copy of his demi-official letter to the Prime Minister was released to the media in Chennai.
The RBI’s policy was “unfair and regressive and must be reversed immediately,” he contended and said hardworking, law-abiding borrowers, who serviced their debt on time, deserved to be encouraged by a higher flow of credit.
“While attempts can and should be made to increase credit flow to districts where it is low, such efforts ought to be by increasing the overall credit flow and not by attempting diversion of credit from other districts / States. The overall size of the pie needs to be increased alongside greater financial penetration,” he underlined.
The districts have received a higher flow of credit on account of the enterprise, hardwork, diligence and timely repayment of loans by households and businesses in the State, he pointed out.
“These households and businesses have been good borrowers, utilising the loans for the intended purpose and servicing the debt on time. They should not now be penalised 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,” the Chief Minister added.
All parts of the country and Tamil Nadu in particular have been affected by the COVID-19 pandemic, and hence the uninterrupted flow of credit at this time was critical for the revival of economic activity.
“No such retrograde action, adversely affecting the 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.
Para 7 entitled “Adjustments for weights in PSL Achievement” contained a provision to incentivise flow of priority sector credit to districts with a comparatively lower flow of credit with a higher weightage of 125 %. “Prima facie, this is not objectionable. However, what we find unacceptable is the dis-incentive framework contained in the guideline for districts with a comparatively higher flow of priority sector credit with a lower weightage of 90%,” Mr. Palaniswami argued.