ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Access to Bank Credit

The earlier policy of social and development banking has given way to one of financial inclusion, albeit without compromising commercial opportunities. Rural households are thus turning to more burdensome informal credit channels, with dalit rural households facing greater marginalisation due to financial exclusion from the formal credit system.

Insight

Access to Bank Credit

Implications for Dalit Rural Households

The earlier policy of social and development banking has given way to one of financial inclusion, albeit without compromising commercial opportunities. Rural households are thus turning to more burdensome informal credit channels, with dalit rural households facing greater marginalisation due to financial exclusion from the formal credit system.

PALLAVI CHAVAN

T
his article examines the degree of access to (formal) credit for rural dalit households – socio-economically, one of the most backward sections of the population – in India. The analysis has important implications for the recent discussions on financial inclusion. The data for this analysis are drawn from the All India Debt and Investment Survey (AIDIS) conducted by the NSSO and the Survey of Small Borrowal Accounts (SBAs) conducted by the Reserve Bank of India (RBI).

Financial inclusion has been officially defined in India as the “provision of affordable financial services” to those who have been left unattended or underattended by the formal agencies of the financial system [RBI 2006a]. These financial services are to include “payments and remittance facilities, savings, loan and insurance services” (ibid). The ultimate success of any policy of financial inclusion, of course would be to ensure access to each of these services for the entire population without discrimination. However, to begin with, many countries have designed the intermediate objective of at least ensuring the access to a set of basic banking services for all. For instance, the UK has taken initiatives to tackle financial exclusion on three fronts on a priority basis, namely, the access to banking services, affordable credit and free “faceto-face money advice”.1In India, the recent policy statements on financial inclusion have focused on the access to at least a saving bank (no-frills) deposit account for all [RBI 2005].

Inclusion of the excluded – sectors of the economy, social groups or regions – in the formal financial system primarily requires significant expansion of the geographical coverage and functional reach of the financial system. This indeed was the objective of the policy of social and development banking adopted in the country after the nationalisation of major banks in 1969. Under this policy, there was a thrust on setting up bank branches in areas that had an underdeveloped banking infrastructure. Thus, banks were asked to extend their services to rural areas. Further, banks were mandated to direct a certain percentage of their credit to sectors that were in need of formal credit but to which credit supply from formal agencies had till then been limited. These priority sectors mainly included agriculture, small-scale industries along with certain socio-economically backward sections of the population, which were referred to as the “weaker sections”. Dalits were included under “weaker sections”.2

There was a distinct shift in the banking policy with the onset of economic reforms in the early 1990s. The focus in the period of reforms was on enhancing the efficiency and profitability of the banking system that had allegedly got neglected on account of the objectives of social and development banking in the earlier decades.3 As a result, many of the regulations that were applied on the banking system during the policy of social and development banking were relaxed in order to allow a market-based and more liberalised operation of the banking system.4 It is in this changed policy environment that the recent discussion on financial inclusion has been initiated.

The recent discussion on financial inclusion differs significantly from the earlier policy of social and development banking even though its broad stated objective appears to be similar to that of the earlier policy. The earlier policy could best be described as a policy for “the elevation of the entitlements of previously disadvantaged groups to formal credit, even though this might have entailed a weakening of the conventional banking practice(s)” [Wiggins and Rajendran 1987]. The “conventional banking practices” included “commercial stability through deposit mobilisation, high recovery rates and caution in lending decisions” (ibid). On the other hand, in the current discussion, financial inclusion has been described as a “business opportunity” for banks [RBI 2006c].5 Banks have been asked to strive towards an equitable distribution of banking services, but without compromising on commercial considerations. Further, the policy of social and development banking aimed at making an adequate amount of credit available to the deprived sectors or groups at regulated rates of interest. In contrast, the present discussion on financial inclusion is taking place in a period of liberalised interest rates.6 It is thus evident that the policy of financial inclusion is expected to operate under significant constraints imposed by the exclusive nature of functioning of markets.7

The present article examines the extent of exclusion of dalits in rural areas from access to formal credit.8 Secondary data on the access of different socio-economic groups, including dalits, to formal credit are available only from 1992 and 2002 rounds of the AIDIS. Data from these two rounds have been used in this article to analyse the changes in the debt profile of dalit households.9 Further, data from the survey of SBAs from 1993 onwards have been used to examine the changes in the supply of credit from commercial banks to dalit households.10

Debt Profile of Rural Dalit Households

According to the AIDIS, in 2002, dalit households in rural India obtained more than half of their total debt from informal sources (Table 1). The share of formal

Economic and Political Weekly August 4, 2007 sources in the total debt of these households was only 44.8 per cent, much lower than the corresponding share of 59 per cent for non-dalit households. Among formal sources, the largest percentage of debt of dalit households was owed to commercial banks, followed by cooperatives. Among informal sources, moneylenders were the most predominant source of debt for these households.

An inter-round comparison of the AIDIS data from 1962 onwards shows that there was a distinct break in the overall trend after 1992 with regard to the share of formal sources in the total debt of all rural households. The share of formal sources in general, and commercial banks in particular, was on a steady rise between 1962 and 1992. It declined between 1992 and 2002 (Table 2).

As noted earlier, data on dalit households were not available from the AIDIS rounds before 1992. Nevertheless, it can be safely asserted that rural dalits benefited, though possibly to a smaller extent than the general rural population, from the overall expansion of bank credit in rural areas in the period of social and development banking.11 The Integrated Rural Development Programme (IRDP) introduced in 1979 was an important instrument through which dalit households along with many other marginalised sections of the rural population were provided formal finance on a large scale.12

Between 1992 and 2002, as was the case with all rural households, the share of formal sources in the total debt of rural dalit households declined. However, what stood out was the extent of decline for dalit households vis-à-vis the decline for nondalit households (Table 1). In this period, debt from formal sources as percentage of the total debt came down by about 16 percentage points for dalit households. As against this, the debt from formal sources as percentage of the total debt of non-dalit households fell by only about 5 percentage points.13 Thus, dalits were more marginalised than the rest of the rural population in terms of their access to formal credit in the 1990s. Further, between 1992 and 2002, as per the AIDIS, the number of dalit households reporting at least one outstanding loan from formal sources fell by about 5 percentage points, while the fall for non-dalit households was only by 1 percentage point (Table 3).

Outstanding debt, being a stock variable, may miss out the loans that are taken during the survey year and settled prior to the date of survey. Hence, it is necessary to look at the incidence of fresh loans taken during households that reported at least one new the survey year. The percentage of dalit borrowing from informal sources between households that reported at least one 1991-92 and 2002-03. fresh formal loan during the survey year The fall in the share of debt from 2002-03 was 4.7 per cent as compared to formal sources for dalit households was

7.6 per cent in 1991-92 (Table 4). On the primarily attributable to the fall in the other hand, there was a rise by about 4 credit obtained from commercial banks. In percentage points in the number of dalit the total reduction of about 16 percentage

Table 1: Distribution of Outstanding Debt of Rural Dalit and Non-Dalit/Adivasi Households by Source of Credit, 1991 and 2002, India

(In per cent)

Type of Source Dalit Non-Dalit Non-Dalit/Adivasi All

Households Households Households Households

1992 2002 1992 2002 1992 2002 1992 2002

Total formal sources 61.1 44.8 64.6 59.0 64.6 58.5 64.0 57.1 Government 9.2 2.9 5.6 2.2 5.5 2.1 6.1 2.3 Cooperatives 15.0 18.3 22.9 28.8 23.3 28.7 21.6 27.3 Commercial banks 34.6 21.6 33.6 25.0 33.3 24.5 33.7 24.5 Insurance 0.2 0.1 0.3 0.3 0.3 0.3 0.3 0.3 Provident funds 1.1 0.2 0.7 0.3 0.7 0.2 0.7 0.3 Other formal sources 1.0 1.7 1.7 2.4 1.6 2.5 1.6 2.4 Total informal sources 36.6 55.2 31.9 41.0 31.8 41.5 32.7 42.9 Landlords 8.5 2.3 3.1 0.7 3.1 0.8 4.0 1.0 Agriculturist moneylenders 8.0 15.1 6.8 9.2 6.8 9.2 7.1 10.0 Professional moneylenders 10.4 27.6 10.5 18.4 10.5 18.8 10.5 19.6 Traders 2.4 1.4 2.5 2.8 2.5 2.8 2.5 2.6 Relatives and friends 3.7 6.4 5.8 7.2 6.0 7.3 5.5 7.1 Doctors, lawyers and

other professionals 0.3 0.3 0.2 0.3 0.2 0.3 0.2 0.3 Other informal sources 3.3 2.1 2.9 2.4 2.6 2.4 3.0 2.3 Not specified sources 2.3 0.0 3.5 0.0 3.6 0.0 3.3 0.0 All sources 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: NSSO (1998, 2006).

Table 2: Distribution of Outstanding Debt of All Rural Households bySource of Credit, 1962-2002, India

(In per cent)

Type of Source 1962 1972 1982 1992 2002

Total formal sources 16.9 29.1 55.6 64.0 57.1 Government 2.3 6.7 4.1 6.1 2.3 Cooperatives 13.9 20.1 25.7 21.6 27.3 Commercial banks 0.7 2.2 25.2 33.7 24.5 Insurance – 0.1 – 0.3 0.3 Provident funds – 0.1 – 0.7 0.3 Other formal sources – – 0.6 1.6 2.4 Total informal sources 83.1 70.9 44.4 32.7 42.9 Landlords 0.7 8.6 4.8 4.0 1.0 Agriculturist moneylenders 33.9 23.1 23.6* 7.1 10.0 Professional moneylenders 12.7 13.8 – 10.5 19.6 Traders 10.1 8.7 – 2.5 2.6 Relatives and friends 8.8 13.8 10.0 5.5 7.1 Doctors, lawyers and other professionals – – – 0.2 0.3 Other informal sources 17.0 2.8 6.0 3.0 2.3 Not specified sources – – – 3.3 – All sources 100.0 100.0 100.0 100.0 100.0

Note: * Figure pertains to debt from agriculturist and professional moneylenders and traders together. Sources: RBI (1965, 1978, 1989), NSSO (1998, 2006).

Table 3: Percentage of Rural Dalit and Non-Dalit/Adivasi Households Reporting at Least One Loan Outstanding from Formal and/or Informal Sources, India, 1992 and 2002

Type of Source Dalit Non-Dalit Non-Dalit/Adivasi All 1992 2002 1992 2002 1992 2002 1992 2002

Formal sources 17.1 11.9 15.3 13.9 15.8 14.3 15.6 13.4 Commercial banks 9.1 5.9 7.2 5.7 7.3 5.8 7.5 5.7 Informal sources 11.2 17.0 9.4 15.0 9.9 16.1 9.8 15.5 Professional moneylenders 3.2 7.7 3.0 6.6 3.3 7.1 3.1 6.9 Any source 25.9 27.1 22.7 26.4 23.6 27.6 23.4 26.5

Source: NSSO (1998, 2006).

Economic and Political Weekly August 4, 2007

points in the share of debt from formal sources for dalit households between 1992 and 2002, about 13 percentage points were on account of commercial banks (Table 1). A fall in the share of commercial banks led to the relative strengthening of professional moneylenders as a source of credit for dalit households. In 1992, commercial banks were the largest source of debt for dalit households; in 2002, they were replaced by professional moneylenders. Between 1992 and 2002, the share of rural dalit households that owed at least one loan to commercial banks fell by about 3 percentage points (Table 3). During the corresponding period, there was a rise of a little over 4 percentage points from

3.2 per cent to 7.7 per cent in the share of dalit households that reported at least one loan outstanding from professional moneylenders.

Changes in the composition of debt of rural dalit households by interest rates support the above observations about the falling share of formal sources (Table 5). There was a decline in the share of debt taken at annual interest rates ranging between 6 and 15 per cent and a rise in the share of debt taken at interest rates above 20 per cent between 1992 and 2002. Another disturbing feature was the rise in the share of total debt taken at compound rates of interest between 1992 and 2002 by dalits (Table 6). This in all likelihood was fallout of the rising percentage of debt taken from informal sources, especially professional moneylenders.

As per the AIDIS data, the fall in the share of formal sources in the total debt of rural dalit households between 1992 and 2002 was observed across every state in India except Maharashtra and Himachal Pradesh (Table 7). Of these, the rise in the share of formal sources in Maharashtra was mainly on account of cooperatives and not commercial banks. For rural dalits, as indicated by the AIDIS data, cooperatives as a source of credit was never as important as commercial banks. Nevertheless, the share of cooperatives in the total debt of dalit households was on a rise in the period when commercial bank credit was less forthcoming to these households.

Credit Flow from Commercial Banks

Credit from commercial banks to rural dalits is included in their advances to “weaker sections”. The advances to

Table 4: Percentage of Rural Dalit and Non-Dalit/Adivasi Households Reporting At Least One Cash Borrowing from Formal and/or Informal Sources, India, 1991-92 and 2002-03

Type of Source Dalit Non-Dalit Non-Dalit/Adivasi All Households households Households Households 1991-92 2002-03 1991-92 2002-03 1991-92 2002-03 1991-92 2002-03

Formal sources 7.6 4.7 9.0 8.8 9.5 9.5 8.7 7.9 Informal sources 12.6 16.5 11.2 13.5 11.8 14.3 11.5 14.1 Any source 19.8 20.5 20.0 20.9 20.9 22.3 19.9 20.8

Source: NSSO (1998, 2006).

Table 5: Distribution of Outstanding Debt of Rural Dalit and Non-Dalit/AdivasiHouseholds by Interest Rate Classes, 1992 and 2002, India

(In per cent)

Interest Rate Class Distribution of Outstanding Debt of

(in Per Cent Dalit Non-Dalit Non-Dalit/Adivasi All

Per Annum) Households Households Households Households 1992 2002 1992 2002 1992 2002 1992 2002

Nil 9.3 8.2 8.2 8.5 8.4 8.6 8.4 8.4 Less than 6 7.6 2.1 2.3 2.1 2.3 2.2 3.2 2.1 6 to 10 3.8 3.1 3.0 2.4 3.1 2.2 3.1 2.5 10 to 15 35.9 29.0 40.5 33.7 40.2 33.8 39.8 33.1 15 to 20 10.1 11.3 16.9 22.3 17.5 21.9 15.8 20.8 20 and above 27.8 45.5 23.7 30.6 23.4 31.0 24.4 32.6 Not specified 5.5 0.9 5.2 0.4 5.0 0.3 5.3 0.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: NSSO (1998, 2006).

Table 6: Distribution of Outstanding Debt of Rural Dalit and Non-Dalit/AdivasiHouseholds by Type of Interest Rates, 1992 and 2002, India

(In per cent)

Interest Rate Type Dalit Non-Dalit Non-Dalit/Adivasi All Households Households Households Households 1992 2002 1992 2002 1992 2002 1992 2002

Interest free 9.3 8.2 7.5 8.5 8.4 8.6 8.4 8.4 Simple 65.4 70.7 61.2 68.5 62.2 68.2 62.5 68.8 Compound 15.8 18.5 23.5 21.4 21.9 21.8 21.2 21.0 Concessional 5.9 2.6 4.6 1.7 3.7 1.5 4.2 1.8 Not reported 3.6 – 3.1 – 3.8 – 3.7 – Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: NSSO (1998, 2006).

Table 7: Share of Debt from Formal Sources in Total Debt of Rural Dalit and Non-Dalit/Adivasi Households, State-wise, 1992 and 2002

(In per cent)

State Dalit Non-Dalit Non-Dalit/Adivasi All
Households Households Households Households
1992 2002 1992 2002 1992 2002 1992 2002
Andhra Pradesh 36 16 26 29 31 29 31 27
Assam 78 31 61 61 60 60 64 58
Bihar 65 25 74 54 73 53 72 37
Gujarat 96 80 72 66 71 67 74 67
Haryana 55 41 74 52 74 52 72 50
Himachal Pradesh 69 76 56 73 56 73 59 74
Jammu and Kashmir 81 79 75 72 74 72 76 73
Karnataka 73 53 73 68 73 69 73 67
Kerala 84 75 91 82 92 82 91 81
Madhya Pradesh 70 50 71 72 70 69 71 59
Maharashtra 72 90 81 84 81 84 80 85
Manipur 55 57 55
Meghalaya 91 100 91
Nagaland 55 55
Orissa 85 61 72 76 71 73 74 74
Punjab 73 28 81 61 81 61 79 56
Rajasthan 27 24 40 36 40 32 37 34
Tamil Nadu 62 31 56 78 56 78 57 47
Tripura 95 88 85 89
Uttar Pradesh 73 47 66 61 65 61 67 56
West Bengal 87 70 80 67 81 67 82 68
India 61 45 65 59 65 59 64 57

“weaker sections” as a per cent of net bank Source: NSSO (1998, 2006). Economic and Political Weekly August 4, 2007

credit showed a distinct decline in the to meet this target anytime during the years 1990s (Table 8).14 Moreover, domestic for which data were available. commercial banks, which were mandated The survey of Small Borrowal Accounts to direct at least 10 per cent of their net (SBAs) also showed a fall in the percentage bank credit to these sections, were not able of credit flowing to dalits and the percentage

Table 8: Commercial Bank Credit to ‘Weaker Sections’, India, 1991-2006

(Amount in rupees crore)

Year Public Sector Per Cent of Private Sector Per Cent of Total Per Cent of Banks Net Bank Banks Net Bank Net Bank Credit Credit Credit 1 2 3 4 5=1+3 6

1991 10260 9.7 246 5.2 10506 9.5 1992 10881 9.7 269 4.5 11150 9.4 1993 11865 8.9 283 4.0 12148 8.7 1994 12779 9.1 300 3.1 13079 8.7 1995 13918 8.2 339 2.5 14257 7.8 1996 15579 8.4 381 2.1 15960 7.8 2001 24899 7.2 959 1.7 25858 6.4 2002 28974 7.3 1142 1.8 30116 6.5 2003 32303 6.7 1223 1.5 33526 5.9 2004 41589 7.4 1495 1.3 43084 6.4 2005 63492 8.8 1913 1.2 65405 7.4 2006 78373 7.7 3909 1.6 82282 6.5

Note: Data between 1997 and 2000 are not available. Sources: Reserve Bank of India, Report on Trend and Progress of Banking in India, various issues; RBI (1997b).

Table 9: Percentage Share in the Number of Small Borrowal Accounts and Amount Outstanding and Population of Dalits and Non-Dalits, India 1993-2004

Caste Category Population No of Accounts Amount Outstanding 1991 2001 1993 1997 2001 2004 1993 1997 2001 2004

Dalit 16.5 16.2 18.0 17.8 12.2 6.7 12.4 12.7 7.1 4.6 Non-dalit 83.5 83.8 80.9 81.6 86.8 91.1 86.7 86.7 91.6 92.6 Non-dalit/adivasi 75.4 75.6 71.3 72.7 80.7 87.4 81.5 80.1 87.8 90.0 All 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Note: Small borrowal accounts indicate accounts with individual credit limit of up to Rs 2 lakh since 1999 and Rs 25,000 before that.

Source: RBI, Survey of Small Borrowal Accounts, various issues, http://www.indiastat.com

Table 11: Amount of Credit Per Capita and Number of Small Borrowal Accountsper 1,000 Persons for Dalit and Non-Dalit/Adivasi Population, India, 1993 to 2004

Caste Category Amount of Credit Per Capita Number of Small Borrowal
(Rupees) Accounts per 1000 Persons
1993 1997 2001 2004 1993 1997 2001 2004
Dalit 495 193 285 225 77 46 37 23
Non-dalit 680 256 711 868 68 41 51 60
Ratio of non-dalit to dalit 1.4 1.3 2.5 3.9 - - - -
Non-dalit/adivasi 708 262 756 936 67 41 52 64
Ratio of non-dalit/
adivasi to dalit 1.4 1.4 2.6 4.2 - - - -
All 656 246 651 765 70 42 49 54

Notes: (1) Figures of credit per capita have been deflated using GDP deflator at the base of 1993-94.

(2) The population for each year is worked out applying the exponential rate of growth of population between 1991 and 2001 for each of the categories.

Sources: RBI, Survey of Small Borrowal Accounts, various issues; Population Census of India (1991; 2001); RBI, Handbook of Statistics on Indian Economy (2006).

Table 12: Average Amount of Credit per SBA Received by a Dalit Female Borrower per Every 100 Rupees Received by a Non-Dalit/Adivasi Female/Male Borrower, India, 1997-2004

(In rupees)

Table 10: Distribution of Number of Accounts and Amount Outstandingunder Small Borrowal Accounts Held with Bank Offices Classified byPopulation Group, India, 2004

(In per cent)

Population Group No of Accounts Amount Outstanding
Rural Semi-urban Urban Metropolitan 40.1 24.5 12.4 22.9 34.1 28.7 19.4 17.7

Source: RBI, Survey of Small Borrowal Accounts, 2006.

of accounts held by them between 1993 and 2004. The percentage of both credit outstanding and accounts of dalit households in 2004 were three times less than their corresponding percentages in 1993 (Table 9).

SBAs are accounts with an individual credit limit of up to Rs 2 lakh (the limit was Rs 25,000 till 1998). As per the survey in 2004, about two-thirds of the total SBAs were held with rural and semi-urban branches of commercial banks (Table 10). Further, around one-third of these accounts were for direct finance under agriculture and allied activities. It is on account of these features of SBAs that they are important for the present analysis.

On an average, dalits held about 23 SBAs per 1,000 persons in 2004 as compared to 77 in 1993 (Table 11).15 Further, credit per capita (adjusted for price change) for dalits fluctuated around a declining trend across the survey years.16 The amount of credit per capita for non-dalits was nearly four times the credit received by dalits through SBAs in 2004. The gap between credit per capita for dalits and non-dalits widened between 1993 and 2004.

Gender inequality runs through caste inequality. In 2004, dalit women on an average received only Rs 8 of bank credit per SBA for every Rs 100 received by nondalit/adivasi women (Table 12). During this year, they obtained only about one rupee of credit per SBA for every Rs 100 received by non-dalit/adivasi men. Further, the average amount of credit per account going to dalit women vis-à-vis women and men from non-dalit/adivasi categories was on a steady decline between 1997, 2001 and 2004.

Concluding Observations

Variable 1997 2001 2004 According to the All India Debt and Investment Survey, for dalit households,

Average amount of credit to a dalit female borrower per 100 rupees

of credit to a female non-dalit/adivasi borrower 23 12 8 commercial banks were the most important Average amount of credit to a dalit female borrower per 100 rupees source of credit in 1992. There was,

of credit to a male non-dalit/adivasi borrower 5 1 1

however, a sharp fall in the share of debt Source: RBI, Survey of Small Borrowal Accounts, various issues. from commercial banks between 1992 and

Economic and Political Weekly August 4, 2007

2002. The vacuum thus created was filled primarily by professional moneylenders. While professional moneylenders did emerge in 2002 as an important source of credit for other rural households as well, their hold over dalit households was much stronger than other households. The increased presence of informal credit also meant an increased and onerous interest burden for rural dalit households in 2002.

Data from the supply side, or from commercial banks, indicated a growing failure on the part of domestic banks to meet the targets set for “weaker sections” (which included dalits) after 1991. In the 1990s, commercial bank credit to dalits through Small Borrowal Accounts (accounts that reflect the supply of credit to those with smaller requirements of credit) was also on a decline.

To conclude, available secondary data show increasing exclusion of rural dalits since the early 1990s with respect to access to affordable credit from commercial banks. It would be incorrect to view this development related to rural dalits in isolation. Secondary data have also shown a decline in the proportion of bank credit flowing to rural areas in general, and agriculture in particular, since the early 1990s till the early 2000s. In this period, there was also a fall in the proportion of bank credit directed towards certain regions where banking was historically underdeveloped.17 These changes since the early 1990s indicate a marked departure from the trend that had evolved since the early 1970s, when India adopted the policy of social and development banking.18

The 1990s was a decade of marketoriented reforms in the financial sector. However, as noted earlier, exclusion of the disadvantaged and dispossessed is intrinsic to the functioning of markets.19 Indeed, in the era of financial liberalisation, the pursuit of financial inclusion appears to be an arduous task.

EPW

Email: pallavichavan@gmail.com

Notes

[This article is based on a presentation titled ‘Debt Profile and Assets of Dalit Households in Rural India: Some Observations Based on Secondary Data’ at the Workshop on ‘Dalit Households in Rural India’ held at the Indian Statistical Institute, Kolkata on February 22 and 23, 2007. The author thanks V K Ramachandran, S L Shetty, Balwant Singh and R Ramakumar for their useful comments and suggestions. The views expressed in the article are personal and not of the organisation to which the author is associated.]

1 See the report on Promoting Financial Inclusion (2004), HM Treasury available at http://www.hm-treasury.gov.uk.

2 The target fixed for domestic commercial banks for credit allocation to “weaker sections” was and continues to be 10 per cent of their total credit. For a detailed list of various “weaker sections”, see Revised Guidelines for Lending to Priority Sectors as on April 30, 2007 at http://www.rbi.org.in.

3 See a clear articulation of these issues in RBI (1991).

4 The various reforms in the banking sector have not been discussed here separately. For a specific discussion on banking sector reforms that had a bearing on the geographical spread of commercial banks particularly in rural areas and their sectoral reach particularly to agriculture, see Ramachandran and Swaminathan (2004), Chandresekhar and Ray (2004) and Chavan (2004).

5 Also see ‘Financial Inclusion Can Mean Big Business’ by Mahalakshmi Hariharan in DNA, June 7, 2007 available at http:// www.dnaindia.com.

6 Microfinance has been regarded as a promising strategy for financial inclusion in India, see RBI (2006c). Microfinance at present is free of any interest rate regulation. As a result, rates charged by microfinance institutions in the country have been found to be very high (in the ranges of 24 to 36 per cent per annum). See Chavan and Ramakumar (2004).

7 For a discussion of the exclusive nature of operation of markets, see Sen (2000).

8 As per the Population Census of 2001, dalits constituted about 16 per cent of the total population in India. Their presence was greater in rural areas than in urban areas; they formed about 18 per cent of the total rural population in India.

9 Data from the AIDIS need to be treated with some degree of caution on account of the reduced sample size of villages and households across various rounds of this survey. The 1972 round was based on a central sample (canvassed by the NSSO field staff), the state sample (canvassed by state field staff) and a matching RBI sample. The 1982 round was based on pooled data from the central and state samples as RBI did not offer a matching sample. However, both the 1992 and 2002 rounds were based on only the central sample. As a result, the number of villages and households surveyed was much smaller in these two rounds than the earlier rounds.

10 The Survey of SBAs is a sample survey that was started by the RBI in 1993. It was conducted later in 1997, 2001 and 2004.

11 For a discussion of the general expansion of bank credit in rural areas in the 1970s and 1980s after the adoption of the model of social and development banking, see Chavan (2004).

12 An assessment of IRDP in the 1980s showed that of the total families assisted by this scheme across the country, about 92 per cent belonged to dalit and adivasi groups [Basu 2003]. Further, evidence from village surveys conducted across the country in the 1980s made similar observations. See Swaminathan (1990) for her evidence on West Bengal. See Mahajan (1991) for his work on Punjab (cited in Mishra and Nayak (2004)). This programme was relatively efficiently implemented in some states while in other states it was a failure. Notwithstanding the failures, as noted by Guhan (1986) IRDP “channelled funds on a hitherto unprecedented scale for creating supplementary incomes amongst the relatively poor in rural areas all over India”.

13 Even if the share of debt taken from nonspecified sources (of 3.5 per cent) was entirely added to the debt from formal sources, the fall in the share of formal sources for non-dalit households worked out to 9 per cent, which was still around half the fall noted in the case of dalit households.

14 Data on the exact quantum of bank credit flowing to dalits are not separately available.

15 Across all four surveys, there was a fall also in the total number of SBAs per 1,000 persons. According to Shetty (2004), this speaks of the increasing “bias” of commercial banks against small size borrowers in general in the 1990s.

16 As the cut off limit for SBAs was changed in 1999, the figures for 1993 and 1997 may not be strictly comparable with those in 2001 and 2004. Nevertheless, a fall in the number of accounts and amount of credit through SBAs for dalits is evident from a comparison of 1993 with 1997, and of 2001with 2004.

17 These included north-eastern, eastern and central regions comprising the states of Assam and other north-eastern states and the states of Bihar, West Bengal, Orissa, Madhya Pradesh and Uttar Pradesh. See Shetty (2004) and Chavan (2004).

18 See Chavan (2004) for a comparison of the banking developments before the 1990s with those since the early 1990s.

19 The disadvantage and dispossession can be in terms of assets, income, capabilities and values necessary to participate in markets, see Nayyar (2003). Further, see Thorat (2006) who applies the discussion on social exclusion to financial markets.

References

Basu, Prahlad K (2003): ‘Monitoring, Benchmarking and Evaluation for Poverty Alleviation Programmes: The Indian Experience’, United Nations, New York.

Chandrasekhar, C P and Sujit Kumar Ray (2004): ‘Financial Sector Reform and the Transformation of Banking’ in V K Ramachandran and Madhura Swaminathan (eds), Financial Liberalisation and Rural Credit in India, Tulika Books, New Delhi.

Chavan, Pallavi (2004): ‘Banking Sector Reforms and Growth and Regional Distribution of Rural Banking in India’ in V K Ramachandran and Madhura Swaminathan (eds), Financial Liberalisation and Rural Credit in India, Tulika Books, New Delhi.

Chavan, Pallavi and R Ramakumar (2004): ‘Interest Rates on Micro-credit: A Note’ in V K Ramachandran and Madhura Swaminathan (eds), Financial Liberalisation and Rural Credit in India, Tulika Books, New Delhi.

Guhan, S (1986): ‘Rural Poverty Alleviation in India: Policy, Performance and Possibilities’, paper presented at the Franco-Indian Colloquium on Technological Choices for Rural Development, Montpellier, France, March 18-20; reproduced in S Subramanian

Economic and Political Weekly August 4, 2007

(ed), India’s Development Experience: Selected Writings of S Guhan, Oxford University Press, New Delhi, 2001.

Mahajan, R K (1991): Integrated Rural Development Programme: A Study of Problems and Prospects in Punjab, Concept Publishing Company, New Delhi.

Mishra, B and Purusottam Nayak (2004): ‘Limits of Micro-credit for Rural Development: A Cursory Look’ in J K Gogoi (ed), Rural Indebtedness in North East India, Dibrugarh University, Assam.

National Sample Survey Organisation (1998): ‘Household Assets and Indebtedness of Social Groups – January to December 1992’, Report No 432, Parts I and II, New Delhi.

– (2006): ‘Household Asset Holding, Indebtedness, Current Borrowings and Repayments of Social Groups in India as on June 30, 2002’, Report No 503, New Delhi.

Nayyar, Deepak (2003): ‘On Exclusion and Inclusion: Democracy, Markets and People’ in A K Dutt and J Ros (eds), Development Economics and Structuralist Macroeconomics: Essay in Honour of Lance Taylor, Edward Elgar, Cheltenham.

Ramachandran, V K and Madhura Swaminathan (eds) (2004): Financial Liberalisation and Rural Credit in India, Tulika Books.

Reserve Bank of India (1965): ‘All India Rural Debt and Investment Survey, Outstanding Loan Borrowings and Repayments of Rural

Households’, Reserve Bank of India Bulletin, September.

– (1978): ‘All India Debt and Investment Survey – Outstanding Loan Borrowings and Repayment of Households’, Department of Statistical Analysis and Computer Services, Mumbai.

  • (1989): ‘Statistical Tables Relating to Cash Borrowings and Repayments of Households
  • – July 1981-June 1982’, Department of Statistical Analysis and Computer Services, Mumbai.
  • (1991): Report of the Committee on the Financial System, Mumbai.
  • (1993): ‘Salient Results of the Survey of Small Borrowal Accounts, March 1993’, at http:// rbi.org.in.
  • (1997a): ‘Salient Results of the Survey of Small Borrowal Accounts – 1997’, at http://rbi.org.in.
  • (1997b): Credit Flow to Agriculture and Other Priority Sector Areas – Salient Financial Indicators, Rural Credit and Planning Department, Mumbai.
  • – (2004): ‘Survey of Small Borrowal Accounts – 2001’, Reserve Bank of India Bulletin, May, Mumbai.

  • (2005): ‘Taking Banking Services to the Common Man – Financial Inclusion’, address by V Leeladhar, Deputy Governor of the Reserve Bank of India, December 2, available at http://www.rbi.org.in.
  • (2006a): ‘Financial Inclusion and Millennium
  • Jadhavpur

    Development Goals’, address by Usha Thorat, Deputy Governor of the Reserve Bank of India, January 16, available at http://www.rbi.org.in.

  • (2006b): ‘Salient Results of the Survey of Small Borrowal Accounts – 2004’, Reserve Bank of India Bulletin, July, Mumbai.
  • (2006c): ‘Economic Growth, Financial Deepening and Financial Inclusion’, Speech by Rakesh Mohan, Deputy Governor of the Reserve Bank of India, November 20 at http:/ /www.rbi.org.in.
  • (various issues): Report on Trend and Progress of Banking in India, Mumbai.
  • Sen, Amartya (2000): ‘Social Exclusion: Concept, Application, and Scrutiny’, Social Development Papers No 1, Asian Development Bank, June.

    Shetty, S L (2004): ‘Distributional Issues in Bank Credit – Multi Pronged Strategy to Correct Past Neglect’, Economic and Political Weekly, July.

    Swaminathan, Madhura (1990): ‘Village Level Implementation of IRDP: A Comparison of West Bengal and Tamil Nadu’, Economic and Political Weekly, Vol XXV, No 13, March.

    Thorat, Y S P (2006): ‘Indian Banking: Shaping an Economic Powerhouse’, speech available at http://www.ficci.com.

    Wiggins, Steve and S Rajendran (1987): Rural Banking in Southern Tamil Nadu: Performance and Management, Final Research Report No 3, The University of Reading, UK.

    Economic and Political Weekly August 4, 2007

    To read the full text Login

    Get instant access

    New 3 Month Subscription
    to Digital Archives at

    ₹826for India

    $50for overseas users

    Comments

    (-) Hide

    EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

    Back to Top