87
particular. Earlier, the small size was defined at
`
10,000 which now appears
relatively small even for small farmers. The size of
`
25,000, on the other hand,
measures an adequate norm for defining a small size loan. The entire literature
on the profile of small-size borrowers and the micro finance movement will
justify, as shown in the following paragraphs, that the
`
25,000 cut-off limit for
small borrowal accounts remains valid even today.
Apart from the loan waiver scheme which was completed by June 30,
1991 and in which the scheduled commercial banks had a small share
11
, the
factor that truly stands out as the one responsible for discouraging banks from
lending small amounts of loans, is the package of prudential norms and other
financial sector reforms. The definition of non-performing assets (NPAs) was
tightened in April 1992 and the norms were set on capital adequacy, income
recognition and provisioning. Banks had to arrest erosions in profitability. The
most important step was one of the imposition of capital adequacy norms to
be attained in stages by the end of March 1993; the RBI also prescribed as a
practical proposition “that in respect of amounts of
`
25,000 and less, aggregate
provisioning to the extent of 2.5% of the total outstanding should be made
rather than a case-by-case evaluation of a large number of small accounts”
(RBI 1993, p.15).
12
Impact of Credit Contraction on Poor Households
13
The implications of credit contractions for small borrowers are very
many. First, sectorally by far the largest share of small borrowal accounts
(except for personal loans) belongs to agriculture and direct finance under that
11
The RBI’s Annual Report for 1991-92 (p.115) gave the following progress of the loan waiver
scheme: “.... the implementation of Agricultural and Rural Debt Relief Scheme 1990 came to a
close on June 30, 1991. Earlier figures reported by public sector banks and NABARD indicated
that debt relief to the extent of about
`
7,917 crore has been provided by banks, of which public
sector commercial banks provided
`
2,962 crore, Regional Rural Banks (RRBs)
`
808 crore
and co-operative banks
`
4,147 crore. Against this, after carrying out verification of debt relief
provided, the banks have claimed an aggregate amount of
`
7,800 crore, commercial banks
Rs2,841 crore, RRBs
`
804 crore and co-operatives
`
4,155 crore (provisional)”.
12
For this reason also, we have not found it necessary to deflate the small-size loan amounts
by any deflator for inflation accounting. Also, the limit of
`
25,000 is thus still considered as a
sizeable loan amount for a majority of the farm community. Therefore, a rapid decline in this
share, as shown in Table 4.17 above, remained truly disconcerting.
13
The summary assessment in this sub-section is based on a series of occasional articles in
the RBI’s monthly Bulletin; See for example, ‘Survey of Small Borrowal Accounts, 2001” in May
2004 issue of the Bulletin; some parts of the data on small borrowal accounts are available in
the RBI’s Basic Statistical Returns of Scheduled Commercial Banks, which has been the basic
source of information for this part of the study. The latest data contained in July 2006 issue of
RBI Bulletin are not comparable because small borrowers are defined in it as those having credit
limits of
`
2 lakh or less as against
`
25,000 or less for the earlier studies.
