Banks have considerably reduced private moneylenders’ role: Abdul Nazeer

Supreme Court judge delivers Karnataka Bank’s Founders’ Day lecture

Supreme Court judge S. Abdul Nazeer on Friday said institutional financing facilities through banks had considerably reduced the role of private moneylenders in the country, particularly in rural areas, thereby addressing the poverty issue, and urged banks to be more proactive in this direction.

He was delivering the Founder’s Day lecture at the Karnataka Bank headquarters here on ‘Constitutional Philosophy and Banking’. The Constitution too intends to address the poverty issue and banks had been playing a vital role in this regard, particularly after the nationalisation of banks, he said. Any bank that intends to compliment the constitutional ethos should move to hinterlands to free people from private moneylenders, he said, complimenting Karnataka Bank for achieving this goal.

Quoting data from government departments, Mr. Nazeer said institutional financing now accounts for 66% of the total credit in the country while private moneylenders ruled the scene till 1971, accounting for 70% of the total credit. Informal moneylenders have lost to commercial banks in the last few years, he noted.

Institutional credit, however, was yet to pick in some States, including Telangana, Andhra Pradesh, and Bihar where moneylenders account for over 50% of total credit, while their activities accounted for about 40% in Jharkhand and Odisha. Banks should concentrate on penetrating these areas, he suggested.

Stating that schemes such as direct benefit transfer had enhanced transparency in the banking sector, Mr. Nazeer said enhanced institutional credit facilities had considerably reduced the role of private moneylenders, thus helping people from economically weaker sections.

The judge also noted that the micro-finance scheme had disproved the belief that the poor were not creditworthy and demonstrated that they could be relied upon even without collateral security. Microfinance had also proved that poor households could save more than borrowing, he said.

On the flip side, Mr. Nazeer said, the policy environment was not completely favourable to service the poor while financial infrastructure was inadequate in many areas.