What do banks need? More borrowers

Like any other living being, a bank needs the right environment to grow. Credit absorption capacity of various sectors, quality education, efficient doctors with human sensitivities, good governance, practical economic policies, a transparent marketing network, an entrepreneurial spirit among people, de-politicisation of banks, and a mechanism to detect fraudsters before they commit fraud--all these factors directly and indirectly help banks thrive.

India’s rich cultural diversity creates demand for a wide range of local delicacies, ethnic clothes, ornaments, footwear, the world’s widest variety of handicraft and handloom products, a variety of crops, etc. A conscious effort to revive the economic activities based on traditional knowledge, cultural diversity, and skill, mostly in the unorganised sector, will increase the credit absorption capacity of the indigenous sector.

Thirty years ago, the famous palm leaf painter and National Awardee Gokul Pattnaik of Bhubaneswar etched out episodes from the Puranas with intricate details on dry palm leaves. Gokul Pattnaik did not get the profit he deserved because he had no direct access to the handicraft market, which was controlled by traders and middlemen. After the demise of Pattnaik, his daughter, who was also an Odissi painter, could not sustain the family profession. Stories like hers abound. The handloom weavers of Sonepur, Sambalpur, and Cuttack in Odisha; and the weavers of Pochampally, Narayanpur, and Puttapaka in Telangana make fine silk sarees that are sold at high prices in domestic and international markets. The Paithani saree and Himroo shawls of Maharashtra, the Bidri craft of Bidar, the Dhokra craft of Chhattisgarh and Odisha, the Chikankari work of Lucknow, the Warli paintings of Maharashtra, the fabrics of Tamil Nadu, Kerala, and West Bengal, the cotton mixed hand-woven silk carpet of Kashmir, and the Pashmina shawl of Himachal Pradesh and Ladakh are all unbelievably high-value products. But corrupt officials, traders, and middlemen in the system mislead the artisans; as a result, no value is added to handmade products. The revival of the classical sectors will create demand for bank credit.

The Union government’s Make in India and Start up India programmes aim to increase the share of the manufacturing sector to 25 per cent of the GDP by 2025. Over decades, successive governments have given various tax relaxations, land capital, and written off bank loans worth lakhs of crores of rupees to corporations in order to boost the manufacturing sector. Unfortunately, the growth of this sector does not sustain itself; the sector continues to default on bank loans. The number of jobs in the manufacturing sector has decreased from over five crore in 2016–17 to 2.73 crore in 2020–21. Quality infrastructure, transparency in the end use of government benefits and bank loans, capacity to design, dedicated research, and quality technical education that inspires creativity, skill, and original thinking will strengthen the manufacturing sector. Wootz steel, which was used to make weapons in ancient India, was exported all over the world. It was one of the exclusive Indian products that earned wealth and reputation for India. The industry sector should create a favourable environment for technical graduates from IITs, NITs, and other top engineering colleges in order for the sector to grow and generate demand for bank loans.

India’s services sector GVA increased to Rs. 101.47 trillion in FY20 from Rs. 68.81 trillion in FY16. India‘s IT and business services market is projected to reach $19.93 billion by 2025. As per sources in the RBI, the bank credit flow to the services sector has increased from Rs 26.42 lakh crore in August 2020 to Rs 31.61 lakh crore in August 2022 which accounts for 17.2 per cent of the gross bank credit, the second among all the sectors. The rising cost of fuel, food, labor, and equipment has increased its operating costs; inflationary pressure, competition from neighbouring countries, a lack of a research environment, etc. slow down the service sector. The spread of the service sector, mainly IT, to other Indian cities will help the service sector grow and save banks from the risk of credit concentration in a few metros.

A balanced growth in agriculture and allied sectors meets the majority of people’s basic needs while cushioning industry and the services sector. In mediaeval India, the revenue from the agriculture sector met the maintenance costs of the huge Moghul army. British companies exported Indian agriculture products across Europe and used them to collect maximum revenue from the farmers. Unfortunately, the Moghuls and the British let the sector perish by imposing exorbitant taxes; the corrupt Subedari and Zamindari systems imperilled farm and non-farm activities in India.

Practical economic policy, village-centric education, efficient health sector, honest and efficient police personnel, quality judges, and political wisdom will encourage people in agriculture and allied sectors. India’s economic sectors deserve quality leaders who revitalise them; this will create demand for bank loans.

Besides, de-politicisation of banks’ boards, an efficient audit mechanism to detect fraud attempts, the end-use of loan products, internal efficiency, leadership skills, etc. will help banks tap the immense credit potential of the country.