Reverse RBI policy, don’t penalise good borrowers: Palaniswami to PM Modi

Chief Minister Edappadi K Palaniswami has urged the Prime Minister Narendra Modi to prevail upon the Reserve Bank of India (RBI) to immediately reverse its policy to dis-incentivise good borrowers, who repay on time, and restore the earlier weightage system for free flow of priority sector credit.

It 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’, Palanisamy said in the letter on Tuesday.

Referring to the recent Master Directions for Priority Sector Lending, issued on September 4, he said it contained ‘a very disturbing and discriminatory provision.’ “Adjustments for weights in PSL Achievement” contained a provision to incentivise flow of priority sector credit to districts with comparatively lower flow of credit with a higher weightage of 125 percent, he said.

‘Prima facie this is not objectionable. However what we find unacceptable is the dis-incentive framework contained in the guideline for districts with comparatively higher flow of priority sector credit with a lower weightage of 90 percent,’ he said.

Since all 32 districts of Tamil Nadu (prior to bifurcation) had been categorised as districts with comparatively high flow of priority sector credit, the whole of Tamil Nadu had been covered in the disincentive frame work for priority sector lending, he pointed out.

‘In no other State have so many districts been covered in the disincentive frame work. Tamil Nadu appears to have been singled out for particularly adverse treatment in the Master Directions,’ the Chief Minister said.

While attempts could and should be made to increase credit flow to districts where it was low, such efforts ought to be by increasing the overall credit flow and not by attempting diverting credit from other districts or States, he said, adding: ‘The overall size of the pie needs to be increased alongside greater financial penetration.’

Explaining that districts in Tamil Nadu had received a higher flow of credit on account of the enterprise, hard work, diligence and timely repayment of loans by households and businesses, as they had been good borrowers, utilising the loans for the intended purpose and servicing the debt on time, he said 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. Hence the policy of the RBI is unfair and regressive and must be reversed immediately. Hard working, law abiding borrowers who serviced their debt on time, deserve to be encouraged by higher flow of credit.’

When the country, particularly Tamil Nadu had been affected by the pandemic, uninterrupted flow of credit was critical for revival of economic activity and no such retrograde action, adversely affecting flow of credit, should be taken, he said.