Government should consider offering ‘subsistence loans’ to support rural economy: SBI’s Ecowrap

According to State Bank of India Economic Research Report “Ecowrap”.

According to the report compiled by the Economic Research Department (ERD) of India’s largest bank, this loan can be granted on the assumption that interest service alone will maintain the lending standard with subsequent renewal of the loan linked to a file. successful refund.

“If the government were to bear, say, a 3% interest subsidy, on a portfolio of ₹50,000 crore, the expenditure would only be ₹1,500 crore in 2022-23, and these loans will also act as a big stimulus consumption at subsistence levels,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.

Stimulate the economy

Given the significant success of vaccination during the third wave in rural pockets, livelihood loans may be the silver bullet catapulting the wider economy to unprecedented heights, he added.

The added benefit of these subsistence micro-loans is that they will help the banking system prepare a comprehensive database and credit history of marginal borrowers that can be further leveraged to create new categories of creditworthy borrowers, according to The report.

The ERD suggested that the current overdraft facility for PMJDY (Pradhan Mantri Jan Dhan Yojana) accounts in the banking system, which has been in existence for some time, could be streamlined and technology enhanced with a central nodal agency/bank to oversee and promote the system in a meaningful way.

Falling real rural wages

The report notes that the decline in real rural wage growth since FY17 is a concern, especially in the era of the pandemic, accentuated by sluggish growth in nominal wages (from ₹298 per day during FY17). FY17 to ₹364 per day during FY22).

The ERD estimated that after two years, the terms of trade for agriculture have again been unfavorable to agriculture due to high inflation, despite forecasts for the agricultural sector to grow at a robust level. 3.9% in FY22.

Also, according to ERD estimate, agricultural GDP per capita (in current prices) was about ₹55,000 while non-agricultural GDP per capita was ₹220,000 in FY21 .

Moderate deposit growth

A closer look at quarterly data from all RBI scheduled commercial banks in the recent past, coupled with SBI’s internal market trend analysis and dissection of quarterly results released by banks, predicts the asymmetric growth of l The accretion of deposits in various geographic groups as the lingering pandemic appears to weigh on the nascent recovery of the rural economy with a high likelihood of low sequential growth in deposits in the third quarter in rural centers.

Even metropolitan areas, with the bulk of the deposit base, are expected to show less growth in the prior quarter, although the reasons here could be more related to the allocation to capital markets/other asset classes. assets by domestic investors, who recently anchored buying on the prophecy of declines as FIIs hit the sell button, according to the report.

Published on

February 18, 2022

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