Mor committee suggestions need detailed discussions: Raghuram Rajan

MUMBAI: Reserve Bank Governor Raghuram Rajan today termed the changes in priority sector lending norms suggested by the Nachiket Mor committee as "interesting ideas" which need to be discussed.

"These are interesting ideas, and we will explore them in greater detail," Rajan said, delivering the D R Gadgil Memorial Lecture here this evening.

Among other things, the committee on financial inclusion headed by Mor, a former executive director with ICICI Bank, has suggested a weightage-based approach to the priority sector lending norms, which stress leveraging of strengths by a bank, and incentivising lending to the credit deprived sections and regions.

Through this approach, the committee feels a bank's maximum priority sector lending can touch the 50 per cent mark, as against the present requirement of 40 per cent.

As per the report, submitted last month, a bank having strength in farm credit should leverage its strength and do more of it, while some other bank having a strength in small enterprises loan should focus on its core strength.

At present, banks are given segmental targets under each category which needs to be achieved, to take the total to 40 per cent of the overall lending every year.

The Mor committee also talks of certain credit deprived areas such as the north-east, and incentivising banks to lend more there by giving greater weightage.

"The weights will be adjusted so that overall targets are met by the system," Governor Rajan explained today.

Rajan also spoke of the hindrances to financial inclusion, specifically pointing out the know your customer (KYC) requirements.

"Despite RBI's exhortations, few banks have reduced their demand for documentation - they fear that they will be held responsible if something goes wrong, no matter what the regulatory norms. The acceptance of third party KYC certification is particularly difficult," he said.