Want of finance, it is often said, is the reason why the North-East has remained economically backward. The general allegation in the region is that the banking sector is not playing its proper role, despite the Central Government’s directives in this regard. Moreover, the financial institutions, including the banks are so prejudiced against the region that it is a hard task for local businessman and entrepreneurs to secure financial assistance from them to get their projects on hand going. Even otherwise, the banks impose such unreasonable conditions before they agree to finance projects that it is impossible for them to fulfill the obligations. This, in sum is the general grouse as regards the stagnancy of the economy of the North- East. But the State Bank of India General Manager (CB), P.K. Mitra, begs to differ and says the assumption the North-East Entrepreneurs have of the banking sector is unfounded. Reality, he says, is totally different. He elaborates his points in an interview with The North-East Times:

Q. Why are the banks, including the SBI, apprehensive about lending money to finance projects in the North-East?
A. Apprehensive? No, not at all. After all, why are the banks here if not to transact business? But, yes it is a fact that the banks today are a little extra careful before lending money to projects in the North-East. And there are reasons for that.

Q. What are those?
A. The past experience shows the debt recovery is very low here. You would not believe that in most cases it is as low as 10%, so that often, the banks have to write-off the loans.

Q. Compared to the all-India CD ratio of 55%, it is only 30% in Assam. Why is it so?
A. The CD ratio is marginal in Assam because there are no big industries here requiring huge investments. In technical terms, because of the low credit absorption here, the CD ratio has remained low.

Q. Most projects to be financed by banks need to have the government guarantee. Don’t you think by asking for Government guarantee the banks are imposing a burden on the government on one hand and slowing down the process of industrialization of the region?
A. We ask for government guarantee essentially because the promoters of the projects to be financed by us do not generally instill confidence in us. This is a sad state of affairs in the North-East.

Q. Even the disbursement of loans for the PMRY projects has been gradually decreasing. Why ?
A. Let me be frank. The PMRY projects are not good business because in most cases the projects are not chosen on merit. In a way, the PMRY finance is actually a political loan. Since the state government also gives subsidies to PMRY projects. We have asked the district industry Officers to be careful in selecting projects and the entrepreneurs who will run them. Since the projects do not fare well, as a naryral corollary, the recovery is low.

Q. What about agricultural lending to give a boost to the rural economy?
A. We do provide agricultural loan, but here the problem is the State Government’s Policy about the ownership of agricultural land. In the North-east, the policy is that the agricultural land can be sold only to a tribal from the region. But this does not inspire the bank to provide agricultural loan for the simple reason that in the event of failure of the agricultural projects, the banks will be in a fix to find buyers for the land mortgaged with them. Besides, there are natural calamities like flood, which are a deterrent to banks coming forwarded to finance agricultural enterprises.

Q. It is said that the branch Managers of the banks have limited power in their hands, so that they have to wait for the approval of their seniors before they can sanction loans. Naturally, this causes delays.
A. As far as SBI is concerned, our branch managers have sufficient powers to lend money up to a limit. Beyond that they have to refer the matter to the Regional Managers and since SBI has 13 regional offices in the North-East, the delay in disbursing loans is out of the question.

Q. Last year, the Finance Minister in consultation with the N.E. States had evolved a 16-point agenda for financing projects in the region. Are the banks following the agenda?
A. The main points of the agenda was to create an additional Annual Credit Plan (ACP) of Rs. 1,500 crore and increase the credit outflow. While 74% of the target budget of ACO has been reached, the credit outflow has increased only by 1%.

Q. Why is the credit ratio abysmally low?
A. Because there are no big projects coming in the region. The big projects are not happening because there is a low and order problem, which has come in the way of big investment being made here.

Q. The entrepreneurs here say that the banks are using the insurgency problem as an excuse.
A. That is not true.

Q. Apart from the Numligarh refinery, there is hardly any big project being planned for the North-East to give the region’s economy a boost. What are the deterrents?
A. The main deterrent , as I have said, is the law and order problem. No big investment is being made here because those who have the resources to do so are scared to put their money in the region.

Q. Why can’t the banks help finance the local entrepreneurs instead of waiting for big investment to come from outside the region?
A. As I have said earlier, the promoters here failed to instill confidence in the bankers. Unless they are sure of what they intend to do and what will be the growth of their projects in course of time, the banks cannot finance projects on the basis of hazy projects profiles. Even those who have made investment here from outsider the state have done so only in order to avail of the subsidies being offered by the respective state government of the region. Once the subsidies stop, they will fold up their unit and go away from the North-East.

Q. What steps is the SBI taking for a push to the region’s stagnant ecomony?
A. Our banks want to lend money to viable projects and the local entrepreneurs should come forwarded to avail of that. But the region has to get investments from outside, the respective state government must take steps to alter the bad image of the region which projects that the N.E is not a safe investment destination.

Q. The ground reality in the North-East is not quite same as in other states. Can’t the banks be liberal to the region and frame lending conditions in keeping with the reality on the ground.?
A. The banks have been working on this aspect even though there is no written rule as regards that. The projects to be financed in the region are always looked into favourably, sometimes even deviating from the accepted norms and procedures.

Q. What about financing need-based industries like in the field of textile, handloom, cement, etc.?
A. The mini or small scale cement factories cannot survive in today’s market reality . So that is out of the question. As for textile, after the liberalisation, even the existing textile factories are on their way out. In the present scenario, the only industry which can prosper in North-East is the tourism industries

Q. How many units financed by SBI have gone sick over the last five years?
A. I cannot quote the exact figure off-hand, but the number is quite substantial. Even the recovery rate is as low as 10%. But all is not lost. At least, Assam is showing signs of improvement compared to other states in the region. The problem here, apart from insurgency is that most of the promoters here are out in the market to grip. This is bad entrepreneurship. As far as I am concerned, before I sanction loan, I look at the three Ps. – Person, Project and Profitability. If a Promoter can satisfy me with those, I am game to lend him money.

Interviewed by : North East Times/Guwahati