To convert a loan against ornaments into NPAs is to lose the single most important asset that poor women possess. (Photo: Shutterstock)
Even before Covid-19 hit us, the economy was in steep decline. Most commentators were agreed that the principal cause was the fall in demand, especially among the poor and particularly in rural areas. Of course, the pandemic and the precipitate lockdown that followed aggravated all the weak spots in the economy. Worse than the economic consequences were the humanitarian consequences, which saw millions deprived of their meagre earnings and trudging hundreds, sometimes over a thousand kilometers, to reach home because no arrangements had been made to transport them back. Much of this has since been attended to but until demand is revived it is difficult to see the green shoots surviving.
Against this background, it is curious to see the Reserve Bank of India issue a notification on 6 August 2020 (the 75th anniversary of the atomic explosion on Hiroshima) that has a similar effect on the really needy seeking small, short-term loans to tide over personal or family difficulties or kick-starting their nano-enterprises. For the notification raises the loan-to-value (LTV) ratio from 70% to 90% for scheduled commercial banks but, inadvertently or otherwise, excludes NBFCs, including those that extend micro-credit against the pledge of gold ornaments from the ambit of the notification.
While the raising of the LTV ratio is certainly welcome for the relief it will give the formal banking sector, it is to be regretted that the notification does not address itself to the economic and humanitarian issues faced by the most badly affected segments of our economy and the worst-affected sections of the population, namely, the poor, more especially the rural poor and women in particular.
First, let us note that poor rural families have been badly mauled by the loss of remittance income from members of the family who migrated to the cities in search of jobs that hugely augmented family incomes. Also, at this time of cuts in family income, they have to accommodate and feed those who have returned home. They desperately need money in hand; but are not customers of scheduled commercial banks. The incentives given by this notification to those it covers are, of course, welcome but unless amended will do nothing for the really poor in the hour of their greatest need.
Second, it must be noted by RBI that the women of India, particularly the poorest, wear much of the wealth under their control on their person, as necklaces, rings, earrings and nose-rings. When they pledge this wealth to take a small loan, they are anxious to retrieve their only tangible wealth in the shortest possible time. This accounts for gold loans
being among the first to be redeemed. To convert a loan against ornaments into NPAs is to lose the single most important asset that poor women possess against total deprivation and utter poverty. Therefore, apart from the compelling needs of social justice and economic revival, it is incumbent in terms of gender justice to include in the RBI notification at least those NBFCs
whose primary clientele are women who, in relative terms, have lost most in terms of employment, family incomes and the additional burden of looking after migrant members of the family.
Third, it is discriminatory to allow scheduled commercial banks to extend loans against personal items such as gold ornaments to wealthier borrowers but deny this opportunity to poorer sections of the population who depend on pawnbrokers to carry them through crises.
Fourth, in my travels around Tamil Nadu, particularly my intensive and frequent village-to-village tours in my former constituency of Mayiladuturai, the only signboards I have seen competing with the hoardings and posters of the Dravidian parties are the signboards of institutions offering loans against gold ornaments. I have also seen this in my numerous visits to Kerala. Indeed, all over the country, whether in rural or urban India, the sign of rescue for the marginalized and the downtrodden is the familiar nameplate of those who extend gold loans.
It, therefore, makes business sense to let at least such NBFCs
increase their LTV to 90%. An amendment of the RBI notification of 6 August 2020 would be a compassionate recognition of this sociological reality.
(The writer is a former Union minister. The views expressed are personal)