Sector Lending Research Articles

‘Profligacy in the encouragement of thrift’: Savings banks in Ireland, 1817–1914

This paper studies institutional changes in Irish savings banks and their functionality from 1817 to 1914. These changes saw market incumbents, trustee savings banks, suffering from a loss of confidence and displaced by a functionally equivalent but institutionally distinct competitor, the Post Office Savings Bank. The paper finds that, despite significant institutional change, savings banks of all types were consistently loss-making. This suggests that Irish savings banks were subsidised. In addition, despite contemporary accusations of credit shortages, Irish savings banks, due to legal restrictions, did not engage in any private sector lending, thus arguably crowding out private investment.

In the Shadow of the Welfare State: The Role of Payday Lending in Poverty Survival in Australia

AbstractA defining characteristic of contemporary welfare governance in many western countries has been a reduced role for governments in direct provision of welfare, including housing, education, health and income support. One of the unintended consequences of devolutionary trends in social welfare is the development of a ‘shadow welfare state’ (Fairbanks, 2009; Gottschalk, 2000), which is a term used to describe the complex partnerships between state-based social protection, voluntarism and marketised forms of welfare. Coupled with this development, conditional workfare schemes in countries such as the United States, Canada, the UK and Australia are pushing more people into informal and semi-formal means of poverty survival (Karger, 2005). These transformations are actively reshaping welfare subjectivities and the role of the state in urban governance. Like other countries such as the US, Canada and the UK, the fringe lending sector in Australia has experienced considerable growth over the last decade. Large numbers of people on low incomes in Australia are turning to non-mainstream financial services, such as payday lenders, for the provision of credit to make ends meet. In this paper, we argue that the use of fringe lenders by people on low incomes reveals important theoretical and practical insights into the relationship between the mixed economy of welfare and the mixed economy of credit in poverty survival.

Russian Banking Sector in April 2013

In April 2013, the Russian banking sector was driven by the same principal trends that were observed in the first quarter of the year. Real sector lending kept slowing down in spite of higher growth rates in household savings. In addition, allowances for provisions for losses on loans and other assets began to have an increasingly inhibitory effect on the financial efficiency of the Russian banking sector.

Contagious Real Estate Cycles: Causes, Consequences, and Policy Implications

The objective of this study is two-fold: first, to conceptualize key causal relationships between housing price cycle and mortgage credit cycle based on relevant literature and, second, to present cases of two countries - Korea and the U.S. - in terms of evolution of, and recent milestone events in, residential mortgage lending sector in each country, observed patterns housing price and mortgage credit cycles, and key causal relationships found from data analyses. Our results show that, in the U.S., the housing price and mortgage credit cycles exhibit a statistically significant and, to some degree, explainable co-movement pattern in the recent period (1997-2010), but not in prior cycles. That is, a regime shift is observed in terms of causal relationship between housing price movement and mortgage credit cycle. In the Korean case, a similar co-movement is also observed in the mid-2000s, but different types of mortgage lenders - banks and non-bank depositories - are shown to have different lending patterns in more recent years. In terms of the underlying indicators, the leverage and other non-price terms in mortgage lending are very much conservative in Korea, which makes the debate of a housing driven systemic risk as in the subprime mortgage market in the U.S. as less relevant in the Korean context. In terms of public policy, we argue that a regulatory design of residential mortgage lending sector should consider both dimensions of market stability and housing affordability, and that policy target should be on the source of cyclical price or lending pattern, whether that is exuberant borrower, pro-cyclical lender, or yield-curve playing investor.

Transformation of Credit Delivery for the Poor through SHG–Bank Linkage Programme: Retrospect & Prospects

Despite rapid branch expansion, priority sector lending norms and thrust on pro-poor and rural credit schemes, in the post-nationalization period, a vast segment of the population, particularly the poor and disadvantaged, did not have access to the existing financial institutions. There were serious aberrations in the credit delivery mechanism and schemes. An earnest search was made for an alternative credit delivery approach for the vulnerable section of the community. In this backdrop, NABARD based on the learnings from the action research and intensive consultations with all concerned, launched a pilot project on SHG–Bank Linkage Programme (SHG–BLP) in 1992, by combining the mutual strength of formal credit institutions (banks) and informal agencies (SHGs), linking savings with credit and focusing on relationship banking. With the success of the pilot scheme, it was mainstreamed in 1996. The programme has been nurtured with multi-pronged promotional efforts and creation of a conducive policy environment by NABARD with the support of the Government and RBI. Banks and NGOs have played significant roles in upscaling and deepening the programme. Now, the programme in a gradual process has become a national movement and the world’s largest microfinance programme in terms of size and outreach. It has transformed the whole approach of all players in dealing with the poor, rural credit and rural financial institutions and the voluntary sector. It has brought about socio-economic empowerment of the poor, particularly women, as evidenced from various impact studies. Most of the rural development schemes and livelihood programmes incorporated the SHG approach. For sustaining quality and effectiveness of the SHG–Bank Linkage Programme, emerging issues like regional imbalance, promotion of micro-enterprises/livelihood, capacity/institution building efforts for managing growth, adoption of technology and continued supportive policy environment need to be addressed. The SHG–BLP has the potential and propensity to transform the entire rural India.

A Study on Management of Non Performing Assets in Priority Sector reference to Indian Bank and Public Sector Banks (PSBs)

The problem of NPA is not limited to only Indian public sector banks, but it prevails in the entire banking industry. Major portion of bad debts in Indian Banks arose out of lending to the priority sector at the dictates of politicians and bureaucrats. If only banks had monitored their loans effectively, the bad debt problem could have been contained if not eliminated. The present study has been designed to illustrate the necessity and the nature of the non-performing assets in Indian Bank, Tamil Nadu. Finding out Non Performing Assets –NPA- under the Priority sector lending in Indian Bank and Compare with Public Sector Banks and making appropriate suggestions to avoid future NPAs and to manage existing NPAs in Indian Bank are the other major objectives of this study. The scope of this study covers on the basis: (i) measuring for the banks to avoid future NPAs & to reduce existing NPAs, (ii) guiding for the government in creating & implementing new strategies to control NPAs, (iii) selecting appropriate techniques suited to manage the NPAs and develop a time bound action plan to arrest the growth of NPAs.

Study on the Bank Finances to Small Scale Industries in Theni District in Tamil Nadu

Finance is an important input for an industry. For a small scale industry the need for finance is very essential due to its limited resources. The sources of finance for small scale industries are of two types-internal and external. The role of commercial banks in the process of economic development is well recognized. The year 1969 was a major turning point in Indian financial systems when 14 major banks were nationalized. Different national and state level institutions operating in the country for meeting the credit requirements of the SSIs sector include Small Industries Development Bank of India, Commercial Banks, Regional Rural Banks, Co-operative Banks (State, Central and Primary), State Financial Corporations/ State Industrial Investment Corporations, State Small Industries Development Corporation, National Bank for Agriculture and Rural Development, statutory bodies (KVIC, COIR Board, Handloom Board and Handicraft Boards), National Small Industries Corporations Limited and the like. The State bank of India lending to the small-scale industries in Theni district, compared to the public sector and the priority sector lending. The trend values showed that the target has increased faster than the actual amount of advances. The recovery rate of the SSI advances is a maximum of 69% in Theni district.

The Eurozone debt crisis: the options now

The Eurozone debt crisis will soon enter its third year; 3 years marked by wild gyrations in both policy and practice. The principal objective to date has been, to use a cold war term, containment. But little has in fact been contained. Greece—the epicentre of the crisis—remains exceptionally fragile. Portugal and Ireland are wards of their official sector lenders (the EU and the IMF). Spain and Italy must watch their bond yields each morning with palpable anxiety. And some churlish commentators even speak, in hushed and conspiratorial tones, about the possible infection of the ‘core’ of Europe.

An Evaluation of Agricultural Finance - A Study With Special Reference to Kaveri Grameena Bank

Even today agriculture retains its importance in Indian globalised economy; about 70% of the population has been directly or indirectly depend on agricultural and its allied activities. The requirement agricultural credit has been increasing. The Indian sector banks have been experiencing a growth in profits, to retain the tempo the banks are more focusing on commercial lending by ignoring agricultural credit. But many drivers of profits of not sustainable in the long run, They should focus on key factors like diversified loan portfolio, CD ratio, Loans and advances healthy Internal risk management techniques by putting in place appropriated risk Measurement. Indian banking has witnessed tremendous changes in the wake of the new economic reforms ushered in the year 1992. The reforms have positively impacted on the banking system, which has become flexible, Competitive and efficient with better productivity. The winning strategies for them could be clear customer segmentation and product offerings focus on Cost efficiencies and entrepreneurial ability to face stiff competition. Reserve bank of India which is aims at financial stability through structural and regulatory measures. It envisages the new economic reforms in the banking sectors as those aimed at enhancing operational efficiency thorough completion and prudential norms. The new global banking environment influences the Indian banking sector to keep away for priority sector lending. The biggest challenge for the banks in India is efficient management of non-performing assets (NPA’s). So the study focuses to know what is the non-performing Assets are, and how they can handle to reduce loss. The present agricultural financing polices followed by public sector banks including RRBs are needs to be evaluated.

Lending To Priority Sector In India: A Study Of Public And Private Banks

Priority sector lending is undoubtedly one of the most appreciable reforms initiated by Government of India to ensure the betterment of lagging and deprived groups of society. As per the directives of RBI all scheduled commercial banks from public as well as private sector are hereby under compulsion to lend at least 40 per cent of Adjusted Net Bank Credit or credit equivalent amount of Off Balance Sheet Exposures (whichever is higher)to priority sectors. Although all Indian bank, irrespective to their ownership, are supposed to share the responsibility of uplifting needy section equally yet the actual scenario does not portray the same. In this context, the present paper attempts to analyse whether the practice of priority sector lending is similar for public and private sector banks or one of these two sectors is more committed to its task?

Bank Lending Under Priority Sector in Assam (Concept, Composition and Growth)

It was during the post-nationalisation period that priority sector lending and social banking concepts were crystalised and adopted for the purpose of credit deployment. The word “priority sector” is used for those activities that have national importance and have been assigned a priority for development, but which have not received due attention from the private sector commercial banks. Hence, in the scheme of social control, emphasis was laid on larger allocation of bank credit mainly to three important sectors, namely, agriculture, small-scale industries and exports, which were termed as ‘priority sector’. The scope of priority sector was subsequently broadened so as to include other sectors later and some target was fixed by the Reserve Bank of India. Since nationalisation, the scheduled commercial banks have been engaged in the task of bringing about the desired change in the attitude and approach of banks in regard to their priorities, vis-à-vis the services rendered by them. No doubt, the quantitative changes are perceptible in this regard, but the qualitative changes have not been assessed in terms of pronounced policies.

Does Government Intervention in Credit Deployment Cause Inclusive Growth? An Evidence from Indian Banking

Access to finance by the poor is a sine qua non for poverty reduction through economic development thereby driving inclusive growth which can further lead to sustainable growth. This study using adequate data covering pre and post-liberalisation period from 1974-75 to 2007-08 in the Indian context and employing Multiple Regression (OLS) Analysis has established that there is a strong need to strengthen policy approach for financing the priority sector as it has had a positive impact towards attaining inclusive growth. In view of the strong relationship between priority sector lending and inclusive growth, it is imperative on the policy makers in general and the governments in particular to make efforts to induce the banks and financial institutions in accelerating priority sector lending beyond the stipulations laid down.

The Eurozone Debt Crisis -- The Options Now

The Eurozone debt crisis is entering its third year. The original objective of the official sector’s response to the crisis -- containment -- has failed. All of the countries of peripheral Europe are now in play; three of them (Greece, Ireland and Portugal) operate under full official sector bailout programs. The prospect of the crisis engulfing the larger peripheral countries, Spain and Italy, has sparked a new round of official sector containment measures. These will involve active intervention by official sector players such as the European Central Bank in order to preserve market access for the affected countries. This paper surveys the options now facing the sovereign debtors and their official sector sponsors. It concludes that there are no painless or riskless options. In the end, the question may come down to this -- to what extent will the official sector sponsors of peripheral Europe be prepared to take on their own shoulders (and off of the shoulders of private sector lenders) a significant portion of the debt stocks of these countries during this period of fiscal adjustment?

MSMEs: The Key to Entrepreneurship Development in India

The term MSME means micro, small, and medium enterprises; SME means small and medium enterprises; while MSE means micro and small enterprises. In India, the Micro, Small, and Medium Enterprises Development (MSMED) Act 2006 defines MSMEs. It introduces the concept of 'enterprise' as opposed to the earlier concept of industry. The overall contribution of small firms—formal and informal—to the GDP and employment remain about the same across low, middle, and high-income group countries. As income increases, the share of the informal sector decreases and that of the formal SME sector increases. The main need is to generate large scale employment as countries develop the share of agriculture in providing employment and in GDP decreases. The MSME sector in India is heterogeneous, dispersed, and mostly unorganized. It includes diverse types of production units ranging from traditional crafts to high-tech industries. In this regard, the core challenges of MSMEs are the following; Inadequate Access to Credit and Working Capital, Dwindling of a Vibrant Sector, Non-Availability of Quality Raw Materials and Packaging Facilities on a Timely Basis, Insufficient Market Research, Linkages & Design Inputs, Rehabilitation of Sick SSI Units, Globalization, and Technology Upgradation and Achieving 'Economies of Scale'. At present, there is no subsector target for the MSE sector within the overall stipulated 40% ceiling for the priority sector lending. Since sub-targets have already been fixed at 18% for agriculture and at 10% for the weaker sectors, the MSE sector has to compete with real estate, housing, education, retail, etc. for the remaining 12%.

Priority Sector Lendings in the Post Reform Period

Priority Sector Lending has become an essential component of national agenda after the nationalization of banks. The list of sectors included in priority sector lending has changed with time. Major changes in priority sector lending is seen after the initiation of banking sector reforms in 1991. The study attempt to analyse the performance of public sector banks' advances under priority sector lendings. The period of the study is 1991 to 2009 and is divided into two parts. PSBs' achieved and surpass the stipulated target (40 percent of NBC) during the second half of the study period. In Agriculture Advance they have failed to keep pace with the rate at which both NBC and priority sector lendings have increased. Banks appear to have partially forgotten their responsibilities in lending to SSIs and weaker sections in the period after reform. The percentage share of priority sector NPAs is quite high as compared to its share in NBC. Shrinking share of real priority sector, neglect of agriculture coupled with its sub optional structure, neglect of SSIs, and mounting NPAs in priority sector lending are some serious issues, which need immediate attention. Hence, banks should adopt a balanced approach as development agent and ensuring sustainability of directed lending.

Corruption in a model of vertical linkage between formal and informal credit sources and credit subsidy policy

The present note develops a model of vertical linkage between the formal and informal credit markets highlighting the presence of corruption in the distribution of formal credit. The existing dominant moneylender, the bank official and the new moneylenders move sequentially. The existing moneylender acts as a Stackelberg leader and unilaterally decides on the informal interest rate. We show that there may arise a case where an increase in the supply of formal credit results in an increase in the informal interest rate under reasonable parametric restrictions. This shows that apart from (i) asymmetric information on the part of informal sector lenders (Bose, 1998), (ii) an increase in the probability of default of all informal sector lenders (Hoff and Stiglitz 1997), and the (iii) possibility of informal lenders to collude (Floro and Ray 1997), the presence of corruption in the distribution of formal credit might be another factor responsible for the policy of vertical linkage to break down.

Exploring the role of fringe lenders in the lives of Queenslanders

The fringe lending sector in Australia has experienced considerable growth over the last decade. However, very little is known about the profile of the typical borrower or the typical lender – though much is assumed about the morality and motivation of both. Drawing upon findings from a pilot study conducted in Queensland during 2008–2009, we discuss the changing landscape of fringe lending in Australia before exploring how borrowers and lenders construct their respective motivations and actions. We conclude that the use of fringe lenders by low‐income Australians provides useful insights into the growth of fringe lending in Australia and the limitations of policy responses that are trapped in the regulation versus non‐regulation debate. We suggest that a more appropriate response must also consider the wider context of insufficient incomes to meet increased living costs. The policy debate needs to ensure that it acknowledges the complex demand and supply reasons for increasing demand for short term credit. The debate also needs to recognise that, in the absence of alternatives, fringe lending products will remain a prominent aspect of the financial management strategies of Australians living on low incomes.

A model of bank lending in the global financial crisis and the case of Korea

This paper studies two interrelated banking sector issues in the context of the global financial crisis and its impact on Korea: (i) To what extent did state owned banks expand lending to offset declining credit as private sector bank balance sheets deteriorated? (ii) In the recent crisis, was bank lending constrained because of funding or liquidity factors? To address these issues, a framework of optimal bank lending is presented in which banks face adverse selection in a market for risky investment projects, pay regulatory costs, and borrow in wholesale and traditional funding markets. The model implications are tested on bank-level data with a focus on the global financial crisis. The results point to significant credit expansion by public sector banks in response to deteriorating international credit conditions. Estimates of private sector lending during the crisis suggest that, at best, the credit crunch was less profound than it could have been. Wholesale funding is not found to have been a major driver of deteriorating credit conditions in Korea, reflecting, at least in part, strong policy support from the authorities during the crisis.

Credit Cycles: Evidence Based on a Non Linear Model for Developed Countries

We propose an econometric analysis of the evolution of bank credit to the private sector in order to describe credit cycles and identify phases of particularly low (or negative) credit growth such as those that typically accompany financial or banking crises. We use a sample of twelve developed countries, which improves the reliability of our estimation results and provides a global view of the situation of credit for developed countries. In our preferred specification, the credit cycle is characterized as a three-state Markov-switching model that identifies episodes of credit expansion, intermediate credit growth and subpar growth or credit crisis. This specification identifies six of the countries as having experienced period of credit adjustment after the beginning of the financial crisis in 2007 (Canada, Germany, Netherlands, Spain, Switzerland and US). By the end of the sample period, credit growth was still impaired in three of these countries (Germany and Spain in 2010:I; and United States in 2009:IV). The analysis also uncovers a systematic cyclical pattern in the bank lending sector of the group of advanced countries considered in our sample, which have experienced five episodes of synchronous restrictions in bank lending: 1974-75, 1980-82, 1991-93, 2001-02 and from 2008 to the end of the sample.

Issues of Sub-Contracting in Small-Scale Enterprises in India in the Face of Liberalisation

The remarkable shift in policy directions in the 1990s has exposed the SSEs to market competition in a significant way. While in the pre-liberalization era the SSEs were protected from competition from large-scale enterprises and imports and they had isolated sheltered markets due to geographical and product market segmentation, policies of dereservation of items, reduction of tariffs, and removal of quantitative restrictions on imports and entry barriers on multinational corporations (MNCs) have created possibility of extensive competitive threats to these enterprises. This competitive pressure on the SSEs has been intensified further with the financial sector reforms that have squeezed the benefits of lower interest rates and priority sector lending, and reduction in price control that has taken away the advantages of obtaining scarce raw materials at nominal prices. In this new policy regime, the SSEs should, therefore, be able not only to compete with the LSEs, MNCs and imports in the domestic market, but also to export successfully without any external support in the international market. This means that the SSEs need to improve their competitiveness significantly by enhancing productivity, efficiency and quality of product and services for their survival and growth. Developing sub-contractual linkages with larger firms (both domestic and foreign) might be an important strategy for the SSEs in this regard. The present paper, thus, emphaises on subcontracting as a novel way out for SSEs to take a new turn in their growth path in the current globalised competitive industrial environment.