Rajan said this last week while delivering C.D. Deshmukh lecture at NCAER in New Delhi.
“Technology will also help reduce transaction costs, facilitating inclusion. We now have an internet portal (Vidyalakshmi) where students can apply to a variety of banks for education loans,” he said.
“We are exploring a similar portal for MSMEs, where MSMEs can apply easily to banks and where we can monitor timely responses to the loan applications,” he added.
He, however, added that in all such lending, there is a need to address the issue of collateral.
“Credit flows easily only when the lender is persuaded that he will get his money back, so easier access to credit necessitates harsher consequences of default, including the loss of collateral,” said Rajan.
“Aadhaar has given individual borrowers the possibility of using their future access to credit as collateral. I do hope the Supreme Court clears up the cloud over its use quickly. But there are also situations where borrowers have physical collateral they can use to lower their cost of credit and improve access,” he added.
He said there is a real need to re-examine mandates that banks should lend without collateral to certain segments. While the intent is laudable, the consequence may simply be that banks fear taking collateral even when available, and thinking the borrower is too risky, do not lend.
“More generally, the best way to facilitate lending to the excluded is to reduce transactions costs, improve borrower information and frameworks for recovery, and create institutions that have lower costs and easier access to the borrower than existing ones. For this, we need to improve the structure and working of credit information bureaus, collateral registries, and debt recovery tribunals,” the RBI Governor said.
Speaking on the interest rates, the apex bank chief said, “Industrialists grumble about high rates while retirees complain about the low rates they get today on deposits. Both overstate their case, though as I have said repeatedly, the way to resolve their differences is to bring CPI inflation steadily down.”
When asked about his profits, he eventually admitted they were at an all-time high. But nevertheless, he said, we need safeguard duties because foreigners are dumping below cost! Put differently, businesspeople complain about low output price inflation, but the inflation that matters to them is the inflation in their profits, which is higher, Rajan said sharing his experience.
“Clearly, there are industries in trouble. We should, however, be particularly careful about raising tariffs at a time when costs are falling everywhere – aside from the inflationary impact, for every happy domestic businessman whose prices are raised by the imposition of tariffs on imports, we have an unhappy domestic businessman whose costs are raised by the very same tariffs, as well as unhappy consumers,” said Rajan.