At present the financial institutions advancing loans on the basis of security provided against such loan disbursed. The loan disbursed is secured by the asset which is mortgaged against such loan. Also the financial institutions are not considering to advance loan where there is no security of any asset even though there is source of income. Also the assets having less values and more income generating cannot be advanced under the present system of advancing sufficient loans. For this purpose the financial institutions are concentrating security against loan but not the process of repayment of loan and income sources of the borrower. In other words to repay the loan the organization has to dispose of the asset otherwise the organization cannot repay the loan.
In this regard I personally feel that there should be a shift of emphasis from accepting security against loan to the income earning capacity of the asset for which the loan is granted. It means emphasis should be given to earning of income from the asset against which loan advance instead of treating the asset as security.
Many scams happened on valuation of collateral, this can be avoided by granting advance based on present/future Income. Ex. Rajkumar Basantani, Hershad Mehta
Also the financial institutions should concentrate on advancing loans and helping encouraging the welfare based economics rather than wealth based economics. Welfare includes according opportunity to every person and encourage him according to his ability to earn income without any discretion. Under this process every small and professionals, vocationals, self-employed, individuals, semi professionals can be eligible for obtaining finance from financial institutions. These sectors constitutes more than 50% of total employment opportunities of the nation and those are mainly in un-organized sector. For example a driver can obtain a loan for running vehicle on hire and earn income and repay the loan becoming self-sufficient and living with self-respect. Also a mechanic can obtain loan for his work-shop equipped with advanced technology and provided low price services to the customer and live with self-respect etc. No. of borrowers will increase with more beneficiaries.
As regarding the security for the loans granted under these sector it is advised that the borrowers personal guarantee or his educational qualifications or group guarantee or family guarantees can be encouraged instead of insisting for security in the form of marketable asset. This step will reduce lot of un-employment and encourage self-employment, dependence on bulk borrowers, corporate borrowers etc. since the income is assured and instalments recovered periodically the banks financial position also streamlined and can be planned in advance and can be performed according to projections. Majority of the retail and personal loans are collected effecitively and easily with low NPA.
In this regard I also suggest that there should be centralized organization to consider the applications of borrowers so that the technical scrutiny and analysis of the repaying capacity of the borrower will be analysed by the independent or combined organization and forward the application to the respective financial institutions which in turn only advancing loan and ask the nearest branch to operate such loan account. In the case default by the borrower, the guarantee offered can be invoked and will be informed to the centralized authority so that the borrower cannot be eligible further advance of loan for many institutions. This will reduce mis-utilisation of loan advanced and proper discipline by the borrower in repayment of loan.
Also I personally feel that there should be loans only for earning income and investment and not for personal usage for acquiring un-productive assets and to meet the general expenditure which does not acquire any asset or source of income. According to which the loan for acquiring gold and jewellery to meet the household expenditure etc. will be discouraged. Every asset acquired should earn some income
so that the repayment is assured to the financial institution and the borrower can repay by earning the income from such asset instead of depending upon sale of asset or additional source or diluting is savings made earlier.
Also I suggest that the financial institutions should not grant loans to corporate entities, business organisations, and others. Many of the NPAs are such organisational advances only. The personal guarantee or security of the management is obtained and sufficiently covered by secured assets. The reason being, the management should feel responsible and accountable to repay the loans and held responsible for deficiency. Infact I personally feel there should be personal borrowers only for earning income and investment because the borrowers knows the probability of income from such investment and the increase in value of the asset against each loan is borrowed. Personal loans also increase repayment commitment of the borrower. Hence the borrower should be held responsible and accountable for any deficiency in income and decrease in value for the asset against he has obtained the finance.
Reduction of Cost of operation by Financial Institutions/ATMs: In this regard I present some of my personal views for reduction of cost by the Financial Insitutions.
- Three or four branches of a Bank can be merged and ask to work shiftwise by maintaining business hours atleast 16 hours a day. This will reduce the maintenance cost of building, rents and other overheads. However the same staff of three branches will look after the single major branch. Also this will reduce unhealthy competition among the branches of the same bank.
- ATMs of many banks can be maintained at Single place to reduce the cost like Employee, security, rents and internal decoration etc.
- The customers will also be happy since the bank service is available for 16 hours a day which will not be during their official or business hours and they can take the help of financial institution without disturbing their regular activities.
