Bank credit is an elixir of growth. Effective end use of credit generates income and employment on a sustainable basis. But, the credit overflow to economic sectors also creates loan defaults and indebtedness. The inability to create a credit absorption capacity is one of  the main reasons why the developing nations continue to carry a huge Non Performing Asset burden.

There has been an alarming increase in the NPAs in banks in the developing countries; 61 developing nations spend 10% of their governments’ revenue on interest payment. High bank NPA adversely affects the economic and the social life in the developing nations; nearly 46 developing nations spend more on interest payment than on education and health care. The developing nations can overcome the bad loan problem by creating credit absorption capacity in their own countries.  

The world population is estimated to reach 9.1 billion by 2050; accordingly, the global food production needs to increase by 60% to 100% by 2050. This will create a huge demand for bank credit. If the developing countries can’t create credit absorption capacity, the credit flow to the agriculture sector may turn into bad loans. The countries should protect and preserve their water bodies, hills and forests which will keep the water sources healthy and enhance the credit absorption capacity.  Preservation of crop diversity, extensive use of organic fertilizer, transparent marketing facility, perfect mix of traditional and modern agriculture techniques and sound agriculture policy will increase the credit absorption capacity in the agriculture sector. Healthy rivers, lakes and ponds will contribute to food production at a far lower cost.  Credit absorption capacity will increase if people continue to do physical work. India has immense potential to tap this agriculture potential if it develops the work culture among people in the villages. Lack of direct marketing facility, deteriorating water bodies and lack of basic amenities in villages etc let people migrate to cities for alternate income.  Mono sector growth due to lack of development vision makes many economic sectors lose their importance. Income disparity and unemployment increase due to lack of sound development vision.

Tourist and pilgrimage sites can create scope for banks to flow credit.  Its credit absorption capacity can grow if those places remain free from unnecessary construction activities. A large number of tourist and pilgrimage sites have been distorted due to poor management and lack of awareness among the authorities about the importance of history and heritage.   People come to see the historical and the heritage sites and not the unnatural concrete structures around those places. The credit absorption capacity of those places largely depends on the original look of those sites, safe environment and the natural beauty.

Mismanagement and over exploitation of mines reduces the credit absorption capacity. Because the adverse impact of mining on people’s health reduces their productivity and increases their medical expenses. It has an adverse impact on the credit absorption capacity of the  natural sectors. The developing nations should learn to add value to the minerals in their own countries and extract the minerals on a sustainable basis.

Though industries mass produce products to maximize profit. It happens when a country develops research and innovation skills. The credit absorption capacity of the country largely depends on the quality of research and innovation; the capacity to create exclusive products for the global market will make industries sustainable. Developing nations have immense traditional skills to make priceless handicraft and handloom products. Animal husbandry, horticulture, fishery, forestry, floriculture and other eco-friendly economic activities once thrived in almost all countries. Those activities still survive in most of the developing countries; which will enhance the credit absorption capacity amid a transparent marketing environment. When global warming threatens mankind with natural calamities of higher intensity, the eco-friendly products will have huge demand across the world. There is no dearth of funds in the banks, but there is an urgent need to create credit absorption capacity. 

© Eurasia Review