Defects of indigenous banker

Contents

State the defects of Indigenous banks.

Defects of indigenous banker

The organization and functioning of indigenous banker suffer from the following defects:

1. Mixing Banking and non- Banking Business: The indigenous banker generally combine banking and non-banking business. This is against the principle of sound banking.

2. Un-Organized Banking System: The indigenous banking system is highly unorganized and segmented. Different indigenous bankers operate separately and independently.

3. Insufficient Capital: The indigenous bankers largely depend upon their own capital or that of their family members or relatives. The financial resources of these bankers, therefore are insufficient to meet the demand of the borrowers.

4. Meagre Deposit Business: The main business of the indigenous bankers is give loans and deal in hundies. Their deposit business is very small. They do not mobilize saving of the general public.

5. Higher Interest Rates: The indigenous bankers charge much higher interest rates from their borrowers than those charged by the commercial banks. High rates of interest adversely affect the inducement to produce.

6. Defective lending: The indigenous banker generally do not follow the sound banking principles while granting loans. They provide loans against insufficient securities or even against personal securities.

7. Unproductive Loans: The indigenous bankers do not pay attaintment to the purpose for which the loan is used. They generally give money for un- productive and speculative activities, for paying interest or for paying off old debts.

8. Secrecy of Accounts: The indigenous banker keep secrecy about their accounts and activities. They neither get their accounts audited nor publish annual balance sheets.

9. Exploitation of Customers: The indigenous bankers indulge in all types of malpractices and exploit their customers in many ways:

(a) They make unauthorized deductions from the loans.

10. No Control of Reserve Bank: The indigenous banking business is un-regulated. The reserve bank of India has not control over these bankers and cannot regulate their activities.

11. Discouragement to Bill Market: The indigenous bankers also stand in the way of developing a proper bill market in the country. They very often give often give cash loans and handies play a small role.