Home / Market / Mark-to-market /  The cost of financial inclusion

The chart shows the break-up of bad loans between priority and non-priority sectors of public and private banks. While non-performing assets are higher as a percentage of their loan portfolios for public sector banks, the reason is the higher proportion of bad loans in the priority sector. For instance, the proportion of bad loans in the non-priority sector portfolio is more or less the same for both public and private sector banks—2% for public sector and 1.9% for the private sector. But 5% of priority sector loans turn bad for public sector banks, compared with 1.8% for private peers. A Kotak Institutional Research report says 90% of the one percentage point difference in gross bad loans for public and private banks can be attributed to the priority sector. The reason is probably because public sector banks have more priority sector loans, and often operate in remote areas and serve the most vulnerable firms. Financial inclusion, after all, has a cost attached to it.

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