The world over, it is recognized that for economic growth to be sustained, the marginalized must be brought into the mainstream. It is also recognized that for 'Inclusion' to be successful, there must be 'Financial Inclusion'. With large tracts of poverty in India, it is the mainstream which is marginalized and as such the task is indeed daunting. 'Financial Literacy' is of paramount importance as without it, financial inclusion would fail. While with concerted efforts financial inclusion can be attained in a few years, financial literacy, in the normal course, would take two generations and as such financial literacy is even more important than financial inclusion. Financial inclusion cannot be attained in a vacuum and there are a number of concomitants or preconditions which have to be met to ensure successful financial inclusion. Some of the key concomitants are: (i) There should be real activity in the area where there is a thrust for financial inclusion. (ii) Social sector facilities like health, education and family welfare have to be upgraded. (iii) There must be adequate attention to the economic infrastructure such as accessibility to roads and communications, water, electricity, housing and other basic amenities. (iv) Macroeconomic policies have to be sensitized to ensuring distributive justice. In the absence of these concomitants, financial inclusion would degenerate into consumption loans which do not generate income and as such financial inclusion would fail. The eminent economist, the late Dr. D. T. Lakdawalla, twenty years ago, said that it is not as if when there are national calamities, succour should not be provided to the victims. The correct response to such a situation is fiscal grants and not bank loans. In 1991, the then Finance Minister, Dr. Manmohan Singh said that banks should not become part of the grants economy. The interest rate structure in India is distorted in that capital, which is scarce, is artificially priced low. The Indian polity has a bias in favour of low interest rates. Since the income of the average depositor is much lower than that of the average borrower, there is a strong bias against small savers. The target for March 2012 is that banking facilities should be provided to habitations having a population in excess of 2,000. It is estimated that in pursuance of this target, 5 crore accounts would need to be opened by March 2012. Since brick and mortar branches cannot be opened in all 73,000 habitations, a system of Business Correspondents (BCs) has been instituted to reach out to these habitations. The banks have to undertake due diligence while appointing BCs. BCs would be the face of the bank and if they are found wanting the banks would be subject to a reputation risk. In the initial phase, since 2005, banks were required to open No Frills Accounts (Savings Bank Deposits) with minimal Know our Customer (KC) requirements and millions of accounts have been opened. It is unfortunate that most of these accounts are dormant. In the recent thrust, the objective is not to merely provide No Frills Accounts but to provide facilities for recurring deposits, fixed deposits, remittances, overdraft facilities, kisan credit cards and collection of cheques. A thought that needs consideration is whether it would be better to have less ambitious numerical targets with greater emphasis on quality of service. On May 3, 2011, the Reserve Bank of India (RBI) raised the Savings Bank Deposit Interest Rate from 3.5 per cent to 4.0 per cent. Banks are already considering imposing service charges in such a manner that it would cripple No Frills Accounts. Also some banks have asserted that if the Savings Bank Deposit interest rate is deregulated, they would offer higher interest rates to large depositors and lower rates to smaller depositors. Some banks have taken an extreme position that they would just not pay any interest to No Frills Account holders. In a few cases banks have resorted to brutal charges on small account holders. For instance, when a bank made a mistake in the address of an account holder in the computerized passbook, the bank demanded a charge of Rs 50 to rectify the error. One fervently hopes that this is an extreme outlier and not representative of the banking system's operations. It could be argued that bank customers have been provided a redressal system, but the ground reality is that most customers are afraid to complain. It is unfortunate that despite all the efforts to improve customer service, the quality of service depends on who you are and who you know. Financial literacy is a prerequisite to effective financial inclusion but this is the hardest to achieve. General literacy does not ensure financial literacy. It is paradoxical that those who deem themselves to be generally the most literate are, in many cases, the most financially illiterate. It should be mandatory to integrate primary financial literacy into primary education. Since this will take time to permeate through the system, as today's children become tomorrow's adults, there should be a special drive for adult financial literacy. The government and the RBI should not hesitate to bear the costs of promoting financial literacy. The present approach of pamphlets and cartoons reflects an elitist approach. Rather, financial literacy should build on the phenomenal arithmetical skills of the illiterate there is a need to channel these in- born skills. Finally, those entrusted with the task of financial literacy should not approach it as a chore but a noble cause which should be approached with dedication and missionary zeal. As the late Walter Reuther, the eminent US trade union leader, said: "There is no greater calling than to serve your fellow men. There is no greater contribution than to help the weak. There is no greater satisfaction than to have done it well".
Free Press Journal
