..............One cannot find fault with Modi’s earnestness. People in remote villages drink American fizzy drinks like Coke and Pepsi and carry mobile telephones in their pockets but they are pariahs when it comes to banking; India’s banks do not find doing business with them profitable. According to a 2012 working paper of the World Bank, only 35% of India’s adult population has access to formal banking.............
......................Should we blame Modi for the great Indian financial inclusion circus? To be fair to him, he has resorted to inclusion at gunpoint out of sheer frustration. Lazy bankers have been refusing to expand their services, citing high transaction and technology cost for going rural, while they are sanguine about thousands of crores in loans, given to corporate borrowers, turning bad. For the first time, in January 2006, the Reserve Bank of India had allowed banks to appoint business correspondents and address the so-called last mile problem in providing banking services to the masses, but nothing much has happened except for opening millions of so-called no-frills accounts. .........
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The Mission, at the outset, is highly laudable. But questions deep remain.
Trend and Progress Report of the RBI (p.84) says it all regarding the progress of Financial Inclusion: the number of accounts opened 73mn basic savings bank accounts since 2005 (the year of introduction) through all institutional arrangements and hold Rs.55bn in the accounts but had only transactions worth Rs.7bn or near one eighth. Post 2010 an average of 10mn SB accounts per annum were opened in an accelerated mode. But on a single day 1.3mn accounts were opened!!
Like all other target oriented schemes that went through the public sector banks' windows, this new Financial Inclusion Mission had surpassed the ten million accounts in single day by 3million. Whenever and whatever the Government of India ordains to the PSBs it shall be done and it shall be done with enthusiasm publicly displayed. What is the planning that has gone in for achieving this and how perfect it is, is not much of a bother now as much as impressing the FM and PM.
The issues that need attention are:
Politicians right from the village level, and some institutional and individual brokers should not lay seize of the opportunity. The way some well intentioned schemes went awry in the past was that such persons would introduce a group; have the accounts opened; and for each credit account get a commission from the bank; pay a balance out of credit generated in cash to the account holder and trade with the rest of the money. When the repayment is due, he would pay into the borrower's account the amount he has actually used out of the loan leaving the original balance utilized by the borrower unpaid. Since this would constitute only 15-20 percent banks would gloss over and permit a roll over of the credit. The money circulation goes on till it reaches NPA level in the actual borrower's account. Dispute resolution mechanism commences and the lucky would resolve. The same mechanism got repeated between the BCs and their agents vis-à-vis the account holders. The disputes between the BCs and Agents and the related Banks are still on, on such scores.
We have a knack of potential misuse, if not abuse of facilities that are well intentioned. Only when systemic initiatives right from the beginning are put in place such eventualities can be avoided. After all Rs.5000x1.3mn and even half of it is big money for pursuing Ponzi schemes by the financial brokers.
The best solution would be not to release cash by way of overdraft but only allow merchant outlets to liberally act on the Rupay and Kisan Credit Cards for all the consumption requirements as these cards are biometric. However, going by the credit card frauds in the country, which have only been on the rise, the banks have to be continuously on guard.
ATMs should dispense only up to Rs.1000 in cash of Rs.100 denomination in a credit cycle covering Rs.5000 per month and the rest should be only through merchant outlets.
We have a responsibility to ensure that the system does not derail due to overenthusiasm among the main stakeholders. half-yearly special audit and evaluation by independent agencies, specifically directed at financial inclusion efforts would go a long way.
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