Financial inclusion key rider for bank licence: Subbarao

Aspirants for new bank licences will need to show their commitment to financial inclusion, according to Reserve Bank of India (RBI) governor D. Subbarao. “One of the criteria for evaluating the applications (for a banking licence), which we will receive in due course of time, will be the business plan for financial inclusion,” Subbarao said at a Delhi seminar on Thursday. Finance minister Pranab Mukherjee said in his budget speech on Monday RBI will issue guidelines for banking licences before the end of the current fiscal. Mukherjee had announced in his 2010 budget that RBI would consider giving banking licences to the private sector, following which the central bank had issued a discussion paper in August 2010, inviting feedback from the public.  RBI has been contemplating whether to make it mandatory for new entrants to have a rural presence or to leave it to the competition in the market to force them to look for newer markets. As part of its financial inclusion agenda, RBI has also been prodding existing banks to cover unbanked areas and those who have been traditionally perceived to be unbankable. “Banks continue to see financial inclusion as an obligation and not as a viable opportunity,” he said.  RBI has asked existing commercial banks including foreign lenders to come out with their own financial inclusion plan. “We want the commercial banks to leverage their own business model,” he said. Subbarao said financial inclusion is important for sustaining double-digit growth, increasing savings, reducing leakage and corruption and giving the banking system leverage to manage asset-liability mismatches.  Out of 600,000 habitations in the country, only about 5% have a commercial bank branch. Only 40% of the population across the country has bank accounts.  RBI has asked banks to provide banking facilities to areas having a population of over 2,000 by March 2012. There are currently around 73,000 such habitations. While banks will cover 20,000 villages this year, the remaining 53,000 will be covered in 2011-12. Jayati Ghosh, professor at the Jawaharlal Nehru University, said financial inclusion should be the dominant criteria while issuing banking licences to new players. “This has been the major weakness of our banking system as two third of the economic agents are excluded from banking services. RBI should clearly specify how many rural branches the new banks should open,” she added.