Sound banks needed to protect customers…….Tamal Bandyopadhyay & Dinesh Unnikrishnan
The year 2008 was very challenging, says Usha Thorat who retired as deputy governor of the Reserve Bank of India on Tuesday
The year 2008 was very challenging, says Usha Thorat who retired as deputy governor of the Reserve Bank of India on Tuesday
RBI is 75 years old and yet 40% of the Indian population still doesnt have access to banking.
I dont think we can look at just this indicator and say RBI has failed. A sizeable percentage of the population is still below the poverty line.
There are several locations that are not easily accessible by all-weather roads. Look at many of the human development indicatorswe are still not there.
If you say financial inclusion is one of the failures, I would say, yeswe have not been able to arrive at the right business model which delivers financial inclusion. I also admit that there is much more to be done. But it is an inevitable part of society, which is trying to meet growth aspirations and create entrepreneurial opportunities. The correctives for market failure are ensured through priority sector lending norms and credit-linked subsidy schemes for the poor.
What form of intervention is the central bank looking at?
We still have a largely public sector banking system and there is an owners focus on financial inclusion. Its not so easy when it comes to the private sector banks
But even though we might be able to have an overall public policy through directions, unless it is a sustainable business model, we wont be able to upscale it significantly. That is what is needed nowthe scaling up at a reasonable cost. I think we are in a position to do this now.
How many years will it take to get 100% financial inclusion?
Hundred percent financial inclusion is really a choice of the person. We have to make sure that anybody who wants to have access to a bank account can have the access at an affordable cost. We are targeting about 75,000 villages by 2012. There is a clear road map and in each state the villages have been allocated to all the banks for ensuring that all the targeted villages are covered by a business correspondent if a brick and mortar branch is not considered viable. I dont think it is an impossible target to achieve.
I would say the more important challenge is: How are we going to deal with the hundreds of millions of customers for providing credit, in terms of appraisal, supervision and follow-up, and ensuring that credit is linked to livelihood and income-generating activities. We need to create the whole ecosystem of providing the enabling conditions for the flow of finance to micro and small enterprises.
What are the three most critical areas in Indian banking that we should watch out for?
First is ensuring we have the requisite expertise, second is having an effective delivery model and third is financing the small and micro sector. We have to be much more innovative in meeting the needs of this sector.