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Sunday, 22 February 2015

Inclusive Finance-- Jan Dhan Yojana!

To provide a platform for Inclusive Growth, we need to speed up the process of inclusive finance. Looking into costs and benefits of banks in covering the non-banked areas , it will be too ambitious to force PSU Banks to open brick and mortar branches in every gram panchayats. Branches with large no. of small account holders may not survive the competition.
There is no need for RBI or Government to force Scheduled Banks to open branches in non-feasible areas. Well the scheme may have takers if right instruments are available for the new users. This will take more time. Few branches which have been opened so far need to take a pilot study on the credit requirements and payment capacity of these people. For this project appraisal capacity of bank, professionals have to be enhanced.
The fear of non-payment and delay in payment will be there. The lack of local information system or regional market research feed-backs are major stumbling block. This unnecessarily categorizes local branch managers as major risk-takers when they make advances. The system of guarantor may not be enough for this system to take root. The database available through different surveys need to be analyzed for this purpose.

I advocate that the banking system must reach every doorstep. Well we can promote Credit Co-operatives and RRBs to come forward in addition to the scheduled banks. Only that audit, systematic monitoring system, information communication system needs to be developed so that deposits are safe. This can be supported by established banks. The awareness, skill development exercises and capital requirement may be allowed to be accommodated in their CSR components.
Ru Pay card, Kissan Card, insurance coverages and over-draft facilities may induce people to open accounts. But these are not fundamental enhancing measures for a strong bank foundations in these areas. It may seem little radical, but a positive discrimination of 25 basis points in CRR for those Banks who open rural more rural branches may help the cause. On an average this releases 17000 to 18000 crores. So depending on the particular banks deposits it may release 200 to 1000 crores or more. When this reserve money gets activated it may cross subsidies 16 to 85 crores for this effort.
In addition to this capital infusion norms by the Government may be slightly modified to accommodate for these new likely Non performing branches for the initial few years. Or more capital infusion with very soft rate of interest in favour of Banks who are showing interest to open branches in rural pockets. This may promote multi-bank single ATMs as an option to reduce costs. These measures are in addition to the agent based transaction, group lending , SHG approach which are currently in practice. 

Time for a strong awareness campaign for creating banking habits and learning for different financial instruments and capital market knowledge for the Bharat. Just think of the employment potential of such efforts in addition to general rise in welfare of the citizens of the target area. The current thoughts in reforms MNREGA in favour of productive assets may create added income capacity of rural people to make these things sustainable in 10 to 20 years time. Let us see how this Budget focus on right targeting the subsidies and Capital infusions in Banks.
By: Prashant

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