Indian Banking and Financial Inclusion-B.V.Raghunandan

National Seminar,SVS College, Bantwal

August 14, 2015

Financial Inclusion• Extension of finance and

financial services to every citizen of the country irrespective of the regions, income levels, caste and creed

• A secular attitude to make every citizen participate in the economic progress

• It is also a basic economic requirement to eliminate differences in income and wealth distribution

The Concept• The terminology is new, but

the concept is not• Bank nationalisation was a

giant step towards rural penetration through bank branches

• Opening agricultural branches was also a step in the same direction

• Compulsory priority sector lending

• Setting up Regional Rural Banks also contributed

• NABARD and its functions addressed the problem to a considerable extent

Banks in Dakshin Kannada

• Banks in Dakshina Kannada were unique that their main objectives were for financial inclusion

• Lack of big industries and limited industrialisation helped the banks to focus on the common man and also a seamless expansion of branches over urban and rural areas

• The Pigmie Deposit of Syndicate Bank made the name a generic one• They went one step more to aid the development of higher education since

the promoters of banks and education were the same

Founding Principles Canara Bank

founding principles:• To remove Superstition and ignorance.• To spread education among all to sub-serve the first principle.• To inculcate the habit of thrift and savings.• To transform the financial institution not only as the financial heart of the

community but the social heart as well.• To assist the needy.• To work with sense of service and dedication.• To develop a concern for fellow human being and sensitivity to the surroundings

with a view to make changes/remove hardships and sufferings.

The Setback• The 1980s first dose of

liberalisation brought back the question of profitability of Indian banks, particularly PSU banks

• The early 1990s major dose of second liberalisation questioned the existence of unviable branches and cost to the exchequer

• Commercial principles strongly pushed back social banking to nullity

The Bounce-back and Revival

Three factors contributed to the revival:

• Amartya Sen getting Nobel Prize in Economics in 1998 and advocating social security net for the people

• C.K.Prahlad of University of Michigan publishing “Fortune at the Bottom of the Pyramid” to advocate social enterprises

• Mohammad Yunus and Bangla Desh Grameen Bank getting Nobel Peace Prize for their efforts in microfinance

Micro-Finance: A Revolutionary Concept

Mohammad Yunus and Grameen Bank proved the following:There is no viability size for a loan or depositBank should go to the customer and not vice versaMicro-finance can succeed universallyThere is no need for support from the government or International Funding Agencies like World Bank

Contribution of Indian Banking

• Compelled by RBI and Government of India, used bio-metric to cover even illiterates and to dispense government aid

• Spent around Rs. 13,000 crore to deliver the banking services• Accepted RBI’s proposal to try Bank Correspondent System• Different Models emerged in BCS• Roped in NGOs and SHGs to disburse micro-finance• A total of Rs.8,000 crore is spent in BCS

Indian Banks: Misfits

• Inability to cover many rural areas

• Personnel are outsiders• Inconvenient operating hours• Elitist Attitude of the

employees• Loan sanctioning is the

monopoly of the branch head• Communication problem due

to national level transfer policy• Corruption from branch level

to board level • political intervention

Failure and Prejudice of RBI

• Belief in Commercial banks to replace individual money-lenders

• Deliberate, systematic and consistent efforts in killing finance companies and money-lending

• Not studying the reasons for the success of money-lending

• No serious efforts in developing a regulatory mechanism for money lending and finance companies

• Not giving a serious thought to build the unorganised sector on healthy lines

• Not helping finance companies that got into trouble due to its circulars

• Not prescribing the tolerable level of NPAs for different categories of the borrowers

• Not examining the operational details of the working of the banks in the light of developing customer-friendly operations

• Too much importance to documentation and KYC

Quo Vadis?

• Indian banks should become funding agencies

• They have to identify the institutions that are best suited for financial inclusion

• The institutions funded by the banks should be accredited by CRISIL, ICRA or Care

• RBI should bring in comprehensive measures to regulate money-lending and not killing the concept of money-lending

• Institutions should be directed to develop flexibility in the operations to suit the requirement of the customers

THANK YOU