Will India’s New Thrust on Financial Inclusion Pay off?

In reply to: http://knowledge.wharton.upenn.edu/article/will-indias-new-thrust-on-financial-inclusion-pay-off/

When Jan Dhan was launched there was a flurry of activity never seen or heard before in Indian Banking industry – more particularly in the Public Sector Banks. Financial Inclusion of the nature has been on the agenda ever since 1970s when the PSBs were directed to open accounts under Differential Interest Rate Scheme – a loan up to Rs.6000 per person at interest rate of 4%. The ticket size was increased to Rs.15000 and the scheme is still in the books of banks but not implemented. In 2005, the RBI found new fervour in financial inclusion and latter helped them with two new instruments – Business Correspondents and Business Facilitators. This scheme had moderate success because of low cost off-site mobilisation of deposits in areas where brick and mortar bank branches did not exist. All these resulted in opening barely 7mn accounts till August 2014. The same banks with the call of the Prime Minister opened Jan Dhan Accounts multiples of the figure and reported Rs.2200bn as deposits. The fact is that many existing accounts qualifying the definition have been shifted into the Jan Dhan Pool. This can be gauged by the accretion of new deposits into the PSBs in such group not matching with such claims. PSBs engaged in retail banking, sme lending, corporate finance, subject to Basel III norms and other RBi regulatory compliances and having to recover huge NPAs sans Bankruptcy Law, and with human resources heavily skewed to urban and metro banking cannot be expected to be the right bogey for financial inclusion efforts. There are post offices, cooperative societies – 93200 located right away in the villages but lacking good governance and good management and freedom to function apolitically, could have been the attention of the Government. Sadly, the Finance Ministry and the Ministry of Agriculture an Cooperation (since changed to Ministry of Farmer Welfare) do not open a dialogue in this direction. They became holy cows for the NDA government to touch.
Payment Banks, the new initiative and the MFis as also the Mudra Bank Ltd., a subsidiary of SIDBI supposedly dedicated to the cause of MSME sector, is the hope of the languishing poor.

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