Presentation on theme: "Financial Inclusion-the Tasks ahead Presentation by Dr. J Sadakkadulla Regional Director RBI, Chandigarh."— Presentation transcript:
Financial Inclusion-the Tasks ahead Presentation by Dr. J Sadakkadulla Regional Director RBI, Chandigarh
Extract from the speech of DG (RBI)- a thought for introspection “If all stakeholders realise that ‘inclusive banking’ is good business, then regulatory and policy frameworks that promote accessibility, and responsible banking can definitely lead to the desired outcomes. ” Pre-requisite for FI- Realisation that rural banking is a viable preposition
Financial Inclusion … Creating for everyone access to appropriate financial services For the Poor it means … Creating access to affordable banking and other financial services FI is frontal attack on poverty.
Financial Inclusion not a new concept- earlier initiatives Institutionalisation of rural credit-ACD Democratic Socialism Model for Economic Development. Establishment of SBI Establishment of ARC- Renamed as ARDC Social control over banks Introduction of Lead Bank Scheme Growth with equity - objective of planning Establishment of RRBs Establishment of NABARD Initiatives on Micro Finance, SHGs
Why inclusive growth ? Growth in agriculture is necessary : –to keep manufacturing prices under check –provide food security –keep inflation under control. Price stability is not merely important as an anti poverty measure but also as an instrument to ensure stable and sustained growth. In India, growth process is knowledge based and service led, hence substantial requirement of skilled labour.
Financial Inclusion & Development indicator Recent data shows that countries with large proportion of population excluded from the formal financial system also show higher poverty ratios and high inequality. CountryComposite index of financial inclusion (percent of population with access to financial services) Poverty (percent of population below poverty line) India4828.6 (1999-00) Bangladesh3249.8(2000) Brazil4322.0(1998) China424.6(1998) Indonesia4027.1(1999) Korean Republic63 Malaysia6015.5(1989) Philippines2636.8(1997) Sri Lanka5925.0(1995-96) Thailand5913.1(1992) Source : World Bank (2006) and (2008) Copyright Dr. J.Sadakkadulla
Who are financially excluded ? Small and marginal farmers Landless labourers, oral lessees Self employed and unorganized sectors enterprises Urban slum dwellers, migrants, ethnic minorities and socially excluded groups Senior citizens, women, etc. Poverty anywhere is a threat to prosperity everywhere.
Reasons for Financial Exclusion Physical access difficult: Remote hilly & sparsely populated areas with inadequate infrastructure Demand Side: Lack of awareness, low income, social exclusion, illiteracy Supply side: distance from branch, branch timings, cumbersome documents and procedures,unsuitable products, language, staff attitude, etc. EFFECT: Higher transaction costs and procedural hassles
The Dimensions of the Challenge Area - 3.3 million square kilometers Population - 1 billion + GDP ~ US$3.9 trillion Annual Growth rate 8.5 to 9% last 5 Years Total number of banks in operation in country - 300+ Total number of bank branches in country - 75000 + Unbanked Population: 400 Million !
Financial Inclusion for Inclusive Growth The formal financial sector -mainly the banking system serves most of the population, in developing countries. Most of the population in developed countries (99 per cent in Denmark, 96 per cent in Germany, 91 per cent in the USA and 96 per cent in France) have bank accouonts. In India Composite Index of Financial Inclusion (per cent of population with access to financial services) is only 48%. India’a annual average growth rate –3.5 per cent during 1950 to 1980 –6.0 per cent in the 1980s and 1990s –8.8 per cent in 2003-04 to 2006-07 –9.4 and 9.6 per cent in 2005-06 and 2006-07 respectively Despite continuous growth, growth is not sufficiently inclusivespecially after mid 1990s. The approach paper to Eleventh Plan indicates poor population to be 300 million in 2004-2005.
Inclusive growth in India Financial sector in India is dominated by the banking system. Scheduled commercial banks (SCBs) account for three-fourths of the total assets. Public sector banks (PSBs) account for 70 per cent of the total assets of SCBs Developments relating to public policy objectives underlying banking policy took place in two distinct phases : –The 1 st phase viz. the two decades since 1970 – the period of State control Average population per branch decreased from 64,000 to 16,000 Credit cum subsidy programmes sponsored by the government taken up for financial inclusion for the poor. –2 nd phase SHG Bank linkage programme by NABARD Creation of RIDF( Rural Infrastructure Development Fund)
Recent Strategies Financial inclusion is intended to connect people to banks with consequential benefits. Steps taken up for financial inclusion : Reserve Bank advised banks to make available a basic banking ‘no-frills’ account with low or ‘nil’ minimum balance as well as charges, with a view to expanding the outreach of such accounts The know your customer (KYC) procedure simplified. Revolving credit - besides the Kisan Credit Cards (KCCs), banks have been asked to consider introduction of a General purpose Credit Card (GCC) facility up to Rs.25000 at their rural and semi urban braches. lending by MFIs that are societies, trusts, cooperatives or "not for profit" companies or non-banking financial companies registered with the RBI. Measures have been taken to step up credit to the micro, small and medium enterprises (MSME) sector In the Union Budget 2007-08, the Government announced the creation of two funds - Financial Inclusion Fund and Financial Inclusion Technology Development Fund - for meeting the costs of development, and promotional and technology interventions
Approach to financial inclusion Aim at connecting people with banking system Aim at giving people access to payment & credit system Use of BC/BF multiple channels such as NGOs, PO, farmers clubs, etc. Retired bank employees, ex-servicemen, retired Government employees and Section 25 Companies permitted as BF/BCs Sub agents allowed with distance criteria Use of ICT- Affordable infrastructure and low operational costs RBI welcomes suggestions for resolution of any issue
Comics brought out on role of RBI & banking system in general in various regional languages for wider circulation and coverage. Launch of RBI’s multilingual website in 13 Indian languages on all matters concerning banking. Conduct of an Essay competition for 3 different levels VI to XII class school children in Hindi / Punjabi and English in this region in Sep-Oct last year with and overwhelming response of 2911 entries. For students pursuing degree courses, RBI has announced the “Young Scholars Award Scheme” this January and conducted the objective type exam last month and announced 150 awards for the year all over the country who will have a stint with RBI, a sort of summer internship with a stipend of Rs.7500/- pm. Copyright Dr. J.Sadakkadulla
A pilot project has been set up on credit counseling and financial education. A model paper is in the public domain for comments. H.P. has become the first state in the country to achieve 100% financial inclusion and very recently the state of Punjab has also achieved 100% financial inclusion in the rural areas and Haryana is marching ahead in this regard. The KYC procedures for opening accounts were simplified for those persons with balances not exceeding Rs.50,000/- and credits in the accounts not exceeding Rs.1lakh in a year. General credit card facility upto Rs.25,000/-in rural and semi urban branches of banks is introduced. In Jan 2006, banks were permitted to utilize the services of NGOs / Self Help groups to provide micro finance through the use of business facilitator and business correspondent. India being agrarian in economy, RBI continues to play its vital role in rural credit dispensation. Copyright Dr. J.Sadakkadulla
FI- Initiatives in Budget 2008-09 A fund of Rs. 5000 crore in NABARD to enhance its re- finance operations to short term co-operative credit institutions Two funds of Rs. 2000 crore each in SIDBI- one for risk capital financing and other for enhancing re-finance capability to Micro & Small and Medium Enterprises sector. Fund of Rs. 1200 crore in NHB to enhance its refinance operations in the rural Housing Banks to meet entire credit need of the SHGs-(a) income generation activities (b) social needs like housing, education, marriage, etc. and (c) debt swapping.
Different Technology Models Simputers PDAs Composite Hand Held Devices Programmed Mobiles
Programmed Mobile as a Hand Held Device
Composite Hand Held Device Receipt Generation Slot Slot to capture thumb print Slot to insert Operator / Customer card Arrow Key for starting the device F button
Simputers/PDAs/Laptops/PCs can be effectively used
Operating Model - Customer Data Collection System Demographic Details Biometric Details etc. Issuance of Biometric Enabled Multi-Function Card Financial Transactions Through Field Devices Single Device supports multiple application Transaction data loading To Integrated Core Banking System Through phone line (PSTN)
FI- Task Ahead/further roadmap FI a dynamic concept -Opening of ‘no frills’ accounts – every adult should be the target. overdraft facility in ‘no frills’ account- upto Rs.25000/- reckoned as indirect finance to agriculture. One time Settlement Scheme for credit outstanding upto Rs.25000/- General Credit Card (GCC) Scheme –credit dispensed upto Rs. 25000/- to be reckoned as indirect finance to agri. Extension of Banking Services – Use of Business Facilitators and Correspondents. Extend banking outreach to the remote corners by ICT - Banks to ensure that the solutions developed are: a) highly secure, b) amenable to audit and c) allow inter- operability amongst different systems adopted by different banks."
Credit Inclusion- a next step WG Recommendation- banks cover households who have not yet availed bank credit within a period of 3 years. Access to revolving credit through KCC/GCC/ ACC/ SCC. Exercise first be done in identified accounts. Identification of remaining borrowers through district administration implementation of Radhakrishnan Expert Group recommendations - to meet credit needs of landless labourers, oral lessees, tenant farmers & Share-croppers- Implementation of DRI scheme -poorest of poor Reach the unreached