Banking reforms are definitely needed, but they have to be driven by recommendations that people who are thoroughly conversant with the sector, make
The idea of inclusion, otherwise a ‘progressive hypothesis', has been sadly confused with ‘technical overplay' by the Reserve Bank of India and the Union Ministry of Finance. The most sightable case is Aadhar that lays too much emphasis on technical procedures and the opening of a maximum number of bank accounts. But merely having a bank account does not make someone genuinely aligned with formal banking.
Financial inclusion is a broader aim, and its ambit is far too wide to be limited to symbolic gestures. The incentive-based system, especially in private sector, has rather ensured the low effect of recently channelised banking access. In such a backdrop, Mr Nachiket Mor-headed Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, makes the chance of financial sector reform even more distant.
The sharp corporate edge is visible in the recommendations of this committee — as it was expected of RBI Governor Raghuram Rajan. Quite naturally then, Mr Mor has seen the real solution of financial inclusion in covering each and every Indian with a bank account in next 24 months.
It is not that all initiatives taken by the RBI in the past had failed. Some did really well in increasing the delivery of institutional credit and relationship-based banking with the masses. In the first four decades after India's independence (1951-1991), the reach to institution credit went up from 7.2% to 64 per cent but to fail again at level 57 per cent with the opening of economy that year. Also money lenders have largely stayed on in the post-reform era, with some statistical differences.
They kill business with spirits of ‘wayward innovation' and walk easy step in this jubilant phase, when lobby rules the whole course. Mr Mor has missed an opportunity to re-define the utility of micro-lending. Instead, he committed blunder by underestimating the contribution of regional rural banks and cooperative societies. Probably out of focus, he couldn't check the past and present of RRBs, which are serving the rural segments, and solemnising the real intent of financial inclusion.
The RBI has played stringent with the branch affairs at banks. It is hardly a revelation, though the committee presented both malady and cure as something in fledgling state. Even before the birth of this committee, Mr D Subbarao, the former RBI Governor, had taken some crucial steps which, although not in the limelight, have done well in relaxing certain norms of banking.
In the ambit of financial inclusion, the basic rights should begin with making banking simple and accessible to all. Moreover, the services offered should be diversified and not restricted to offering a bank account, and stay satisfied. The overtures with people have to be at fast pace and fine carved out — disconnect with people or potential client makes the equilibrium of ‘good intent and business', impossible to achieve.
While opening another round of bank licensing, Mr Rajan has a fair opportunity to circulate in the vein of new entrants, sustainable determination to go ahead for achieving genuine financial inclusion. A lot would depend on how the RBI will deal with the aspiring banks and those existing ones.
A great deal has to be achieved in the months ahead, but mostly without any support from Mr Mor's recommendations. The RBI will realise this sooner than later. Next time, hopefully, it will include some bankers who have worked across this wonderland. India is a complex set of systems and our corporate lieutenants need to sharpen their knowledge and intuitions thoroughly, if they have to remain relevant in the changing environment.
-Atul K Thakur
(Published in The Pioneer,on January21,2014)