Wrong advice that we must avoid

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
Email: summertickets@gmail.com
(Published in The Pioneer,on January21,2014)

What’s stopping financial inclusion?

India must stop chasing the bandwagon of hyped western model of over-sized baking
It’s not believable that worldwide financial crisis is over, as the recovery so far has failed to bring back the sentiment in financial sector of days back to 2008. Though in downturn, the profound importance of finance for the global economy could be easily realised – this effect is visible even when 2.5billion people worldwide still have no access to formal banking services.

This ‘missing segment’ poses question mark over the claim of financial inclusion, which is breathlessly pervasive from all the corners. In India, the situation is much worse, as almost its half of population is unbanked and that blocking their convergence with the global economic model of consumption. The usual cycle (that thrives on limitless consumerism) of consumption is compromised here, and that is an obvious reality.

Atleast in India, the idea of financial inclusion has not travelled beyond the infancy, as the technical understanding of this issue and infrastructure available here does not appear in functional equilibrium, so the deviation is unrelenting. It’s beyond common reckoning that globalisation is not a zero-sum game, so not essentially emerging economies can benefit from the opening of markets for developed world.

Rather if the world’s 2.5 billion unbanked could be included in the fold of financial inclusion, every industry will experience innovation and growth. The empirical evidences suggest that the homegrown policies are more effective than borrowed tailor made ideas from different set of system. A common solution is hard to find for the financial inclusiveness, as factors that are common across countries hardly provide a smooth way forward.

The asymmetric use of technology is the most dampening bottleneck of free and fair operation of institutional financial services in emerging countries. It’s true populations worldwide is embracing technology, especially cell phones but still people throughout the developing world terribly lack the basic identification, formal employment and a permanent address. Such impediments stop a bulk of people to avail the benefits of institutional financial services.

In Indian case, the lapses in perception and action towards the financial inclusion drive generate confusion and deviation from base issues. The government and regulators still lacks to configurate and channelise it as a viable model for business. This overlooks the bright outcome of opening the financial system to the world’s poorest people, which could open their economic and social potential-to the benefit of all.

Presently, financial inclusion campaign in India is erroneously being handled by the banks or other corporate entity like a part of lackluster CSR schemes. This is a serious violation of fundamental conception attached with this plan-recently Raghuram Rajan, who chaired the Committee on Financial Inclusion in past has himself admitted the prevailing unrealistic state of affairs in India’s policy circle, in which the big claims of financial inclusiveness more often surfaced.

It’s not true that efforts have not made in the past as well to promote financial inclusion-in some senses, they were better organised to address the targeted issues then the current policy feeds being issued from RBI. The RBI’s pre-determined policy stances have inhibited the healthy growth of financial institutions and services, which affected the natural course of financial inclusion in the country.

The RBI is maintaining silence over the future growth of India’s financial sector, which has been safe more for its undersized ambition than the claimed ‘prudence’. This is totally ironic watching the curtain down on the future of India’s more than 55 percent unbanked citizens and overall the growth of financial sector at large.

The path India’s banking has travelled so far hardly allows one to part the views between progressivism and ultra-materialism, here the things have to be seen in the right context. Public sector banking was more a hedging intervention, so it would be unfair considering the nationalisation of banks as the complete socialistic manifestation. PSBs/RRBs played their role immensely well and would do more good under the perfect competition around the every nook and corner.

With more than 17,000 branches across the India’s rural heartlands and the small towns, RRBs can be seen as the engine of rural growth in India.

India’s financial policy regime must believe in the certain goodness, which its institutions offer-and for making things better, they must stop chasing the bandwagon of hyped western model of over-sized baking or doubtful idealism of microfinance businesses.
-Atul K Thakur
Email: summertickets@gmail.com
(Published in Millennium Post,on 19April,2013)

The RBI's unsavoury policy dictates!

The RBI has been the master of all weathers and seasons concerning India’s financial sector. It holds the pulse of the national economy with tempestuous effects. But even with all its prominence, the RBI has seldom crossed the contoured spirits which obfuscate the existing macroeconomic scenario. The scrimmages from its side are causing for the fixture of topsy-turvy status in the policy domain, finally making the broad-brush more frequent than the desirable spunky actions. Until two years back, world was witnessing the central bankers sullen acts; India was indeed a sort of exception so far. But things have entered in torsion once the India’s impregnable finance ministry and the RBI got struck in the endless war stimulated by the ‘egoists’.

It’s clear that, the finance ministry is the most important place in India after the Prime Minister’s Office --this sounds awkward but becomes evident when seen against the recent reshuffling in ministries, when the serving home minister was called to hold the command of economy. This marks the moral bankruptcy, as the new finance minister will be hardly reckoning the plight of the economy which originated through the clash of interest between real and rave components -- moreover, he lacks the critical tributes like acceptance and expertise for handling a diverse economy like India’s.

This mischance will boost many inside the RBI, who earlier relied on static and soft monetary policies that at least in last one-and-half-years have cut India from both of its central economic ideologies based on ‘half-willing socialism’ and ‘half-sighted dreams of reform’. Among the list of blunders, the RBI’s extraneous policy regarding the licensing of new banks under the private sector refers the unique misunderstanding of the whole issue. It’s obvious that, the RBI is not keen on banking licenses for corporates, not to work with any neo-egalitarian model of banking based on ‘maximum happiness’ of clients of different types and figures but for securing the power to superseded the boards of existing banks and leaving the case of banking expansion in its backyard.

The insistence of the central bank on amendments to the Banking Regulation Act by the Parliament as a prerequisite for any potential flex on banking licensing is flawed and objectionable. It may be true that none of India’s NBFCs are fit enough for the award of baking business, though the many interested public sector entities could be taken for a ride under the joint venture in private partnership. Also, there would have been nothing wrong by downing the obstination on allowing corporate world at large to enter the fray of banking based on competency, not by the channel of cronyism.

By the impression of numbers, India’s corporate sector is performing but by the spirits, in no manner it’s worth of calling ‘robust’. By an example, almost all heads of India’s private sector banks have downplayed the chances for few more private banks, citing the already high competition and its aftereffects on their businesses. These were all untoward statements with no technical precision or understanding of a height of possible stagnation with which India’s banks will be reckoning sooner than the later. Banking should be means for the profit but not for the oligopoly; unfortunately, the reverse is the case in India today -- not surprising in present scenario, if the SBI has lost its tag of being the most valued bank in market terms from one of its shrewd peers.

Notwithstanding its actual role, the RBI is maintaining silence over the future growth of India’s financial sector, which has been safe more for its undersized ambition than the claimed ‘prudence’. This is totally ironic watching the curtain down on the future of India’s more than 55 percent unbanked citizens and overall the growth of financial sector at large. The path India’s banking has travelled so far hardly allows one to part the views between progressivism and ultra-materialism, here the things have to be seen in the right context. Public sector banking was more a hedging intervention, so it would be unfair considering the nationalisation of banks as the complete socialistic manifestation. PSBs/RRBs played their role immensely well and would do more good under the perfect competition around the every nook and corner.

Not even remotely, the arrival of few more banks would harm their business; contrarily it would help the sagging market sentiments to get an upward touch. Instead fearing and sharing those misleading apprehensions, the RBI should create a true healthy work culture in PSBs/RRBs, which are remarkable by their business and reach.

RRBs especially deserves much better deal in terms of human resource policies. It’s shocking to see the RBI/finance ministry’s dualism in taking them as at par with the PSBs, where the service benefits like pension is now the part of system. This discrimination should be ended by introducing the service provisions including of pensions for the RRBs employees on the line of PSBs With more than 17,000 branches across the India’s rural heartlands and the small towns, RRBs can be seen as the engine of rural growth in India -- so they need an immediate broad unification at the national level with an effective professional board, which can lead the rural banking for more inclusive businesses.

India’s jobless growth or the slow industrial momentums are the outcome of chronic passivism from the RBI for the mass issues. It’s not more than an excuse in passing the fault on global financial uncertainty by the India’s policy regime for the present mess-up at domestic front. The last two decades of India’s growth story was based on the domestic consumption strength, rather than on any other fancied factors. This should be the time of reckoning by India’s central bank, moving clearly and with a goal must be the basic catch which it has been missing for long under its mix of placid shows off and painful affects. Until India’s central bankers will rise from their very long slumbering, any hope to see the financial sector on bloom would be near about the day dreaming in a rainfed season like the present!
Atul Kumar Thakur
August31st2012,Friday
Email: summertickets@gmail.com
(Published in Governance now on August27th 2012/ http://governancenow.com/views/columns/rbis-unsavoury-policy-dictates )

MSMEs financing bottlenecks!

The markets are in jittery, and for valid reasons. The rupee has hit an all-time low of 53 and macroeconomic indicators of the economy are sagging. Industrial production is on a downward spiral. Policymaking is ground to an apparent halt, and the rollback of the decision to open up multi-brand retail has sapped investor confidence. The negative growth registered in industrial production in October, a sharp 5.1% decline, and shows that industrial productivity is slowing far more rapidly than expected.

All these pose greater risks for overall economic growth in 2011-12, already watered down to 7.6%, with further downward revision on the cards. For now, slowdown worries take their toll on capital goods and companies stocks. Its impact is going to be more severe on micro, small and medium enterprises (MSMEs), which have been already running through bad time a rough patch, affected with huge financing gap and consistent decline in global demand for their products.

Despite being hamstrung by these, MSMEs rely on open market for their business finance, as internal mobilisation through informal sources makes the business more vulnerable. Though the socioeconomic importance of MSMEs is well recognised in academic and policy circles, they are starved of funds, with little interest shown by institutional investors. The priority sector lending policy outlines that 40%of net bank credit of public and private sector banks must be earmarked for those sectors, which include MSMEs. The policy stipulates 32%of net bank credit of foreign banks for the priority sectors, of which 10%is allocated to MSMEs. But barring regional rural banks, how many banks comply with this criterion? In the absence of proper channelisation, the mandated allocation hardly makes a difference to the business of the firms get financed by them.

Here, it’s imperative to keep in mind that the MSME sector is not homogenous, but is constituted by three different sub-sectors. These sub-sectors need to be serviced separately. For micro enterprises, access to credit is priority. For small enterprises, access to credit is relatively easy, though limited, and therefore remains important along with cost. For medium enterprises, access to institutional finance is easy though the cost incurred on credit is quite high. Collateral based lending offered by banks and financing companies is normally made up of a combination of asset-based finance, contribution-based finance and factoring-based finance using reliable debtors and guarantors. Substantial numbers of MSMEs are falling short on collateralised security needed for bank loans, and lack the prospect of high returns to attract formal venture capitalists and other risk investors like private equity funds. Moreover, market is also suffering from deficient information, diluting the effectiveness of financial statement based lending and credit scoring.

The sector expects that the government will take the decision to earmark 20%share in public procurement (wherein it will procure 25-30%of its needs from MSMEs), a proposal which is hanging fire for quite some time. Anil Bhardwaj, secretary-general of Federation on Indian Small and Medium Enterprises (FISME), observes that “this will work as lifeline in ongoing slowdown. To ramp exports, FISME has suggested the need to take up export promotion in urgency to enhance MSME participation in export from 0.5% to 5% in next 10 years”. For this to happen, the prevailing support mechanism, which heavily rely on Export Promotion Council for exposing MSME s to export market, has to be discarded. FISME also has valid reasons to criticise the RBI’s indifferent approach on MSME finance, but their demand for separate financial regulator for MSME seems not practical. Because, it alone wouldn’t ensure the micro centric approaches of new regulator on these small businesses, also after a certain point, policy must be shaped with optmising the interests of industries involved and its end consumers. So, basic idea should be at the ground to address the odds, which restraining the finances of this segment of industries.

James Carville, who advised US President Bill Clinton, once remarked that for being ecstatic on bond markets, “I used to think that if there was reincarnation, I wanted to comeback as President or the Pope or as a 400 baseball hitter. But now I would like to come as bond market, you can intimidate anybody.” Such is the negativism about the bond market even in western economies, but surprisingly that hardly directs the saving towards financing MSMEs worldwide.

Venture capital, as financial intermediary, also not providing viability to MSMEs for better engagement; the basic proposition could be found through their working model, that being able to secure finance is critical and most difficult for any business. It’s applicable to startups seeking venture fund or mid-size companies that need cash to grow up. So venture capital is most suitable for business with large up-front capital requirements which can’t be financed by cheaper alternative such as debt. Another financing option, private equity shows explicit interest s in typical leveraged transaction, where it buys majority control of a growing or mature firm. This works different from a venture capital or growth capital investment fund in which the investors invest in young business and rarely bids for decisive control. Beyond these lesser suitable options, bank remains the most appropriate route for bridging the gap of financing for MSMEs. So, it’s essential, bank come forward for effective partnership with MSMEs which is the engine of growth.
Atul Kumar Thakur
December 15, 2011, Wednesday, New Delhi
Email: summertickets@gmail.com

Self Help Groups: Catalyst of Microfinance Movement

Self Help Groups {SHGs} programme is the flagship microfinance intervention of NABARD which was launched as a pilot project on February 26th 1992 and deserve to be considered as a landmark development in the banking with the poor. In its part, RBI accepted most of the major recommendations and extended the SHG-Bank Linkage Programme beyond the pilot stage to as a normal business activity of the banking sector.
Now it’s a proven reality that the Bank Linkage Programme is one of the most cost effective components of microfinance movement-major change that it bestowed upon the Indian financial sector that banking with the poor is no longer remain an impractical and unachievable idea,it's a real accomplishment in the rural segment of banking.

This pragmatic initiative has immense growth potential for disadvantaged section that hitherto remained secluded from earlier poverty alleviation programmes. Despite many impediments, the programme has made remarkable socio-economic impact on empowerment of women in rural areas which considerably changing the institutional landscapes with better entitlement of enterprising poors. In last two decades, it impacted the lives of eight crore rural people across the country besides this, the creation of SHG has enabled the banking system to expand their footprint and to build a quality credit portfolio with those segments of the unbanked rural population.
Infact broadening of SHG is highly process specific and possess lot of room for innovative practices-beyond micro-savings and micro-credit, other financial services like micro-savings and micro-credit, other financial services like micro insurance, micro-remittances and micro-pension etc are presently placed in nascent stage but surely they would appeared more resonant in future ahead to cater the diversified needs of rural poors.

Unprecedented response of the SHG-Bank Linkage Programme facilitated by NABARD is truly acting as movement with a huge back-up of excellent micro finance clients. Complete attainment of universal financial access is most urgent thing as next course of action,as its proved now enterprises can only effectively thrive on institutional finance-here it’s also equally imperative to rationalize the private MFIs exorbitant interest regime.
Studies shows that microfinance services helps in poverty alleviation through its broad canvass of insuring equitable growth and spreading the programme in rest India to match its strength in southern states. In last two decades, SHGs have emerged as pivotal route of micro financial activities-as on March 31st 2009, banks credit outstanding against 42.4 lakh SHG stood at Rs 22,679.85 crore-on an average, this accounts to about Rs76, 000 per SHG and average loan per member stood at Rs5, 400 which is still very low in perspective of huge challenges.

The institutional achievements of the SHG-Bank Linkage Programme are most remarkable in terms of participatory and sustainable poverty alleviation and reaching to the developmental goals. On the social indices front; non-financial activities of SHGs are very crucial in attainment of actual socio-economic inclusion and empowerment. As government is contemplating some new regulatory changes to boost the microfinancial scenario, it would be naturally in priority to see more attention on SHGs increasing role in developmental framework. Presently few financial institutions except Regional Rural Banks {RRBs} and to some extant Co-operative banks, is taking optimum interest in empowerment of SHGs-this is a haunting concern as the marginalization of SHGs would dampen the entire euphoria of microfinance.

For banking sector, role of SHGs can be modeled as potential vehicle of financial inclusion in different capacity-from a potential client to a Banking Correspondent {BC}albeit sincerity must be ensured, so merely treating them as buzzword wouldn’t be suffice. Only genuine action and stout determination for socio-economic turnaround can lead this initiative to the crest of activities in rural financing. At any policy maneuverings, it must be clear in the mind of its architect that many unique challenges have to reckon with at next level of its execution-which can be addressed only through the innovation and constructive enterprise.
Atul Kumar Thakur
April 24th 2010, Saturday, New Delhi
atul_mdb@rediffmail.com

Financial Inclusion-A Basic Approach

Financial inclusion is an institutional move to cover those unbanked masses who so far have been denied access to formal banking/financial services. So, it has motive to ensure these services to all people in a fair, transparent and equitable manner at an affordable cost.Lack of credit for working capital is often cited as a major reason for the sickness in the agrarian finances/small scale industries finances...so,the core aim of this drive is to assist the aspiring peoples with hassle free finance at rational rate of interest besides putting them into overall banking culture.
About 75% of the bottom half of Indian households still rely on informal sources of finance like Moneylenders, and less than 15%have access to bank credits.

So, socio-economically weaker section of country still remains largely untouched from institutional credit despite impressive growth of banking system over the decades. Nearly three quarters of farm households in the country still have no access to any formal source of credit.
According to the Invest India Incomes and Saving Survey Of 2007 by research firm IIMS Data works, just 44.9 percent of Indian earners had bank accounts, though coverage rates varying widely in individual states. Just as 38% of paid workers in villages had accounts compared to 62% of their counterparts in urban areas. These divides creates major loopholes in the development path of financial inclusion plan.

Financial inclusion is a key priority of India not only for sustaining its growth rate but also for poverty eradication at a much faster pace and for bridging the growing rural-urban divide. In crux, financial inclusion needs inclusive developments. The ultimate aim of development in this context is to improve the welfare of common peoples. Size of Indian economy immensely matters during the plan execution; especially with infrastructure development. Its assist a lot in expanding domestic demands which will enhance overall efficiency in the rural sector and boost a large growth of purchasing power.
The declining contribution from the primary sector to GDP reduces the per capita income of the rural population which creating the ground for uneven income distribution.

The overall traditional composition is distorting, average size of farming is declining by effect as proportion of the small and marginal farmer and landless agricultural laborers is rising. In the urban centers proportion of unorganized sectors are increasing besides with the marginalization of laborers.
The committee has also recommended that the government should constitute a national mission on financial inclusion (NAMFI) comprising representative of all stakeholders to suggest the overall policy changes required and supporting stakeholders in the domain of public /private sector and NGOs in undertaking promotional initiatives.
The major recommendation relating to commercial banks included target for providing accounts credit to at least 250 excluded rural households per anum in each rural/semi urban branches; targeted to expansion of commercial savings, credit and insurance products, incentives to human resources for providing inclusive financial services and simplification of procedures for agricultural credits.

The major recommendation relating to RRBs are to extending their services to unbanked areas and increasing their credit-deposit ratios, no further merger of RRBs ; Widening of network and expanding coverage in a time bound manner, separate credit plans for excluded regions to drawn up by RRBs and strengthening of their boards.
In case of co-operative banks the major recommendation were early implementation of Vaidyanathan Committee Revival Packages, use of Primary Agricultural Committees (PACs), and other primary co-operatives society to adopt group approach for financing excluded groups.
Other important recommendation of the committee and encouraging SHG in excluded regions; legal status for SHG, measure for urban micro-finance and separate category of Micro Financial Institutions (MFI).

For focused backing the Lead Banking Scheme (LBS) was introduced in 1969, based on the recommendations of Gadgil Study Group. The bankers committee headed by F.S Nariman; concluded that districts would be the units for area approaches. LBS has some of very vital provisions like, Priority Sector Lending, Different Rate Of Interest Rates(DRI).Potential Linked Plan of NABARD ,Effective channelisation of SHG,SME financing etc.
No doubt, massive investments such of such provisions assist a lot to weaker section upliftment but scale of such benefits are comparatively very low to expectations. Keeping the views of shortcomings in mind Government Of India (GOI) constituted a high power committee headed by Mrs Usha Thorat, Deputy Governor of RBI, to suggest reforms in LBS.

India has been ranked poorly in the first-ever index of financial inclusion (IFI). The index prepared by the Indian Council For Research On International Economic Relations (ICRIER) to find out the reach of banking services in 100 countries world wide ranks India at 50th position this placed below even to countries like Kenya and Morocco. The study underlines the need for expansion of banking services to ensure that they reach the weaker sections. So, banking services have to move from class to mass scale.
The committee on financial inclusion was constituted by the Government Of India under the chairmanship of Dr C Rangarajan on June 26th 2006 to prepare a strategy on financial inclusion. The committee submitted its final report on January 4,2008.

The report viewed financial inclusion as a comprehensive and holistic process of ensuring access to financial services with timely and adequate credit, particularly to vulnerable groups such as weaker sections who falls in low income group at an affordable cost. Financial inclusion, therefore ,should access to mainstream financial products. Such as bank accounts credit remittances and payment services, financial services and Insurance facilities.
The report observed that in India 51.4 percent of farmer households are financially excluded from both formal/informal sources and 73% of farmer households do not access to formal sources of credit. Exclusion is most acute in Central, Eastern and North Eastern region with 64%of all financially excluded farmers households. The overall strategy for building an inclusive financial sector should be based on: -

1. 1.Effective improvements with existing formal credit delivery mechanism

2. 2.Suggesting measures for improving credit absorption capacity especially amongst marginal and sub-marginal farmers and poor non-cultivators

3. 3.Evolving new models for effective reach

4. 4 Leveraging on technology based solutions

Keeping in view the enormity of the task involved, the committee recommended the setting up of a National Rural Financial Inclusion Plan (NRFIP) with a target of providing access to comprehensive financial services to at least 50%(55.77 million) of excluded rural households by 2012 and the remaining by 2015.This would require semi-urban and rural branches of commercial banks and RRBs to cover a minimum of 250 cultivator and non-cultivator households per branch per annum.
From35,000 in early 1990s to as low as 30,572 by March 2006 through mergers and swapping of rural branches –share of 16,000 people per branches is not satisfactory; Any how to see it on all India basis, still only 30% of the rural people have bank account the. The rural people get only 9.2% of the total credit lent out by scheduled commercial banks.

According to NSS data (Indebtedness of farmers households-2003) 46% of the outstanding debts of farmers is sourced from the unorganized financial system. In such despairing scenario, some moves like priority sector lending have come up with extraordinary results; Under this plan ,scheduled commercial banks including RRBs are mandated to lend at least 40% of their net bank credits at concessional rates to the priority sectors comprising agriculturist(18%),SSI(10%) and other small credit seekers from different sectors. By this move, the credit to priority sector increased from 14% in 1969 to 37.7% in 1991 of net bank credit.
RRBs are allowed to fix interest rates and to more relaxation to usher its branches in semi-urban areas.

Now some new priority sectors included new borrowers such as professionals, SMEs , Leasing& hire purchasing companies etc. Priority sector lending are a major stimulus towards the mission of financial inclusion in India which also holds very positive underlying to rural economy.In current global economic crisis it becomes imperative to reshape some regulatory as well as operational practices of financial institution to cater the needs of mass peoples and sustain Indian growth story with more inclusive developments of its people.
Let we hope that financial inclusion’s plan may reestablish more focus on rural development and infuse happiness& esteem in the life and profession of our food earners.

Atul Kumar Thakur
New Delhi
March13,2009
atul_mdb@rediffmail.com