The new banking time in India

The Indian banking is undergoing through some unusual structural changes and naturally the news has been making round about one of those, which is ‘differentiated banks’. As widely reported and circulated, the RBI Governor Raghuram Rajan is a firm believer in the ideas behind it, and thus the central bank’s guidelines come so hands-on this, it leaves no chance unturned to make the keen watcher believe, these new institutions will end all ill in existing system at place.

In principle, the payments banks and small banks are ‘niche’ or ‘differentiated’ banks – with the common objective of furthering financial inclusion. The Small Banks will provide all the basic banking products but will have a limited area of operation – and the Payments Banks will provide a limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly to remote areas.

The role of technology and Business Correspondents (BCs) would be crucial for these new banks, like all other existing banks working in rural and semi-urban areas. So, what is new in that? Nothing much. The concept of local area banks came long back in India – and in fact, the Regional Rural Banks (RRBs) took that concept of local banks much ahead than anticipated earlier.

Today, total 57 RRBs have more than 16, 664 branches – remarkably, these banks are still operative at low cost than PSBs and Private Sector Banks in rural terrains – and most of them are in profit. Surprisingly, the RBI has no plan to make these banks more aggressive – and making addition of the Post Offices, as next banking institutions.

The NABARD has for long ceased to offer any noble solutions for rural banking in India, so even in close bearings with the Chicago School of Economic Thought – Rajan should scrimp little bit time and vision to put forth a workable model rather loosing time with too romantic ideas of ‘differentiated banks’ – that appears in its idealistic fold, beating the blue eyed professionals’ flop venture in India, MFIs.

In retrospection, we would get some insights on failures from the distant land of west that has been charming Indian policy makers in recent few years like never before. The ‘hole and corner’ life philosophy of Wall Street bankers and their understanding about the game of banking could be summed-up in few clumsy but truthful words: ‘for them – money is fact, rest all is fiction’.

Time and again, these words came into fruition and brought to the world, such ‘catastrophe’ – not normally to be hatched by someone having capacity lesser than of a double-dealer.

This clears the fog to know that the winds from west seldom come with underlying merits to be known ‘progressive’. This reckoning was although at place in late 1960’s when Indira Gandhi redrawn the character of Indian banking in a single stroke of pen by nationalising fourteen major commercial banks of that time. The inherent aim was much broader and that for creating the culture of profitable Public Sector banking in India – with focus on strengthening the core economy of the country, through readily available banking services hitherto denied.

These banks played their role to an extent and indeed ensured banking among the masses – that exercise could be seen as the biggest financial inclusion drive in India. This was much effective than the Swabhimaan or Jan Dhan Yojna, whose accomplishments would not travel (based on their theoretical positioning) beyond the bank account opening in crores.

Coming to the solution side, the policy debates on banking have to take a cue from erroneously rumoring, the existing banking players in India are wimps – they are not actually. So, selling the already used applications of mobile, low cost innovations would not help now – the real course of correction would be through differentiating between the performer and pretender.

For making financial inclusion effective and rural banking spectrum, free from the unrealistic notions – first and foremost, the RBI should trust more on the RRBs, besides making PSBs and Private Banks less pampered, so they can work and don’t show excuse that the ‘baking is expensive for poor’. They should make profit by banking with the poor, but must stop making BCs, not only poor – but pauper, by offering less than 1/3rd of minimum wage made mandatory by the Constitutional provisions.

The Post Offices have already a huge network at place that covers the nook and corner of the entire country. If the Finance Ministry and the RBI is really serious for going ahead with actual financial inclusion drive – the next banking license should be given to the Post Offices. As not all existing things could be called bad – the time is ripe now to make the plethora of ‘innovations’, truly grounded and coming into terms with the realities of India.

Also an understanding should be at place, the Indian banking is not in nascent phase – and it certainly has some strong economic fundamentals, which giving enough reasons for the banks to get serious about their business prospects. Even those have not returned recently after attending a short-term crash course on ‘emerging economies’ in any Ivy-League Institution (including this writer), can have a logical edge in saying Indian villages have enough too offer for the bank, who will follow the basics of banking there. Not that any show of dramatics would return back well.

The game plan should be to make better course and stay on that. A differently famous, Gordon Gekko from Wall Street (1987), delivered these words very aptly, ‘don’t run when you lose – don't whine when it hurts’.The banking in new time in India has to go that way, it could be said by this moderate polemist!
-Atul K Thakur
Email: summertickets@gmail.com
(Published in INCLUSION)

Economists Agonize Over a ModiNomics Budget

They said “economists make more opinion than their own numbers” – thus means, most of their opinions see no light of the day. This year’s Union Budget came like a shocker to all those, who are in the ‘business of complexity and disillusionment’ – ‘frission of thrills’ replaced by the essentiality of ‘common sense’ in key policy formulations, hence leaving the flock of double minded economists and policy wonks without any anticipated prominence.

Pratap Bhanu Mehta’s piece in Indian Express (Achhe din, like old times, 29th July 2014) otherwise offers a hurried overview on the works of new government at centre but in patches exudes well, the agony of ‘those economists and policy wonks’, who lent their helping hands to the ruling party, in anticipation of plum positions, which did not materialise!
Free from preoccupations so far, this government means business and that more for maximum common good rather than the appeasement of an affluent few.

A very well meaning book by Sameer Kochhar, ModiNomics: Inclusive Economics, Inclusive Governance - came before the term ‘Modinomics’ eminently positioned as a bandwagon in policy circle and seems having strong effect on this year’s budget. The heart of the matter of this book lies in knowing first, and then highlighting the developmental works of Narendra Modi, as the Chief Minister of Gujarat – something, which is known as the “Gujarat Model”.

Precisely this book sums-up the “Gujarat Model”, as nothing but applying common sense in policy planning and ensuring implementations through good governance practices. In that case, bureaucracy becomes an enabler rather than a ‘hassle making blocks’, disowning clarity, honesty, common sense and sense of purpose.

Above all, the intention of leadership makes real difference – and its within recognition, Modi today epitomises it in effect, better than anyone else in Indian politics.

The new government’s preferences are akin to the developmental thinking of Prime Minister, who puts priority on top and work on that. As clearly visible, the budget underlined some of the key visions configured in the first chapter fromModiNomics, The essence of ModiNomics:Rethinking Subsidies (page 28-30):“Sound fiscal management is essential in promoting sustained, strong economic growth” – following that line, the Finance Minister during his maiden and interim budget, tried setting the finance of government in order by strong moves of fiscal correction. The budget aims a new fiscal deficit target of 4.5 per cent and GDP growth forecast between 5.4 and 5.9 per cent for current fiscal year, reflecting the policy clarity from the government – noticeably, ModiNomics pitched high on this.

Financial Inclusion (page 32-34): “The idea of inclusive growth rests on financial inclusion. Savings mobilised through regular institutional sources can sustain India’s economic growth. The role of regulators and bankers is important on this.” During his budget speech, the Finance Minister made it clear that the RBI will issue few more bank licenses and those banks would be differentiated banks, for catering the specialised needs in rural areas.

There are many other provisions but most importantly, on Independence Day, the Prime Minister will be announcing something big on financial inclusion plans, which means common men are the focus of this government in deeds, not only in words.

On Social Inclusion (page 34-36), ModiNomics says, “One of the biggest benefits of good governance is that it does not look at welfare of any particular section of the people; it results in welfare of all. For example, if you improve education or health services, all citizens in an area benefit. That is why we have adopted the mantra of ‘Sabka Saath Sabka Vikas’. After all, this is good governance. In fact, Sarva Jana Hitai, Sarva Jana Sukhay is the basic mantra.”The budget came in conformity with that.

On Digital Inclusion (page 36-38) – ModiNomics mandates, “We must accept that e-governance has a major role to play in our efforts to establish good governance. Gujarat has empowered Panchayat institutions through technology and not replaced them with technology. If I merely centralise all governance through technology, it weakens the participatory process. In our state, the basic philosophy is that technology should strengthen the institution’s capability to deliver services. We have one of the largest networks at the state level under GSWAN, and also the highest connectivity in rural areas. Gujarat is the only state in which 13,685 gram Panchayats have broadband connectivity” – the budget carefully carved niche for technological innovations across the India with the vision shared in the book.

Employment and Skills Development (page 40): ModiNomics says “To realise the full potential of the demographic dividend, he believes that a fundamental transformation has to be made in the way in which the government realises the potential of its youth” – the budget has shown ample orientation towards achieving employment elasticity (relationship between GDP growth and employment data).

The budget ensures that additional jobs have to be generated through the structural changes that Indian labour market has been going through. This has to happen with outbound movement of people from agriculture and allied activities to manufacturing and services. In all probability, this should be a reality with the latest policy supports.

On Public Private Partnership (page 42): ModiNomics recounts the experience of Narendra Modi as Chief Minister of Gujarat, “My experience tells me the same government set-up, the same laws, the same officers can still deliver good governance. What governance needs is good leadership, and not merely political leadership. Quality leadership must be available at every level, including within the bureaucracy. The government cannot run merely on dreams. The government must be policy driven. If the governance is policy driven, those who have to execute those policies will be clear in their mind as to their functions – responsibility and accountability will follow. When decisions are take, the nation moves forward.”

Much on this line, Public Private Partnerships (PPP) have given the heavy weightage in this budget for infrastructure creation but the Finance Minster has also called for to improving some of areas where PPPs are waiting for that. Intently that means, now the PPPs would be working, rather scrawling or not working at all.

And among the many positive stances in the budget, the praiseworthy is assurance to the investors that the Indian tax administration is not adversarial – also that the very effective tax dispute mechanism would be at place soon – to counter the ‘stuck cases’ and lacunas, those constrict tax collection in India.

The revival of economy would be possible through transparency and efficiency in taxation policies those plug leakages. This is for the country’s economic progress and inclusive national growth.

With clarity in mission, this budget will give country a much required growth impetus – at the same time, without overlooking on the incessant ire of inflation and unemployment. Afterall ModiNomics is about applying intelligent economic principles and executing them properly. This budget has shown, aiming growth and inclusiveness is very much possible through the same yardstick.
-Atul K Thakur
Email: summertickets@gmail.com

(Published in INCLUSION)

Challenges before Financial Inclusion Plan & Role of Financial Institutions

Financial inclusion plan today conceived in most of corner as “buzzword” which sometimes under evaluate its actual area of impact-as this movement refers towards potential spread of institutional finance and financial awareness to cater the needs of hitherto unbanked segment of society, so it becomes imperative to judge the set of problems actually persists and its best suitable redressal. Historically, India as a nation and economy remains stoutly attached with the rural landscape and agrarian activities-despite consistently falling of primary sector’s {Agriculture}contribution in overall GDP, the proportion of headcounts involved in agrarian occupation still constitutes around two-third of total workforce in country.
Though alone the numbers of personal involvement in the agrarian sector doesn’t reflect the healthy trend in terms of prosperity or other developmental indices in comparison with the dwellers of services and or industry-primary reason of such asymmetry lies in disguised nature of employment potential in agrarian sector and very low access to institutional benefits, most notably of institutional financial access. The most visible reason that can be sighted is-low awareness among the persons who placed near or at bottom of pyramid about the benefits of banking to their personnel and professional life; indeed the case is much rampant in rural areas yet that shouldn’t be blamed alone for such materialization.

Infact,role of financial institutions except the Regional Rural Banks and some Scheduled Commercial Banks, remains far from satisfaction-on one side where Co-operative banks by and large caught in unhealthy business executions-on the other side, role of private Non Banking Financial Companies {NBFCs}and Micro Financial Institutions {MFIs}have been largely revolved around their exorbitant profit making proposition. In such condition, it’s hardly surprising that most of illiterate, downtrodden peoples especially in rural areas found themselves far from being fit to dwell with these financial players. Even worst, responsible banking as it slowly appearing within Indian banking as well, also counts merely the number of accounts opened as a real achievement of financial inclusion which poses adverse ramification on advanced participation in the sphere of institutional finance.
Here a lot of things have to be done for maximization and naturalization of partnership between financial excluded class and financial institutions involved in this sphere-equally imperative is financial literacy that plays real catalyst in optimization of financial access and its suitable management for better results. At the same time, banking research and survey have to be more pragmatic in streamlining the particular financial products for proper effectiveness since a lot of confusions are still prevailing about even the basic function of many concept-for example, Microfinance business , atleast in Indian context, these entities are hardly demonstrating their claim of actual Micro financial functions-most of them are acts like micro lender who provides micro credit unlike the real broad meaning; in real terms, Microfinance indeed have very broad range of function-from lending –investment to insurance function.

Unique Identification Numbers {UID}is a welcome concept that would at least end the traumatic web of verification of Know Your Customers {KYC} norms albeit it shouldn’t be taken as panacea for financial inclusion plan. Primarily, RRBs and other Scheduled Commercial Banks are catering the needs of institutional finance in rural areas-these institutions are now heading to assist the innovative models-such as Self Help Groups {SHGs}, this one is a visionary model in India context which emphasized on the collective effort on entrepreneurship-indeed, this model is feasible yet if added some more closer collaboration with the banks and SHGs with essential products like-Insurance, Mutual Funds etc, that’s outcome would be certainly appear more brighter. Integration of Indian economy with the outside world has drastically changed the outlook of banking business in India-on the wake of global financial crisis, Indian banking sector remains relatively unscratched through bad exposure and now catching the attention from world wide because of its sound regulatory norms and huge domestic market including a big chunk of untapped rural markets.
Moreover, the two upcoming changes in Indian banking-consolidation and foraying of new banking players may have far reaching effects for rural India as the style and focus; both are going to shape under the new dynamicism. In most of cases, stiff competition under the open economy leaves positive impact on end users-so; in near future there may be possibility of rationalization among the private MFIs to shift from existing exorbitant rate of lending. Challenges are many before the empowerment of end users with better financial inclusion, yet it’s possible through better regulation and streamlining the innovative practices in financial sector that can effectively address the actual plight of financially untapped.
Atul Kumar Thakur
November 24th 2010 {Wednesday}
New Delhi
atul_mdb@rediffmail.com

Indian Model of Financial Services

It has become fashionable in this country to believe that anything to do with financial services has to be made in America without being aware about the ground realities. As the world commemorates the first anniversary of collapse of legendary Lehman Brothers, it would be vital to memorize that India was one of the few economies where banks and other financial services didn’t felt similar trouble; the cause were very simple that regulatory regime in India never shown leniency for unethical practices.
RBI has been consistently monitoring the situation since credit bubbles start in western and some leading Asian economies half decades ago; Indian central bank timely acknowledged the difficulties ahead and so never let allow banks to deal in exotic or toxic financial instruments. Credit delivery structure in India has stark differences from U.S.A or any other western economies; here in India banks follows well placed collateralized support for all commercial lending that minimize the risk of non performing assets.
There is utmost need to understand the Indian point of view to appropriate any functional change in financial system; context out rightly matters in any specific change in a system, like nationalization of banks in 1969 by the government was a prudent initiative from India’s own perspectives but quite astonishing from western point of view as they considered than it as a sheer humble effort of a languishing economy.
But now the landscape is entirely shift and leading policy makers from U.S.A, Vis Joseph Stiglitz, Henry Kaufman (Former board member, Lehman Brothers) necessitates on the better regulation and rationalization of the bank’s size. Indian economy being the second growing economies of the world should avail its edge of financial services which all is in well shape and naturally growing under the regulatory compliance's but still some policy makers in India couldn’t foresee the forward development in appropriate sense.

The Committee for Financial Sector Assessment, the high level RBI- Government of India’s joint assessment group came out with its conclusion that “Financial soundness indicators” like capital adequacy, asset quality and profitability of Indian banks were found in good state at the end of last year. As per the Basel Standards the Capital to Risk Weighted Asset Ratio (CRAR) of banks that’s a required amount to incurred unexpected looses should be maintain at minimum nine percent.
The CRAR for all Indian banks except two (One an old private bank and the other a foreign bank) stand substantially higher than the recommended minimum and also steadily improved over the years. Capital adequacy in the PSBs as group is itself stands above the norms; it was an average of 12.5 percent as of March2008.

In spite of witnessing such conducive fundamentals, officials in finance ministry is making exercise to flee to World Bank for merely three billion dollars loans to recapitalize the Public Sector Banks that seems quite shocking since there are several options are available within their own ambit.
Foreign exchange reserves must be a most reliable source for the government to fulfill its obligations; this way the banks would have recapitalized and they remained in government. China did same with such options even though their requirements were quite high from India, surely such options be less expensive and without any conditions.I again stressing on the potential imposition of conditions from World Bank following after such conceived materialization like, consolidation of banks, abrupt liberalization in their specified terms and conditions which may left many adverse repercussions.

Any major policy initiatives in India must be free from any external pressures because we can judge our requirements best in our conditions. In last two decades Indian financial sector has been witnessing a gradual and regulated liberalization which may remain bone of contention even in further time.
Consolidation is another matter that must be seen in the light of genuine perspectives; U.S.A’s biggest bank is tenth time bigger than India’s largest bank albeit that not guarantee the performances as we have witnessing sixty nine failures in American financial services till now and many more in future. We have many options to follow the Raghuram Rajan committee and Percy Mistry committee on financial sector reform rather than becoming entangled with external institutional pressures.Complexities could never be an ideal condition, so a comprehensive way would always be an imperative; we can come out with many innovations like adoption of consortium finances in place of unnatural consolidation and liberalization with ongoing regulatory norms. So, at the moment our hand is not tight only we have need to priorities the potential propositions.

Atul Kumar Thakur
17th September2009, New Delhi
atul_mdb@rediffmail.com

Must Innovate but Cautiously

Recently I have attended many events on entrepreneurial innovations including last one at FICCI (8th September, New Delhi); the theme of conference was Making India an Innovation Hub, which was quite noble from the perspective of spurting faith in entrepreneurial potential in the country. Indeed innovation is imperative in every domain in life since it has creative bearings over a potential target, so it’s a sort of energy that’s capable to harness the skills along with imparting conduce ground for entrepreneurship.
Without even a bit of hassle it could be said that presently Indian business seems badly thirsty for the drops of innovation; India being a billion plus size country with its sub-Saharan infrastructure erstwhile remained focused on conservative and cumbersome path of development which normally came out with many depressive impediments.

Choosing the path of mixed economy, Indian economy have been consistently coping up with ideological fractions in political- economic circle that caused for its sluggish development until ushering into phase of liberalization in early nineties, somehow in compelled situation.Crux of the matter is either Socialism or Capitalism let allowed a national economy to grow in its fundamental fervors unlike the Indian experiment with mixed economy which with many languishing political decisions remained standing in bizarre situation.
Any way it doesn’t mean to say that concept of mixed economy was proven failure in Indian circumstances instead its maligned political handling that undermine the potential growth of Public sector enterprises which further dampen the socialistic temptations of economy.

Despite such frills some Public sectors enterprise have proved their worth; performances of Public sectors banks including Regional Rural Banks (RRBs) could be counted in these lists as they more or less remains unaffected through global financial crisis. Here it may takes into long introspection that how these banks remain unaffected?
But a simple answer could be that these banks were less integrated with the fluctuating global businesses albeit it wasn’t an innovation or any counter of such propositions; it was merely an act of inaction regarding the myopic financial routes like hedge funds and other derivatives product that finally saved them from losses. Sometimes inaction is better than action as in this case but that approach shouldn’t be germed in minds for all actions.

Some time back,United Kingdom released the Turner’s review report on financial meltdown which lay out the main themes behind the acute financial failures in western countries.As per the report that mechanized experiments in the name of innovation and blind move for creating bigger entities was the major cause of failures for financial sector players in Europe and U.S.A. Joseph Stiglitz expressed similar contention that bigger entities needs bigger supervision and regulation without having such backups sometimes makes business vulnerable for failure; of course efficiency maters more than the giant sizes of a business entities in most of conditions.
A true innovation can be panache for empowerment of its practitioners besides fuelling growth in productive activities; there are many subtle experiments in our daily life that deserves more proper consideration for its institutional and professional advancement from the respective policy makers.

Persons like Prof. Anil Gupta (IIMA, National Innovation Foundation, SRISTI and Honey Bee Network)is doing exemplary jobs to conserve and retrieve the extinct traditional knowledge and infuse lease for curious observations from bottom of pyramids. Campaign like Universal Financial Access (UFA) evangelizing by eminent banker Mr. Sanjaya Bhargava and others like minded peoples for attaining the goal of complete financial inclusion in early next decades, its theme (Billions through innovations) presents a sanguine picture for innovation that reflect the rosy outcomes of innovative thoughts.
It’s quite alluring to feel that Mr. Sanjaya Bhargava has entered in such arena after leaving his phenomenal stint in City bank where he heading for corporate charges that have very few similarity with such grass rooted and non-profit movement; he is a man of focus and he deserves applauds for such though innovation.

Mr. Mahendra Pratap is next name (President, iMFAST and co-founder NCR Tech Group) in this series; he is similarly the doyen of innovation who relentlessly keeps striving for technological innovation in Indian financial sector with motives to spread its easy reach to the common masses. Spreading of ATM network including with some bio-metric applications, electronic payment to workers of NREGA, door banking, mobile banking,24@7 banking etc are some outcomes of meticulous innovation that maximizing faith in financial inclusion movement.
Innovative ideas in thoughts, services and action are very essential for encouraging and rationalizing socio- psychological perceptions and its development among the all age groups since innovation hardly need any specific age to materialize. Like many other positive ideas, an innovative proposition also requires some rudimentary cautiousness that must be followed to avoid any future chaos; what we have witnessed through financial sector failures in U.S.A and all over the world. Positive restraint would even enhance the capability of an innovation… we must deliberate under our own imposed disciplines that would further take us into an ethical level playing field.

Atul kumar Thakur
September9th 2009, New Delhi
atul_mdb@rediffmail.com

March of Universal Financial Access

Debate is still in full swing for attaining the goal of financial inclusion in stipulated time-frame to usher India in a new age of institutional finances. The rudimentary goal of financial inclusion in Indian perspective is very compatibles with the long sought-after necessity of expanding institutional financial services to the unreached segment of society. It would be imperative here to see that despite witnessing spectacular success with regulated inclination of Indian financial sector still a considerable pool of population is out from its core ambit.
These financially untapped common masses are not only missing the access of formal banking services but they are also deprived from a proper entitlement which eventually outpaced them from mainstream and leads them in the trajectory of exploitative money lending markets.

Such conditional fall leads them to the financial viciousness and alarming indebtedness that altered the course of their lives; for checking these sorts of unfortunate developments, institutional financial delivery at rational interest rate would be a plausible panacea. As the maladies of indebtedness being evident among the farmers, it’s an urgent need to combat these problems on two different front; first to raise the reach of institutional financial services among untapped groups with avoiding the practices of exorbitant charges as some of Micro Financial Institutions (MFIs) are indulged in similar practices and second to offer timely credits for productive purposes instead for consumption.
Models of Regional Rural Banks (RRBs) and co-operative banks could be the fine example for newly emerging Micro financial institutions by lessening their operating cost through technological innovation and adaptation to local conditions and wisdom of practices.
Movement of Universal Financial Access or UFA is a very comprehensively shaped idea that drawn and being propagated by the distinguished banker Mr. Sanjaya Bhargava who left his illustrating full time career for activism of financial inclusion. The basic idea of UFA is meticulously woven for the conditions which are frequent in bottom level of banking practices in India.
Today lack of entitlement primarily fuelled by the low penetration of formal banking and other services among the marginalized section especially in rural areas. UFA movement is trying to bridge the gap between actual demand and supply scenario by tracing the operational loopholes in existing Micro financial institutions and retrieving solutions for better materialization of financial inclusion.

Indeed the conceptualization of financial inclusion by UFA evangelist introduces a new chapter of innovation in Indian financial sector entrusted with broad welfare aims. The drive for universal financial access becomes more vital especially it’s concern with languishing fortune of farmers and others from the bottom of pyramid who grossly left untouched from the great Indian growth story, so its focus area is adverse tantamount generated from unequal growth agenda.
UFA stressed for appropriating technological innovation in the operational domain by the financial institutions in rural areas to curb the cumbersome expense on its service delivery. Revolution in Telecommunication sector is the finest available example before the financial institutions to spread their products at affordable price in hassle free environment.

Consequently with such approaches Telecommunication today enjoying the most respectable position in Indian business and its bullish impact could be visualized any where,spectacular monthly addition of four million subscriber bases with growing Average Revenue per Users(ARPU) rate signaling the makeshift of a sluggish sector into a full bloom arena.At policy level government is too looking serious to attain the goal of financial inclusion by lending directives to Reserve Bank of India,to accommodate the hitherto unbaked persons.
Social schemes like NREGA, Indira Awas Yojna, Self Help Groups etc;are helping the conducive proceedings of financial inclusion plan since the all transactions has to be dealt only through the banks now that giving a lease for institutional financial awareness.

Unique Identification Programme (UID) is an other initiative of government under the visionary chairmanship of Mr. Nandan Nilekani, to end the identity crisis among a large chunks of population who hitherto were not able to avail the benefits of institutional support as they were lacking to fulfills the Know Your Customers(KYC) norms and other hassle full obligations. Previously the only exceptions were the Regional Rural Banks (RRB) & Co-operative Banks as they actively used to practicing the Different Rate of Interest Schemes (DRI) to weaker sections with no frills account services.
Comercial banks including Private sector banks & privately MFIs have to go a long way to come as par the endeavour made by the RRBs & Co- Operative banks through their rural focused & exactly need based services to cater the aspirations of Common Men (Aam Aadmi).

This is the prime area where the UFA movement can persuade to new age players in financial sectors for making action on many previously drifted approaches ;so, first of all it is most essential to be pragmatic on rural India’s needs and than making such effective efforts to contain the handicaps of attaining the full scale financial inclusion.Movements like UFA has greater bearing for the plights of small house holds who involves in unorganized sector and largely defunct from any institutional favour for their basic financial needs.
At this point, rural India’s today needs big push from all sides as the rural hinterland craves for basic facilities & proper opportunities that forces there dwellers towards upward migration in bigger cities; for maintaining equilibrium of prosperities (growth & effectiveness)these area must be given their due.

Financial Services has to play a major role in further development of rural India since investment in different domains going to play catalyst role in economic activities and productions. A grass root effort of spurting entrepreneurship can effectively address the rural areas .
A country like India with billion plus size of population could hardly underrate the importance of its primary sector; so, it should be the foremost aim of any noble initiatives like Universal Financial Access (UFA) to spread the word for saving the villages from despair and infuse hope in these core areas through ensuring basic facilities. Lot of wishes for UFAs like phenomenon movement … hope this movement would relentlessly strive for a vibrant ecosystem that may forward financial inclusion ahead and increase access to financial services in India in very democratic manner.

Atul Kumar Thakur
September2nd 2009, New Delhi
atul_mdb@rediffmail.com

Revisiting NREGA

In a short span of time National Rural Employment Guarantee Act (NREGA) emerged as one of most profound government scheme for addressing the socio-economic plights of poor and marginalized rural workforce and infrastructure. NREGA introduced the finest example of cash for work model in India with some distinctness but same rudimentary propositions like some cash transfer programmes in other countries; Oportunidades (Mexico), Social Protection Network(Nicargua), Bolsa Escola and PETI(Brazil), Family Assignment Programme(RAF-Honduras), Chile Solidario (Chile) and Programme of Advancement through Health and Education(Jamaica).
These all implementation are in respective fields and making choices available to the poor beneficiaries.The NREGA evolved out of a political response to relentless people’s movement and the articulated needs of rural workers; indeed civil campaigns has been playing crucial role in its enactment and further in their functioning.

The NREGS is the first employment generation Programme in the country that holds socio-economic rights in a statutory framework and paves a comprehensive nexus between the mass rural workforce and the state authority which layout not only the NREGS albeit also a solid stride of democratic governance. It must be an exaggeration to expect from the partial success of this rural employment Programme to address all the hurdles of vast rural economy even though it’s a universal truth that NREGS has increased the bargaining power of rural farm and other workforce.
On many front NREGS have enhanced the prospect of revivals in rural economy but magnitude of its performances has been found uneven through region wise evaluation of its impacts on respective milieu. Despite this NREGS involves in creating productive assets, enhancing purchasing power, strengthening the Panchayats (Institution of local self governance) besides encouraging new height of transparency.

With broadening the horizons of NREGS it also raised the concern for medium and small marginal farmers as they are coping with higher and competitive labour costs for the farming; surely it’s a positive outlook in many ways but the deficiency of a rational support price, inclusive institutional credit facilities. Crop insurance, subsidies on basic inputs, cross border trade management etc are some haunting issues which jeopardizing the conditions of farmers.
This is a major issue before the government (Both the Central and State) to enabled these farmers through additional financial stimulous by that they would be able to sustain fetching the farm labourers in competitive scenario of rural labour market.

Governments must show better accountability to innovate and broaden the NREGS Programme to the other productive sectors which would further left the assumption that all poor are ready and willing to engage in physical work only. Such innovated NREGS Programme would be entrusted with the more meticulous and varied opportunities to lessen the vulnerability of literate rural unemployed. Implementation of this innovated employment guarantee Programme may come out with various challenges. The potential beneficiaries are expected to be the crucial issue that would be needed an innovative proposition in handling by the policy makers and governments as well.
Implementation of last fifty years of development programmes could make some sense in forming amicable solution of people’s entitlement that also broaden the stimulus and meet the human and social needs of diversified population.

First of all it’s most imperative to expand the existing works under NREGS and make enabling provisions to employing educated unemployed persons as support staff for the NREGS which would also fulfilled the shortage of staffs in projects. There also existed huge chances of spurting entrepreneurship with absorbing literate workforce for more useful productions which would left with finer implications like checking the outbound migration to urban areas; so NREGS could be used to maintain a fine balance and would retrieve the lost glory of Indian villages.
It may be unanimous view at least in proposition that NREGS bears the great entitlement with large pools of marginalized rural workforce that seems nearer to the Amartya Sen’s entitlement theory ‘That lack of access to food (Goods and Services) rather than failure in food supply leads to famines’ necessitated the importance of entitlement; fortunately which is core of NREGS programme.

NREGS holds very healthy composition of workforce; fifty percent of workers are women and rest of workforce consisted with majority of scheduled castes and scheduled tribes, so its aim of socio-economic empowerment is much focused and well structured. Despite having many goods things in its wish list, this programme suffering from routinely violation by authorities which fudging its proper success at execution level.
Delay of payment, absence of work in stipulated time, late redressal of grievances are some of alarming happening in the execution of NREGS; social scientist and activist like Jean Dreeze have made excellent effort to unleash the various payments related discrepancies in Jharkhand. Today it’s imperative to make NREGS work efficiently and wipeout its functional maladies rather than blindly amending it.Attempts of Ministry of Rural Development to craft the format of “NREGA2” should be introduced only with a long range of debates that must involves its core constituents and ensure the basic foundation of NREGA more strengthened. The focus should be concentrated on demand based availability within the stipulated time frame without any frills and its further extension of 100 days work into a regular mode of job. Indeed with great commitments and vision this target is achievable.

Atul Kumar Thakur
31stAugust 2009, New Delhi
atul_mdb@rediffmail.com

Micro finance: A Panacea of Sustenance

Micro finance notionally stand with social aspects of economic requirements for marginal or weaker sections,both at the rural and urban spaces. It caters the micro credit for immediate requirements of initial capital for farming activities as well as for lower scale entrepreneurial activities.It introduced superb social binding over its recipients with it's theoretical aim to promote group effort during the attainment of specific enterprise.
Popularly these groups are known as Self Help Group(SHG) can be regarded as a forward move with community involvement as a key specialty potential in strengthening the social fabrics and further ushering towards the more regulated social development.

Micro finance as a concept reemerged and gained popularity in 1970’s in East Asian and South Asian countries like Philippines , Bangladesh etc: later caused for the social orientation of banking in developing nations. By which affect the formation of rural banking (Gramin Bank) in Bangladesh and India infused immense hope for inclusive development in these countries.
Dr. Muhammad Yunus received accolades and numerous international awards for his extraordinary accomplishment, so much so that many believe that Micro finance as an institution began only in the 1970’s and that too only in Bangladesh. In fact there have been also earlier claim of successes like William Reiffcisen’s village banking movement; another noteworthy was caisse populaire of Alphonse Desjardins in France were amongst the notable instances where considerable improvement was brought in the condition of the extremely disadvantaged peoples.

Such early conceptions were not entirely hypothetical, though all the previous success of Micro financial activities were not operationalised in an organized banking system,so, such initiative were largely remained confined beyond the institutional pattern.
So, seeing huge success of Gramin Bank in Bangladesh under the visionary leadership of Md Yunus and satisfactory success of Indian Gramin Banking (RRBs) in their goal; now this so far untapped sector is drawing fresh insights from commercial banking NBFC and NGOs.Over the years,Micro finance has emerged as promising way to check the poverty and empowering the underprivileged especially Women, Unemployed and Disabled.
In India a measure policy initiative was made by NABARD in 1992,for SHG-Bank linkage as a pilot project which in course of time grown into one of the largest micro finance programme in the world.

IN AN ANOTHER GREAT MOVE:-
The NABARD is planning to start a MFI to take financing to the” poorest of poor”. The venture will be launched in partnership with Commercial Banks(49%) and NABARD(51%). NABARD will also launch a Financial Advising unit to help bring down the high incidence of farmers suicides.
Despite observing high growth of rural credits and other small segments of lending in last decades the formal sector, nevertheless Microfinance accounts for less than 40% of the agriculture and rural credit; these demonic reality still haunts the welfare aim of institutional finance.Another alarming area of concern would be the burgeoning SHG and Microfinancial organizations becoming a favourite hobby horse of the NGO for exorbitant business that is going to be a grave challenge for original conception behind this movement. Most of them fail on all the basic criteria. Such tendencies needs an immediate cure through stringent regulatory mechanism…

Recently the Government is also proposing a legislation by which it will be able to regulate the Micro financial institutions to ensure fair, equitable and ethical practices and democratic functioning but that regulatory checks must be timely implemented before loosing the essence behind this social venture.Legislation also propose a ceiling of Rs50,000 by MFI; which is considerable in rural segments of Micro credit but will not be suffice in enterprise finances. NABARD would be its regulator.
In some more forward move banks must approach to a customized savings products targeting the poor. NGO should assist SHG to usher in flexible savings options too likewise banks and MFI should deliver agricultural seasonal loans with flexible repayment options through groups on a pilot basis.

Here it’s a chance to create a Micro financial promotional agency on the lines of Pali Karma Sahayak Foundation (PKSF) of Bangladesh programmes.Government must consider making NABARD MCID (Micro Credit Innovational Department) an autonomous promotional body. Having lower competitions among MFI is an another area where the India lag behinds from Bangladesh. Here some innovations are needed in Indian financial sector to infuse competition in Micro financial segments.
This is need of hour to innovate the existing products and introduce to some new product lines. Such some products which has called attention in Bangladesh can be also effective in India because of having many common grounds between two countries, some of those are: -
I. Risk Mitigation – As their insurance programmes are community managed on the basis of mutuality, they do not extend cover for risk of a co-variant nature, such as flood cover and crop failure.
II. Flexible Savings – To cope with food insecurity, employment insecurity etc.
III. Agricultural Finance- This product is already exists in India; only it needs more optimization for better needs and outcome.
IV. Larger Individual Enterprise Loans- This segment has drawn attention from policy makers like Dr Arjun Sengupta, chairmen, National Commission for Enterprise in the Unorganized Sector (NCEUS) expressed his views “If Micro finance properly nurtured and strengthened the unorganized non farm sector can be a pertinent tool of employment creation, poverty reduction and faster inclusive growth and would go a long way in closing the widening devide between urban and rural India.

NCEUS targeted fund corpus of 1,000 crores by 2011-12,target group for this corpus are small enterprise and the unorganized sector covering non farm activities employing less than 10 workers, primarily those with investment in plant and machinery not exceeding Rs5 lakh (excluding land and building at 2004-05 prices) if engaged in manufacturing and investment in plant machinery not exceeding Rs 2 lakh if engaged in non manufacturing.
However the upper limit of financing by the fund would be for enterprise with investment in plant and machinery not exceeding Rs25 lakh if engaged in manufacturing and investment in equipment not exceeding Rs 10 lakh if engaged in non manufacturing activities. As the commission cites the third census of SSI(2001-02);98% of all the manufacturing non agricultural small enterprise employed less than 10 works with an average capital investment of Rs1.47 lakh, quite a good number of them are also engaged in service business and trade.

Despite having all such arrangements, they hardly received about three percent of gross bank credit during 2002-03 to 2004-05 against the RBI priority sector plan that Micro enterprises should get 60% of total credit to SSI, they have been getting just about 40% and this had skidded to 34% in 2004-05.Even more surprising within the non farm, unorganized sector, the most vulnerable group is the smaller size micro enterprises with investment up to Rs 5lakh.
Here it will be quite imperative to channelize better policy options to minimize the suffering of this sector and enabled them for more healthy functioning. It could be a major area of employment generation, which follows by its stabilizing factor to domestic economy, So Government must also leveraged corporate to enter in Micro financial sector in more efficient and regulated manner-away from exorbitant aim of business.

Present presence of Corporate is still standing in obscure proportion, hope they will more motivated in near future with obeying the regulatory norms.In recent years Indian financial institution specially the Regional Rural Banks, some commercial Banks and to some extant Co-operative Banks displayed healthy trends in delivery of Micro credits in rural areas for farming and other employment generation programme. With merger and consolidation, RRBs being able to systematize restructuring of its business and healing from previous loss, now strengthening RRB; would indeed influence much stoutly to Micro finance programmes in near future.
Its huge branch network and strong presence in rural areas would be the most strategic factor in rural credit disbursement.Having tuned negatively for their poor financial structure and inefficient management system ; Co-operative Banks lost much of its reputation as pioneer of Micro financial movements.

Though implementation of Vaidyanathan committee is infusing some new hopes for their strategic revival. If it will able to regain its potential glory then, of course the task of mushrooming productive Micro credits would become much smooth.In present circumstances of financial meltdown, it would be desirable for Indian policy makers to stressed more on domestic financial features ; because it’s sheer domestic demand which is catalyst in sustaining the growing economy.
Hope the Micro financial programme along with other Priority sector programmes would get more attentions from policy front irrespective of any political rotations...besides RBI and NABARD have to keep vigil alive to not let deviate the social orientation of Microfinance for exorbitant greed of business by Corporates.

Atul Kumar Thakur
New Delhi
23rd March2009
atul_mdb@rediffmail.com

Introspecting NREGS

National Rural Employment Guarantee Scheme introduced as fresh employment scheme by the Government of India, which treats employment as a right and the program is conceived to be demand-driven. It will worthwhile to note that NREGS is entirely different in its conception as well as in execution pattern. Essentially it’s a step forward for social inclusion.
NREGS has potential to transform rural socio-economic mode of relations at different levels. Obviously NREGS essentially challenges the prevailing power structures. NREGS is necessarily “inclusive” at the most basic level in economic terms. Partial success of scheme is a sources of optimism. Despite having huge variation in participation in states. NREGS present optimism at national level.

Share Of Women : -
India’s(36.2%) in total rural workforce,48.9% in NREGS,differences-12.7%
Share of SCs-16.2% in total population, 30.9% in NREGS.differences-14.7
Share of STs-8.1% in total population, 24.1% in NREGS, differences-16%
(Sources-NSS 2004,NREGS Report on January 2008,Census 2001)

Participation of women shows inclusive potential of the program NREGS which involves a very fine gender balance which enabling a large number of them for institutional finance. Such involvement of womens in NREGS is likely to be positively reshape the gender configuration. High participation of SC in NREGS is quite natural as they lack access to means of property, their's share are similarly disproportionate among rural laborers and any other employment program of government.
Moreover,such high participation of STs in program is quite amazing. Because neither Geographical nor previous track records with other scheme was so conducive. Huge participation of STs at national level is a very encouraging sign of success for NREGS.

This trend is worth of admiration. Since the initial 200 districts were chosen on the basis of their backwardness and these tend to be tribal dominated areas as well as in many states,so it may not be surprising that STs have been so magnificently working in NREGS at the aggregate state level.Partial success of NREGS does not ensure a rosy path ahead. Institutions and Individuals are rapidly involved in the arena of corruption. The tremendous potential of the scheme is in danger of being wasted in some states.
There is too much scope for introspection to deal with massive corruption. There prevails a very low consciousness among the workers to their rights. Even 30 percent among them are exactly aware about their rights and their entitlement to 100 days of employment per year under the Act. This powerlessness is also due to the absence of any effective grievances redressal system for NREGS.

Effective presence of IT facilities in rural areas and unorganized civil society vitally determined the state of affairs. Weakness of local governance, also substantially affected the successful enactment of NREGS, this case is very strong in Jharkhand where Gram Panchayat elections have not been held since the enactment of 73rd &74th amendments of the constitution.
Jean Dreeze in his introspection of NREGS found some factors, which rapidly ails the system. These are: -
1.A repressive state people
2.Helplessness of working people
3.Lack of system to redress grievances
4.Absence of Gram Panchayats
5.Casual attitude of government

There are some key restraint before the NREGS. These maladies needs immediate checkout by strong measures by Peoples institutions through appropriate technology, skill development, leveraging market and adequate public investment.NREGS is a major source of domestic demand, which is very crucial for Indian Economy in present circumstances to come out from global financial downturn. Now it is time to realize that NREGS is about more than equity, it is also a very useful macroeconomic weapon against the economic slump and recession .
A strong civil society has off course plays very crucial role, though there effects are not alone enough. In a very lucid inquiry; Mihir Shah & Pramathesh Ambasa (Hindu, Sep 8,2008) found the success of NREGS. Social audit in Andhra Pradesh covering 12 million people is a brilliant example of civil society action, enriching mainstream politics.

In Andhra Pradesh, a fine understanding exists between peoples institution like Mazdoor Kisan Shakti Shangthan(MKSS)& Government. Besides this a separate existence of social audit is another favourable condition which enabled Andhra Pradesh to get breakthrough in NREGS implementation.The MKSS led by Aruna Roy, one of architects of NREGS introduced the concept of social audit into development practices nearly two decades ago. But even in Rajasthan, where MKSS started its work could not meet with same achievements to mainstreaming social audits.
A social audits of 17 NREGS Works in five Gram Panchayats of Deoghar district (Jharkhand),conducted on 12-16th October 2008,revealed some alarming facts related to discrepancies in bank payments .Lot of manipulated bank accounts were found which strengthen the chances of corrupt involvement of institutions like bank. So, it raises question marks on bank payments and Direct Cash Transfer(DCT) to cope with the corruption in NREGS.

Before NREGS, Indira Awas yozna(IAY) used to avail the DCT, where its proved inadequate to cope with corruption because biased involvement of government officials and middlemen’s.Situation is absolutely puzzling how to deal fairly with cash transaction during a project. For policy makers, it still remains a distant dream. Indeed DCT system is most improved solution till now; Economist like Arvind Subramanian even regards DCT as the “first best option “to address poverty in India.
Infact there shall be major concern towards growing violence in its path-like tragic death of Tapas Sen ,who immolated himself in Hazaribagh to protest against official harassment.Mode of NREGS functioning raises serious question against the partial functioning of authorities.

Violence during the project are quite rampant .Brutal murders of two NREGS activist (Lalit Mehta and Kameshwar Yadav) during a survey of NREGS initiated by the G.B .Pant Social Science Institute in Palamu and Kodarama districts left a frightening scar over the program.
Still a lot of fight is needed with such oddity to overcome from imposed hurdles. The NREGS has huge potential to enhance socio-economic dynamicism in country which makes alone suffice to makes its utility evident. Let us hope for more breakthrough…

Atul Kumar Thakur
New Delhi
March 2009
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