Banking on It

The RBI suggests new banking licenses will go to business models that push financial inclusion. This fits with the stress
policymakers are laying on expansion of banking cover. The plan is to take banking to habitations of over 2,000 people
by 2012. This is a massive task since, of around 6, 00,000 habitations in India, a mere 5 per cent have bank outlets. On
average, there's one bank for every 13,500 Indians. Bank accounts are held by only about 40 per cent of the population.
A healthy 42 per cent of villagers save, but few have access to banks. Most Indians have no insurance cover of any kind.
Low-income people get loans with difficulty save from dubious informal sources. Millions are thus financially illiterate,
compounding the problem. India needs a multi-pronged approach to expanding banking infrastructure that goes beyond
brick and mortar. Last year, the RBI did well to relax rules on setting up ATMs, and bank branches in areas with
populations of less than 50,000. But commercial considerations do guide locations. One great idea is to give India Post
the nod for full banking services, adding credit disbursal to functions it already performs with savings instruments, postal
life insurance and money transfer. The postal network's pan-India reach makes it a natural vehicle for financial inclusion.
Promoting 'branchless' banking is even more crucial. The banking correspondent (BC) formula NGOs, self-help groups,
cooperatives, post offices and the like acting as agents must realize its full potential. No-frills accounts have taken off,
the banking sector having opened 3.92 crore such accounts with zero or very low minimum balances. But the BC model's
transaction costs pose problems, demanding technological solutions. In this context, harnessing the telecom revolution
recommends itself in a nation with 600 million-plus cellphone users. Kenya and South Africa have shown how massively
mobile phone banking can come to the aid of the unbanked. Popularizing insurance and expanding microfinance are
other aspects of financial inclusion. Healthy rural response to savings-linked micro-insurance products has already
shown the sector's potential. And, following the successful lead of India's largest microfinance company, other firms
could turn to private equity to boost funds. India has the world's biggest demand for microfinance; hence fears that
market-bound firms will priorities shareholders over customers are misplaced. The more viable micro lending can be
made, the more successful its social mission will be. Finally, whatever the financial service, identification under 'know
your customer' norms protects both banks and clients. Getting the UID scheme off the ground is key, millions being
denied banking access for lack of identity-linked documents. With unique identification numbers, they can enter the
financial mainstream.
RBI pushes banking to remote areas
PALWAL, HARYANA: In a bid to deepen banking operations to remote villages and among the poor people, who so far
remained outside the purview of banking operations, the Reserve Bank of India has started a special drive. The central
bank along with the main bank of the area is working to expand banking operations using wireless technologies and the
system of banking correspondent. At present, around half of the population in the country don’t have bank accounts. As
the exercise to include poor people in the banking system is not financially viable, a part of the cost will be borne by
RBI. In order to take banking to the remote villages, banks while opening an account of a person, also issue him an ATM
card. At the same time, it will appoint a credible person in the area as a banking correspondent (BC), who will act as an
agent of the bank. BC will be given a hand-held device, which could be connected to the bank's network through
wireless connection. A person, who has an account in a bank of that area, can operate his account through the hand-held
device. After swiping the ATM card in the hand-held device, he will have to type in his password to get access to his
account. "After accessing to his account, he can deposit money with the banking correspondent, which can immediately
credit the same in his account and give him a receipt. At the same time, if he wants to withdraw money from his account,
he can take it from the banking correspondent, after debiting the money from his account on line," said RBI regional
director Sandip Ghose. Ghose said that bank will also deploy mobile ATMs, which will go to every village in the area
once a week. The mobile ATMs will function like a mobile branch of the bank. RBI deputy governor Subir Gokarn said
that by 2011 every village having a population of 2000 will at least be connected once a week through mobile branch.
The cost of ATM card will be Rs 112. As the bank will initially lose money in this endeavor, RBI will chip in with a
subsidy of Rs 50 for each ATM card issued. RBI had organized an outreach program with Oriental Bank of Commerce
in Gudhrana village in Palwal district in Haryana. This was RBI's 10th outreach programme in the current fiscal. Gokarn
said that expanding banking operations among the poor people would help containing the pilferages while distributing
the government-sponsored schemes among them. The wages paid under the government schemes like National Rural
Employment Guarantee Scheme will directly deposited in the beneficiaries' account. Similarly, the old age pensions and
scholarships to students can directly be deposited in their accounts. These efforts will reduce the role of middlemen and
so the chances of pilferages. Not only this, the expansion of banking operations will also help villagers in accessing the
loans from banks at reasonable rates. At present, they have to depend on money lender to secure loans at the time of
needs.