The year 1969 was a turning point in the Indian banking history as thrust on nationalization was given so that strategy of social development and economic growth could take place simultaneously thereby enabling the country as diversified as India, wellknitted and connected.
It was a big leap by the Government at that point of time as banks were the medium which people interfaced on a day-to-day basis and also Government could reach out to the poorest of the poor. This was exactly what nationalization of banks would have wished for but LPG (liberalization, privatization and globalization) revolution in 1991 gave a tryst with destiny to those laudable dreams of bank nationalization.
In consequence of the revolution, banks have more or less become more urban centric and as a result 'finance' a tasteful subject to every human being is denied to the majority and catered to prolific minority only. Taking note of the seriousness and concern for expansiveness of banking industry which is the back bone of Indian economy, the current Finance Minister of India recently stressed upon the need and felt that fresh licenses to the banks must be given only if they could show their mapping in rural India, which is vital for 'inclusive growth' of India.
A look at the statistics shows how commercial banks are really 'commercial'. 72.2 per cent of country's population is catered by 30 per cent of the bank branches, 51.4 per cent of farmer households are excluded from financial services, geographically only 5.2 per cent of the six lakh villages have bank branches, 80 per cent of Indian population do not have life or health insurance and above majority of population in India are either financially at risk or not exposed to finance.
There is prosperity at one end with too much exposure to risk and on the other there is poverty with all risks. Unless social development takes place, there cannot be economic growth and these twin aspects are the two sides of a coin and have to be transacted at the same time in far-flung , remote areas of the country.
Financial inclusion is not something new; it is a worldwide phenomenon and gained its momentum in India in early 2000's. Banks in India were earlier adopting villages for rural development but the exercise was not an enthusiastic success. The private sector banks are also more urban customer oriented and targeted on I-banking to tap more clienteles.
Financial inclusion is provisioning accessibility of financial services to the poorest of the poor at an affordable cost. The question is who shall provide? What shall be provided? How shall it be done? And more important who will be the service provider? The 20th Skoch Summit held in July, 2009 at Mumbai on its finding on "National study on speeding Financial Inclusion" is interesting and worth emulating.
What is hampering the fostering of financial inclusion? Financial inclusion is not just multiplying bank accounts, where accounts remain inactive or having a minimum balance of Rs 176! What is most important is inculcating the sense or awareness of financial literacy among the rural masses and extending the affordable financial products or services to them at a subsidy or at an affordable cost.
The cost has to ultimately be borne either by the banks or by the State but the fact that should be highlighted is that it is not provided just like freemeal scheme or any other scheme of the Government. Reaching out to masses in the remote corners of the country, extending technology banking, enabling cash to reach the bank accounts of such masses, marketing, educating rural customers and seeing a viable business model in the future should be the mission and vision of fostering financial inclusion in the country.
However, easier said, the more are the practical difficulties. The banking industry cannot see it as a viable model unless it is profitable and therefore, the 'financial inclusion' should be made as the national agenda.
The practical problem in this agenda is how to create 'demand and supply' effect to the accounts through which those who have been 'excluded' can be 'included'. Most of the output (if at all) generated by the rural masses is mostly farm products or services, where marketing facilities and price are not competitive or in most of the cases it is a mis-match.
Therefore, efforts should be made to take the commodity market to the rural people and logistics should be made for the distribution system all across the country and the cash output so generated by the marketing system should be tapped by the banks through tech-bank and minimum amount savings generated out of such transaction should be enabled to flow into the capital market preferably though mutual funds. This will pave way for those who have been excluded from the financial exclusion, promoting saving thrift, scope for wealth creation and above all financial literacy.
The participation of the population in the retail capital market is just 2 per cent and therefore the main stream including the ruralurban population are either isolated or at a financial risk because of poor saving or alarming spending habits. Banks through their correspondents should therefore start campaign educating the rural and poor masses not just for opening bank accounts to meet their targets, but help them grow by diverting such surpluses to other expanded investible sectors of the economy.
It is a holistic exercise where banks have to rope in other agencies functioning in direct liaison with the people in rural areas particularly post offices which serve as connecting link. The use of 'UID' should facilitate the faster exercises as data can easily be populated and cumbersome banking procedures can be dispensed with in the process of financial inclusion.
Mobile banking , bio-metric banking, commodity banking, cash vouchers , etc., are those viable channels that can add sizeable population to the financial inclusion. Technology is rapidly changing and mindset of man is a thing of the past. When mobile population could rise in geometric proportions all across the world, at least working models should be developed to increase rural banking in mathematical proportions as well.
The year 1969 is remembered for yet another remarkable achievement in the history for the mankind. It looks strange to relate two events, but facts tell. In the same year when bank nationalization process started, there was yet another small step to connect to the mankind. Neil Armstrong landed on the moon. His words were, 'That one small step for man, one giant leap for mankind'.
Forty years later, change is fast happening in space technology. Man is trying to reach Mars, but banking is yet to penetrate into masses. It is not just a Government's endeavour for after all Government is for, by and the people. Let us all join together to make 'Farm India' as 'Finance India'.
(The writer, Dr P T Giridharan, is Joint Director, Institute of Chartered Accountants of India)
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