Technology in Banking-Insight and Foresight for BTA_2011 ... - IDRBT

Technology in Banking – Insight & Foresight 10
3. Current and Emerging Trends in Banking Technology
3.1. Financial Inclusion
India witnessed a sustained period of strong economic growth since the onset of economic reforms
in the early 1990s. The banking sector has grown tremendously over the last two decades. With
approximately 40% of the Indian population having a bank account, large sections of the population
have been excluded from financial services and are therefore unable to participate fully in the
economic growth. Further, the potential of the financial system has not been harnessed fully due to
the extent of financial exclusion prevailing today. Financial inclusion, in recent years, has emerged as
a major policy initiative. The Reserve Bank of India has significantly scaled up its efforts aimed at
increasing the level of penetration of bank financing in the economy. The government has set up two
funds — the Financial Inclusion Fund to meet the costs of developmental and promotional
interventions toward financial inclusion, and the Financial Inclusion Technology Fund to meet the
costs of technology adoption. The regulation on branch licensing has been relaxed to promote
financial inclusion. Domestic commercial banks are also required to prepare their own financial
inclusion plans (FIPs) and implement them over the coming years, adhering to their laid-out
performance assessment norms. The RBI has progressively liberalized the branch authorization
policy, providing in-built incentives for branch expansion in the unbanked areas.
There have been considerable efforts toward financial inclusion through State Level Bankers
Committee (SLBC) convener banks and lead banks. The regulator advised lead banks to constitute a
sub-committee of District Consultative Committees to draw a roadmap to provide banking services
through a banking outlet in every village with a population of more than 2,000 people. The BC model
was comprehensively reviewed. In November 2009, banks were permitted to engage the following
additional entities as BCs (a) individual kirana/ medical/fair price shop owners, (b) individual public
call office operators, (c) agents of small saving schemes of the Government of India/insurance
companies, (d) individuals who owned petrol pumps, (e) retired teachers, (f) authorized functionaries
of well-run SHGs linked to banks. Further, with a view to ensuring the viability of the BC model, banks
(not BCs) were permitted to collect reasonable service charges from the customer, in a transparent
manner. In April 2010, the BC ambit was further widened by permitting banks to engage any
individual as BC, subject to their comfort level and their carrying out due diligence, as also instituting
additional safeguards considered appropriate to minimize agency risks.
Scheduled commercial banks (SCBs), especially public sector banks, have stepped up efforts toward
financial inclusion. However, there is a need to ensure that financial inclusion does not end up being
only a number target. It should qualitatively be such that it makes a difference to the lives of those
who are financially included by the process. Banks have been permitted by the RBI to engage the
services of approved intermediaries to be engaged as business facilitators and business
correspondents with the objective of ensuring greater financial inclusion and increasing the outreach
of the bank branches. In the process of outsourcing vital banking services, the bank is exposed to
both operational and reputational risks. This requires efficient and effective monitoring of the
activities of the business correspondents by the concerned branches to safeguard the interests of the
bank's customers.
Institute for Development & Research
in Banking Technology