Promoting Financial Inclusion - United Nations Development ...

As a result, another working group of
the RBI recommended in 2005 that a
programme of mergers and amalgamations
of RRBs should be launched so that
the financially weaker banks could be
strengthened, a change in sponsor banks
(including private banks) should be allowed,
prudential capital requirements should be
introduced and various other measures
should be taken to ensure professionalization
in their functioning. In practice, the
amalgamation of RRBs was launched with
great enthusiasm and a few other measures
were taken up piecemeal but the essential
prudential requirements and change of
sponsor banks were ignored. Currently
the original 196 small RRBs have been
amalgamated into 82 larger banks and will
be required to reach a capital adequacy ratio
(CRAR) of 9% by March 2012; 40 of the
82 banks will need further recapitalization
for this purpose. The recent Committee on
the Recapitalisation of RRBs (Chaired by
Dr K.C. Chakrabarty) has recommended
that the authorized capital of the RRBs be
increased from the present `5 crore to as
much as `500 crore to facilitate expansion;
a clear indication that the concept of
RRBs as small, local banks contributing
to financial inclusion has been formally
abandoned. Far from establishing small
banks (with minimum capital of `30 crore
as recommended by the Raghuram Rajan
Committee) the Indian financial system
is thus moving firmly in the direction of
larger and larger banks.
4.7 THE INFORMAL SECTOR
‘CREDIT CARD’ SCHEMES—A
STEP FORWARD
The important Kisan Credit Card (KCC)
scheme referred to in Section 3 aims to
provide financial support to farmers to meet
their varied requirements, including the
purchase of seeds and inputs for agriculture.
Account holders under this scheme are
allocated a card and a pass book which
contains their credentials and also serves
as an authentic identification document.
The KCC is a far-reaching credit delivery
mechanism since it provides a line of credit
for 3 years subject to an annual review, with
flexible repayment options and very limited
documentation. Additionally, three-year
Personal Accident Insurance is given to the
KCC holder, which provides cover against
death or permanent disability. In 2005, the
RBI also introduced a similar General Credit
Card (GCC) scheme for non-agricultural
clients of banks in rural and semi-urban
areas. For the GCC preference is given to
women clients and credit up to `25,000 is
dispensed as indirect finance to agriculture.
These schemes have facilitated inclusion of
small and marginal farmers in particular by
replacing the earlier project-based lending
that required expensive appraisal processes.
4.8 KYC AND IDENTIFICATION
ISSUES—HELPING COPE WITH
PRESENT-DAY CONCERNS
An important impediment to schemes like
the ‘credit cards’ referred to above, are the
KYC norms introduced by the RBI for
the purpose of customer identification,
monitoring of accounts and reporting of
suspicious transactions to the appropriate
authorities. KYC procedures also enable
banks to know and understand their
customers and their financial dealings to
help them manage their risks prudently.
The KYC guidelines define the customer as
a person or entity that maintains an account and/
or has a business relationship with the bank.
Among the key elements of the KYC
procedure, customer identification was
believed to be a major challenge to
achieving financial inclusion. Since most
excluded people belong to low income
households and do not have identity or
address documents it was difficult to insist
on these documents as part of the KYC
26 PROMOTING FINANCIAL INCLUSION