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Point Out State of Economy Financial Inclusion- A Collective Responsibility »» S. L. Bansal As a professional banker, I would always like to foresee inclusive growth for our 1.2 billion population. However, after over four decades of nationalization of banks, the challenges of financial inclusion still remain as only 36,000+ habitations have a commercial bank branch out of the 6,00,000 habitations in the country. With the help of technology banks have expanded their network by opening of more & more branches over the last few years. Inspite of this, only 40% of the population across the country have bank accounts and only 10% have access to credit products. We can divide 1.2 billion population of the country into three segments. The first segment includes those who are not dealing with the banks and are financially excluded. The remaining population is of two segments - high networth individuals (HNIs) and small and medium income groups. This latter group is growing fast. Every year close to 3 crore people from the young generation are being added to the banking system and these people who will be the core customers in the future, have non-conventional banking habits and are very close to Western culture. They don’t live by their pay package and obligations - they live by their EMIs. As a Every year close to 3 crore people from the young generation are being added to the banking system and these people who will be the core customers in the future, have non-conventional banking habits and are very close to Western culture. They don’t live by their pay package and obligations - they live by their EMIs. result, our savings ratio is coming down gradually. So, if the consumption pattern is undergoing a change and people are believing more and more in spending, then for a developing country such as India with such a big population, it’s a huge challenge because we cannot get the kind of resources into the banking industry for meeting the growing credit needs of such an economy. Therefore, banks have to develop new customized products which will be attractive to these young customers. 48 <strong>MARCH</strong> 2014
Even if we bring the 60% of our population that is still financially excluded into banking fold by opening no-frills accounts, nothing is going to change dramatically in the next five years as our resources are limited. You cannot expect huge deposits to flow into the banking sector from these accounts. The two primary reasons for this are their bare minimum per capita income and their low saving habits. But, the credit requirement of the economy will of course go up. We have to find ways to match this requirement. One way, the government can address this issue by managing its finances well so that regulatory SLR requirements can be freed. Alternatively, some other instrument has to come so the bank can get necessary funds. Bond markets for corporate requirement need to be developed so they can raise resources from market and banks will have enough room to deploy funds for needier sections of society. In financial inclusion, the primary purpose is to bring unbanked into banking fold so that all subsidies and whatever government is transferring, can be transferred into accounts of beneficiaries. Three things will happen. Efficiency will improve because money 49 Once common people have an account with the bank, they will feel empowered and they will approach for a credit product which will help them to get gainfully employed. will go directly to the beneficiary of subsidy. Corruption will be addressed in the sense that middlemen will go. Cost of services will also come down substantially and hence subsidy bill of the government will be reduced without reducing quantum of subsidies. Once common people have an account with the bank, they will feel empowered and they will approach for a credit product which will help them to get gainfully employed. That way we will be in a position to move people from agriculture to business enterprises. Nowhere in the world has any developed economy survived simply on agriculture and services. If we have to move into the league of a developed economy, we have to improve our manufacturing sector instead of being heavily dependent on services sector. China has shown to the entire world how manufacturing sector can drive growth as only manufacturing sector generates employment. In services sector one person is employed and technology acts as workforce multiplier. Financial inclusion is the collective responsibility of the society which includes central government, state government, local governments and businessmen and banks. Banks have created an excellent platform by opening accounts. But, challenge before everybody is to activate these accounts so that some gainful transaction happens and the account holder gets some benefit out of it. Passbook should be a weapon of empowerment in their hands. Getting that passbook should mean something to them. We have to create an environment wherein the money is used for productive purposes which will generate adequate cash flows. Lending money is an easy job but you must have a business to use it. We need to build an economy and inclusion will happen on its own. (The author is CMD of Oriental Bank of Commerce. He is an astute banker of repute known in banking circle for his expertise in matters of credit and operations)
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