The Hindu Business Line : For inclusive banking

It would be a folly to dismiss the theme of the just-concluded bankers' conference on "Financial inclusion" as the new paradigm of economic growth as merely fashionable. Both from the perspective of macro-economic management and the banking industry's desire for a business model of sustained growth, a policy of involving a wider section of the population (financial inclusion) in deposit mobilisation and credit intermediation makes eminent sense. For the monetary policy authority and development administrators there is a message in the wealth of empirical evidence that suggests that economic prosperity and, more important, a relatively egalitarian too is strongly linked to a well-developed and `inclusive' financial sector.

For the banking industry, a combination of fortuitous circumstances has enabled it to post impressive financial performance in recent times. There has, for instance, been the massive retail and corporate credit offtake. Also, as the poison of non-performing assets has gradually drained from the banking system, higher credit offtake has translated into larger net profits. The corporate sector too has helped the banking industry's cause by toning up its own performance to global standards of excellence thus relieving the banks of the spectre of mountains of bad debt. But all this has been achieved without either any structural change in the regional composition of flow of deposits or credit. Indeed, the RBI Deputy Governor, Mr Rakesh Mohan, referred to the essentially urban nature of the present exponential growth in banking business.

The question, then is, how long can the bankers expect such good times to last. There are already indications that the device of banks unwinding surplus investments in government securities to fund credit growth has run its course, if not at the aggregate level at least for large segments of the industry. There are signs that the overheated real-estate and housing market may be poised for a much needed correction. The rate of growth in retail borrowings too could sooner or later slow as consumer aspirations come face-to-face with the reality of constrained repayment capacities. The RBI has, for its part, put in place such policy initiatives as the mandating the launch of the `no frills account' aimed at making banking services more affordable. But there is only so much that such initiatives can do to promote the banking habit among the masses. Ultimately, it is for the bankers themselves to see `inclusive' banking as an opportunity rather than as an irksome dimension of regulatory compliance. The experience of telecom companies, organised retail business, and others attests to the efficacy of an expanded customer base as a viable business model of growth. There is no reason why banks should be an exception.