The Hindu Business Line : Banking bonanza

If the recent declaration of Kerala as the first ‘Total Banking State’ in the country spells the start of a new trend, Kerala may well be on a new path of banking development.

K.G. Kumar

After literacy and universal healthcare, it’s the turn of money matters and savings. Last week Kerala was declared the first ‘Total Banking State’ in the country.

The plan to achieve that landmark feat was chalked out by the State Level Bankers’ Committee (SLBC) early this year.

The target was to ensure that every household in the State would have at least one bank account and would be eligible for a general-purpose loan of up to Rs 25,000, following the Reserve Bank of India’s directive to bring people from all walks of life into the banking spectrum.

The campaign focused on households that still lie outside the banking net, especially in the interior regions of Kerala.

These households will now be provided with “no-frills accounts” with minimal procedural formalities so that they could start ‘zero balance’ accounts.

These accounts would have a passbook and an automated teller machine (ATM) card. Later on, operators of these accounts would be able to draw overdrafts, subject to certain guidelines.

DISTRICT LEADS

Palakkad and Ernakulam were among the first to be declared totally banked districts, while Kottayam district, which pioneered the total literacy campaign, lagged behind slightly in the initial stage, reporting only 85 per cent financial inclusion.

But by roping in the many self-help groups (SHGs) in the district, bankers there were soon able to bring those belonging to the lower economic strata into the banking net.

In Alappuzha, 1.66 lakh new accounts were opened in 83 villages of the district. The usual procedural formalities were minimised and 283 branches of 30 banks were involved in the campaign.

The original target was to complete the campaign in November last year, but the efforts hit a roadblock with the chikungunya outbreak in the district last year, according to bankers. Of the new accounts, as many as 1.05 lakh are zero-balance accounts.

Background efforts

These achievements also owe a lot to past efforts. A few years ago, the SLBC, in partnership with the Kerala State Planning Board, had launched a new initiative to organise an informal forum at the level of the village panchayat to facilitate active interaction among bankers, elected representatives and officials of the village.

According to the Economic Review 2004, two village panchayats were selected in each of the 14 districts and each panchayat assigned to one bank, which would provide the co-ordinating role and bring together all the stakeholders.

The objective of the scheme was to enhance people’s participation in identification of innovative projects for absorbing more credit from the banks.

The village panchayats were expected to contribute with investments to fill up critical gaps which are preventing absorption of credit. The experiment was meant to develop a model for partnership between bankers and panchayats so that the lead bank system could reach out to the grass-roots level.

SHG-BANK LINKAGE

According to the Union Finance Minister, Mr P. Chidambaram, “Micro-finance initiatives are a cost-effective way to take the banking system to the poor. The SHGs–bank linkage programme, initiated in 1992, has come a long way.

Until March 31, 2004, 1.67 families had benefited through 10.79 lakh SHGs financed by banks. An indication target of credit banking for 5.85 lakh SHGs during the period up to March 31, 2007 has been set.”

According to Alok K. Misra, Executive Director, Canara Bank, who chaired the SLBC strategy meet that fixed the plans for Kerala, as a result of these recent banking initiatives, the credit-deposit (CD) ratio of the State had reached 68.21 per cent, an increase of 25 percentage points over March 2001.

If this spells the start of a new trend, Kerala may well be on a new path of banking development.

The writer can be contacted at kgkumar@gmail.com

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