The Hindu Business Line : Credit counselling

The RBI has recently released a concept paper regarding the setting up of Financial Literacy and Credit Counselling Centres (FLCCs) and has sought feedback from the public.

The move to establish FLCCs is a welcome initiative. The RBI has suggested that banks set up FLCCs either individually or in association with other banks and with pooled resources. The concept paper has three parts, comprising issues relating to financial literacy, credit counselling, and the suggested scheme of FLCCs.

Now, it is perceived that opening of bank account by the hitherto financially excluded brings about financial inclusion. Once all households in a district open no-frills accounts, the district is declared as a fully financially included district. This is not real financial inclusion. Basel I and Basel II norms, while strengthening banks, impact interests of borrowers, particularly segments such as agriculture, small industries, rural self-employed, and the rural poor.

Banks generally do not come forward to lend to these segments. These segments cannot negotiate and avail themselves of loans at finer sub-PLR rates like the rich and the big borrowers. Also, these small and poorer sections cannot get onetime settlements with substantial concession.

These categories of people lack financial literacy. They need to be tutored on how to get credit, how to profitably use it, how to remain creditworthy, how to upgrade credit, how to overcome problems as and when they crop up, etc.

FLCCs can provide the much-needed education to them in such matters. It is necessary to deluge these people with information on the above aspects. People, including the weak and neglected sections, must come to the mainstream of financial and economic life. They must be taught how to use banking products and services and allowed to acquire and enjoy financial assets, however small they may be.

This type of real financial inclusion is possible only if the necessary awareness is created and required education provided. The FLCCs will be eminently suited for this job. They will be independent entities run and managed by trusts or societies and bankers and bankmen cannot be members on their boards.

It may be better if retired bankers and bank economists are associated with FLCCs as chief operating officers. Their experience will help in the operation and functioning of FLCCs. On the whole, the initiative of RBI is welcome and, if properly implemented, will go a long way in facilitating real financial inclusion.

K. K. Ammannaya Udupi

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