Banks seek to tap a portion of the savings locked up in physical assets such as gold and real estate and convert them into financial savings.

There is a need to unlock physical savings into financial savings as holding idle cash and physical assets such as gold, silver and real estate does not generate periodic returns, said Mr K.R. Kamath, Chairman and Managing Director, Punjab National Bank.

Close to 50 per cent of the country's total savings is locked in physical assets such as gold and real estate and about 20 per cent of the total savings is held for pure investment purposes, said Mr Alok Eknath Kshirsagar, Director, McKinsey and Company.

“Even if 5 per cent of the total amount held as investment in physical asset is routed into the banking system, it will make available new funds into the economy,” Mr Kshirsagar said while speaking on the issue of ‘Catalysing financial savings to economic growth' at the Bancon here on Sunday.

The gap between the actual and notional return on physical assets and the illiquid nature of such assets makes it an unattractive investment proposition.

“The time is ripe for the domestic financial sector to create opportunities and customise products to attract more customers into the banking system,” Mr Kshirsagar said.

Banks should look at introducing products such as gold accumulation plan, gold deposit schemes and real estate investment schemes to route investments into the banking system.

Some of these schemes will require regulatory interventions and policy changes but can be done over a period of time, he pointed out.

Mr Diwakar Gupta, Managing Director and Chief Financial Officer, State Bank of India, said gold should be leveraged and monetised in a big way. “A lot of discussion is taking place, regulatory intervention is required.”

Leveraging rural market

Public sector banks should leverage the rural market, said Mr Gupta. “We need to figure out the potential of the rural market and leverage it by taking appropriate measures on the product and delivery side.”

Banks should focus on driving down costs, leveraging technology, focusing on alternative delivery channels and providing effective logistics for cash management to tap the rural population.

Simple products

The glitz and glamour of sophisticated products that attracts the urban customer, might just turn off people in the rural areas. Simplicity of products is therefore the need of the hour for customers in rural pockets of the country, said Mr T.T. Srinivasa Raghavan, Managing Director, Sundaram Finance.

Citing the example of a gold exchange traded fund (ETF), Mr Raghavan said, “Gold ETFs are complex even for an urban customer to understand; How can we expect people staying in the rural areas to invest in such instruments. Simplicity is important when you are designing products for such people.”

Talking about the importance of delivery channels, he said that banks should leverage informal channels such as non-banking finance companies and non-government organisations to reach out to people.

“India is a diverse country so we need to use informal channels to reach out. Credible people in local community should be tapped to enhance the reach of products and services.”

(This article was published on November 6, 2011)
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