Bank on the poor

The last Financial Stability report of the RBI (December, 2015) has stated that India’s financial system remains stable and the relatively stronger macro-economic fundamentals lend it resilience. All the negatives that we hear about Indian banking are manageable, in a macro-sense.

But on the subject of financial inclusion and deepening and the role of banks, one wonders whether banks have acquitted themselves well, for there are millions of households and small businesses which remain outside the ambit of the formal financial sector.

Missing links In 2014, the Nachiket Mor committee had pointed out that 60 per cent of the rural and urban population do not even have a functional bank account and that 90 per cent of small businesses have no links with the formal financial sector. The Prime Minister’s intervention has brought in results in terms of opening accounts but doubts still remain about how many bank branches would open basic banking accounts for anybody who walks in without any proof of identity or address. The RBI has mandated that just a photograph and physical presence is enough to open these accounts.

Joseph, hailing from the coastal village of Valiathura, picks rags for a living in Kerala’s capital and could end up making Rs 200-300 per day. He does not have an Aadhaar card and the bank he approached wanted him to produce one. So much for our vaunted claims on financial inclusion!Surendran, a lottery-ticket vendor, too does not have a bank account.

Both these are ideal candidates for loans under the Prime Minister’s Mudra Yojana scheme. But it would be too much to expect any bank to give them loans when they would not open even their deposit account. There are millions of people like Joseph and Surendran to whom the formal financial sector has not yet pro-actively reached out.

Not for the poor My local barber told me he had approached a local branch for a ₹75,000 loan and had been refused assistance because he did not have a corporation license. “My grandfather started this saloon 70 years ago and ever since we have been placing knife and blade to people’s heads and necks, without any licence,” he told me with a sense of humour which only the poor in this country are capable of.

And to think that the same banks would lend hundreds of crores to big businesses, approving deviation after deviation from norms. “Mea culpa,” at least, I would say. Despite all the pushing and shoving, let us be aware that the Mudra loans have aggregated to only ₹1,32,000 crore (approximately), including renewals of old loans of below ₹10 lakh, against a total outstanding All Scheduled Commercial Banks net credit of ₹66,50,000 crore. Retail trade for instance enjoys credit to the tune of only ₹2,12,500 crore while medium, small and micro manufacturing enterprises together enjoy ₹4,86,000 crore of loans, as per RBI data on deployment of bank credit by major sectors.

Medium, small and micro enterprises contribute 37.5 per cent of India’s GDP, with a network of 48 million enterprises giving jobs to about 110 million people, as per the Union Government’s estimates.

There is vast scope for earning good returns in providing credit to these sectors.

The writer is chief general manager at State Bank of Travancore. The views are personal

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