When foreign investors are attracted by the return on investment generated by microfinance institutions, which cater to the credit needs of those at the bottom of the pyramid, then there is definitely a business case for banks to go the whole hog on financial inclusion under the Prime Minister’s Jan Dhan Yojana, according to a top Reserve Bank of India official.
“Why are foreign investors willing to come into the country in the microfinance segment? This is because they can get returns on their investment. So, the business case has been built up. What we need to build up in financial inclusion is also a similar business case. You do have profit at the bottom of the pyramid,” said Deepali Pant Joshi, Executive Director, Reserve Bank of India, on the sidelines of a recent financial inclusion conclave.
Basic accountsUnder the Yojana, which was launched on August 28 by Prime Minister Narendra Modi, banks collectively have to open 7.5 crore basic savings bank deposit accounts by January 26, 2015.
These accounts come with benefits including a RuPay debit card, a ₹1-lakh accident insurance cover and an additional ₹30,000 life insurance cover.
On satisfactory performance of an account in the first six months, the account holder will get an overdraft facility of up to ₹5,000.
Joshi observed that under the Yojana there would be a steady stream of small deposits for banks. So, they will have a large corpus to depend upon.
The RBI has advised banks to leverage the Government’s Direct Benefit Transfer (DBT) initiative to link all individuals to the banking system and to utilise the large amounts likely to be credited in these accounts to promote deposit and credit products.
Direct transfers“It is a win-win proposition for banks if they manage to build a business case. And such a business case is emerging, because if you have direct benefit transfers and you have a revenue stream, then a lot can be achieved. If 50 per cent of the country’s population, which is marginalised, comes into the mainstream as producers and consumers of goods, you can imagine what strength of the economy would then be,” said Joshi.
The RBI official said the central bank is monitoring implementation of the Yojana at the State and district levels.
“It is a question of putting your shoulder to the wheel and being in the trench along with the troops,” she added.