Banks eyeing low-cost alternatives to reach out to 400 m in villages

With cost of operations on their mind, banks are now looking at alternative ways to reach out to the 400 million financially excluded people.

Already doubts have been raised on the economic viability of the business correspondents (BC) model of financial inclusion. Though the Indian banking system is at the beginning of the financial inclusion curve, some heads of banks told Business Line that they indeed are exploring other low-cost models of the financial inclusion programme.

Instead of looking at six lakh villages for financial inclusion, banks should look at the one lakh gram panchayats in the country, said Mr K.R. Kamath, Chairman and Executive Director, Punjab National Bank. “This would be a more practical way of looking at financial inclusion,” he added. Each gram panchayat could be handed over to one bank, and banks should take up the responsibility of reaching out to the surrounding villages. “It would be more feasible to develop business first, create a critical mass and then supplement with a bank branch,” he explained.

On the other hand, Bank of India is looking at setting up kiosks in these villages, which would be run by business correspondents, said Mr N. Seshadri, Executive Director, Bank of India. “So it becomes a mini branch without the costs of setting up one,” he pointed out. The bank has already set up a pilot in Jharkhand. “We are looking at alternative channels such as kiosks and mobile banking to reduce costs. These models will be effective where we see small-value transactions getting serviced at lower costs.”

Mr M.D. Mallya, Chairman and Managing Director, Bank of Baroda, said that banks are now in a state of evolution. His bank was trying to “evolve a viable business model through business correspondents and business facilitators,” and was in an advanced stage of implementation.

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