To boost financial inclusion and give a leg-up to priority sector lending, a Finance Ministry panel has recommended that public sector banks (PSBs) create a separate rural cadre and also provide additional incentives to encourage existing staff to take up rural postings.

The panel wants banks to enter into tie-ups with input companies for getting last-mile access to rural customers.

Financial inclusion is defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups, such as weaker sections and low income groups at an affordable cost.

Priority sector refers to those sectors of the economy that may not get timely and adequate credit in the absence of this special dispensation.

Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low-income groups and weaker sections.

Human resource policy

The panel on priority sector lending is of the view that a different policy could be framed for recruitment, posting and career path for staff in rural areas, for example, recruiting locally, paying local compensation and offering different career tracks for staff posted in rural areas.

The proposal to have a dedicated rural cadre at a differential salary structure and service rules vis-à-vis the existing resources is aimed at creating and maintaining relationships in the community and building a career in the local location of the bank.

This way PSBs can significantly improve the quality of sourcing borrowers and be effective in collections due to knowledge and relationships within the community.

Banks could also manage to control the cost of operations due to the fundamentally different model of compensation to this cadre of rural employees.

To encourage existing staff to take rural postings, PSBs may devise and seek specific approvals for additional incentives.

This can also include aligning staff incentives with the ‘effectiveness’ of the schemes run — for example, linking incentives to activation of the Pradhan Mantri Jan Dhan Yojana accounts.

PSBs could create win-win partnerships with players ingrained in the daily life of the target customer segments for priority sector lending products to ensure reach/access with lower acquisition costs. For example, PSBs can collaborate with farm input companies, such as fertiliser distributors and pesticide marketing companies to access the small and marginal farmers for financing their agriculture input needs.

The advantages of this approach are manifold — access to a large number of potential customers through the partner; lower cost of acquisition; lower risk due to better understanding of customer needs and control over use of funds.

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