Money & Banking

‘Financial inclusion, an emerging opportunity in urban centres too'

Anjana Chandramouly Chennai | Updated on March 12, 2018

financial-inclusion   -  Business Line

Even as the banking sector is making efforts to reach out to the financially excluded in rural and semi-urban areas, there is an equally large need and exciting opportunity emerging in urban India as well, says a McKinsey & Company report.

Two-thirds of the country's consumption growth over the next 20 years will come from urban centres, says the report.

By 2015, almost 45 million urban households are expected to be in the less- than-Rs 2 lakh income category, for whom financial inclusion will be relevant. About 60 per cent of these households are concentrated in 67 Tier-I, Tier-II and Tier-III cities, while the rest would be from over 5,000 small towns, says the report.

Banks could be faced with an overall credit opportunity of about Rs 1 lakh crore by 2015 from this segment alone.

“This would represent a healthy mix of housing loans, personal consumption loans and micro-enterprise loans.” Consequently, there would also be opportunities in insurance, deposits and remittances. If the cost of acquiring new customers is kept low, financial service providers have a potential revenue opportunity of Rs 14,000 crore to Rs 15,000 crore. If banks manage to lower their cost of acquisition, they can use the savings to offset delinquencies, if any,” said Mr N. Seshadri, Executive Director, Bank of India. However, Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, said that the business correspondents' model of financial inclusion has not been satisfactory, and that banks should look at other-low cost alternatives.

To be successful, banks need to constantly innovate and experiment around technology, products, marketing and distribution to find a comprehensive and cost-effective financial services model, adds the McKinsey report.

Published on November 06, 2011

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