Newer approaches towards financial inclusion are needed: Pranab

The Government is trying to address the concerns over banks' high cost of intermediation and limited penetration when it comes to customer segments and geographies, according to the Finance Minister, Mr Pranab Mukherjee.

These concerns are being addressed in collaboration with the Reserve Bank of India and with the active participation of the banking and non-banking financial entities.

“Newer perspectives and approaches towards financial inclusion are the need of the hour. There is a case for the policymakers and other stakeholders to re-strategise the financial policies that are meant to reach the un-reached and the un-banked sections of our country,” Mr Mukherjee said in his speech at the Sir Sorabji Pochkhanawala Memorial Lecture, organised by the Central Bank of India.

Last December, the RBI Governor, Dr D. Subbarao, had underscored the importance of making financial intermediation more efficient to achieve double digit and inclusive growth.

Raising savings

“To achieve our collective aspiration of double digit and inclusive growth, we need to raise the level of national savings and channel those savings into investment. This means banks need to raise the interest rates offered to depositors and reduce the lending rates charged on borrowers — in other words, reduce their intermediation costs or, in technical terminology, reduce the net interest margin,” he said.

Though over the last few decades most of the financial sector policies sought to accelerate the penetration of banking and financial services, Mr Mukherjee said the goal of universal coverage is yet to be achieved.

In pursuit of the objective of universal coverage, the Finance Minister observed that many bank branches were set up, particularly in the rural areas of the country. Regional rural banks came into existence to give saving facilities to the people. Credit assistance was given to agriculture by cooperative banks and meticulous efforts were put in to ensure that institutional finance was accessible to the large section of society.

“The nationalisation of banks in 1969 gave a boost to expansion of banking network in the country. However, the outcomes of these efforts are yet to show the desired results,” the Finance Minister said.

Insurance law

When asked about the possibility of the Insurance Laws (Amendment) Bill, 2008 being passed by the Parliament, Mr Mukherjee said, “We are talking to different political parties because we do not have 272 members from the Congress party. Therefore, we require support of other political parties. I hope that there will be a broad consensus.”

One of the key amendments proposed in the Bill is raising the maximum limit for foreign direct investment in Indian insurance companies from the present 26 per cent to 49 per cent.

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