It had the trappings of a blockbuster reform, but lost its way in policy tinkering and bad execution.
This is how one could sum up the financial inclusion efforts of the Union Government and the public sector banks, especially in North India, in recent years.
Misguided policy interventions and hiccups in financial inclusion architecture design at the Finance Ministry level implied that little gains could be achieved in the areas of ATM rollout by public sector banks or business correspondents (BCs).
Business correspondents were to be the linchpins of the financial inclusion strategy of the public sector banks. There was also emphasis on expanding the ATM network.
Policy flip flops
But public sector banks have not added a single ATM to their existing network for over a year. The ATM rollout was bogged down by delays in firming up a strategy — whether do it on their own or rely on third party service provider.
Even the BC model, which has been in existence since 2004, has seen policy flip-flops which has added to the uncertainty. This has made some of the existing service providers rethink their strategies. While the BC model is not working, the business facilitators’ model has failed. Up to 2011, each public sector bank had its own business correspondent. But that system has been changed.
Public sector bankers, however, feel that a good beginning has been made on the financial inclusion front, going by the number of no-frills accounts that were opened. But they rue the fact that not many transactions are taking place in these accounts. There were 13.8 crore no-frills accounts in India as of March 2012. The number is estimated at about 20 crore now. The actual usage of these accounts is very low and estimated at 11 per cent. Most of these accounts are actually dud accounts, with no one using them. “It is not only sufficient to open accounts, banking habit also has to be inculcated,” said V. Kannan, Executive Director at Oriental Bank of Commerce (OBC). He felt customers have to be educated and that non-governmental organisations (NGOs) are best equipped for this task. OBC is the State Level Bankers Committee convenor for the national capital territory of Delhi.
Over drafting
Critics point out that if the whole objective of opening no-frill accounts is to give some semblance of credit, then only two per cent of these accounts actually have overdraft facilities. The total amount of OD was a meagre Rs 108 crore.
Indian Banks’ Association spent Rs 100 crore on advertising the no-frill accounts. They have given overdraft of Rs 108 crore for such accounts. “They could have air-dropped that money on the poor of India,” says Sameer Kocher, CEO of Skoch Group. Similarly, Rs 6,000-7,000 crore of technology has been procured in the name of the poor for providing Rs 108 crore overdraft and 11 per cent accounts operational, Kocher pointed out.
There is a general consensus on reorienting the whole financial inclusion exercise. On most principles — adequate and timely credit supply, support to livelihood, creating a sense of empowerment, promoting entrepreneurship — the current financial inclusion efforts have yielded no results. However, it is the element of access to financial services — which is the least important — that has grabbed the headlines.
More about savings
Raghuram Rajan, Chief Economic Advisor in the Finance Ministry, had a slightly different take on the issue. Financial inclusion doesn’t imply more credit, he said. It has always been associated with credit and that is a dangerous path to go along, he added.