One-stop account

Seeing a credit card statement reflecting spending in three different currencies, the thought came: if technology can enable the capture of transactions in multiple currencies in a single statement, what prevents it from capturing transactions and holding of shares also in the same account? Why have a separate demat account when, with suitable upgradation of the core banking system, the existing bank account itself could, perhaps, do the job!

Without the demat system, the securities markets would not have taken off to its present levels. But it is now time to reconsider the relevance of a standalone demat system and consider an integrated system in which bank and demat details are reflected in a single account.

This concept could be extended to cover the entire spectrum of financial assets.

All in one

The UID or Aadhar number could be the account number for this omnibus account. A person may choose to have a savings account with Bank A, based on proximity, and choose to place a fixed deposit with Bank B, offering a higher rate of interest. The proposed single account should capture the transactions and holding in both these banks.

Investments in government small savings schemes such as NSC, PPF, postal savings schemes and so on should be reflected in this account as also the details of investment in securities including e-commodities.

The reported proposal by the Insurance Regulatory and Development Authority to have ‘repositories’ to hold insurance policies in electronic form is a compartmentalised approach typical of the sectoral regulator; it is suboptimal. The details of pension and provident fund subscriptions should also be captured in the proposed account. This will eliminate the need for a separate permanent pension account number (PPAN) number envisaged for NPS.

The proposed account should reflect all types of liabilities including credit card, consumer loans, housing loan, loan against insurance policy, and so on, across service providers.

Big benefits

The benefits of the proposed convergence would be immense. There would be just one KYC for the entire financial services sector which would boost the financial inclusion drive of the government. In remote areas, business correspondents are facilitating financial inclusion. Progressive service providers and NGOs have supplemented these efforts by introducing ‘non-basic’ financial assets such as micro insurance, micro pension and so on in unbanked areas. First-time investors would find it easier to manage and monitor a single account rather than multiple accounts.

Implementing this would need the combined initiative and effort of the State and financial service providers. The Financial Sector Legislative Reforms Commission (FSLRC), which is working on harmonising legislations across sectors, can, if required, recommend a suitable legal framework that will enable the proposed convergence. Cooperation and coordination between regulators and service providers would be a prerequisite.

Of course, there would be plenty of hurdles, but they would not be insurmountable. Once implemented, a single financial account will become the norm, just as graphic user interface (GUI) is the norm in personal computing. Are we, then, ready to be free of dogma?

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