Inclusive Banking

(Published in The New Indian Express on 26 August 2010)
Bikash Choudhury


RBI recently released a discussion paper on license for new private banks.At the outset, I wish to congratulate RBI for seeking out broad consultation on a policy that would have bearing on millions of people like us in the country. I wish to share some of my concern pertaining to the term of reference in the discussion paper of RBI. The finance minister Sri Pranab Mukherji, outlined the necessity of fresh banking license to cater to the un-banked geographical areas in the country, in his budget speech. Now, Banker worth his salt knows too well that the un-banked geographical area is a challenge and an opportunity. Therefore, the principal objective of new banking license should be to offer low cost banking solutions in those areas. To mop up CASA in these un-banked areas and to offer very low cost credit for small loans to Agri & allied sectors & MSME. Traditional Private Banking may not be able to meet the above objective due to high cost of banking and thin spread. The solution lies in creating a unique type of NBFC that will collaborate with consortium of Banks (All type) to offer banking solutions with the help of Existing Village Money lenders/Financier-- in a Banking Correspondent Business Model tried by SBI. This may require a Law to prevent private money lending by making it illegal. To cover entire country four large scale NBFC with deep pockets can be given license for the purpose to look after respective geographical regions with a mandate to collect maximum possible low cost funds and offer low cost credit to villagers with suitable arrangement with consortium of Banks/Post Office so that nearest Bank/Post office could look after, Brick & Mortar operations of bank without any additional investment, except Technology so required to integrate Banking Correspondents--NBFC- Nearest Bank Branch. Micro Finance could be one of the profitable portfolios of NBFC.

Benefits:(Edited portion of the article)
(1) The current Capacity of Banking Industry;specifically Gramya & Co-operative banks can be fully utilized.
(2) Capital investment can be minimized for such NBFC.
(3) Low Transaction cost for last mile banking solutions.
(4) Generate formal and informal employment for skilled,semi skilled and unskilled labor
(5) Low NPA in correspondent/micro finance model.
(6) Can create assets like Warehousing, Cold Chain at rural hubs.
(7) If successful, can save Farming community from the jaws of Money Lenders.

Alternatively, New Private Banks would repeat the same activity of existing Private & Public sector Banks and caught in the game of Balance Sheet, Foot Falls and Profitability. However, New Private Banks may be needed to cater to growing urbanization & migration from rural areas; but, this should be a distinct exercise keeping in view of demand & supply for banking services.