This is a series of articles by leaders on how India can raise its Business Quotient .
India’s financial sector is buzzing with activities never seen before. In a normally repressive financial system, there is an urgency to reach out to the financially excluded individuals. Both the Reserve Bank of India as well as the government are pushing hard the banking system to open up for the people at the bottom of the pyramid; and, at the same time, banks and other financial intermediaries are seeing business opportunities in the vast untapped market.
It is a win-win situation for the financial institutions and also the excluded. For me, in a very simplistic way, when an individual has a bank account and regularly transacts through it and has access to other financial instruments such as insurance, mutual fund and, of course, credit, she is financially included. However, there are more encompassing and precise definitions such as one by the committee on financial inclusion chaired by the former governor of the RBI C Rangarajan. According to the committee, “financial inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream institutional players.”
In our erstwhile avatar of a Non-Banking Financial Company – Micro-Finance Institution, Bandhan was only allowed to offer asset products. We were not permitted to accept deposits. This handicap was one of the prime reasons behind our urge to get a banking licence when the RBI opened the door for new applications.
Affordable credit, deposit, remittance, insurance and investment products such as mutual fund, pension fund, etc. should all be made available to a person for true financial inclusion.
Thanks to the regulators, Bandhan Bank today reaches out more than 1.1 crore customers with a basket of financial products. In a country like ours, with a population of more than 134 crore, although that number looks minuscule, it is heartening to witness poor rural women coming forward to deposit small amounts of money in the bank.
The access to a bank account is empowering them to break the habit of storing small-denomination notes, under their bed, in tin cans or in the folds of garments.
We have started selling insurance products and mutual funds from some of our bank branches. I am hopeful that we will succeed in taking these products beyond the boundaries of urban and metro branches to doorstep service centres which disburse microloans.
The awareness level of products other than savings, credit, and remittance is very low in rural India. Even insurance products are seen as ways of investments.
The concept of risk coverage is alien to this group of people.
The mutual fund and pension products are treated no differently. We all know that this situation must change but the challenge is how do we do that?
Recently I had the privilege of attending a two-day intensive workshop organized by the NITI Aayog, the new avatar of the Planning Commission. Detailed discussions were held with the senior bureaucrats, the Finance Minister and the Prime Minister. Financial inclusion was one of the focal points of such discussions. The government targets to provide financial access to each and every citizen of the country by 2022. In this process, the private institutions are welcome to collaborate with the government.
The Jan Dhan Yojana has been a commendable achievement of the government. Going by the latest data, more than 30 crore people have opened bank accounts under the biggest financial inclusive drive globally. The outstanding deposits by these accounts are to the tune of Rs 65,000 crore. Indeed, the amount is small but they are now getting their subsidies directly through their bank accounts and leakages have been plugged. Now insurance products at a very nominal rate have also been tagged with the Jan Dhan accounts.
There are many other noteworthy initiatives for financial inclusion such as Pradhan Mantri Mudra Yojana, Digital India, Aadhaar enrolment and linking of Aadhaar with bank accounts, among others.
The Reserve Bank is also playing a proactive role in fast forwarding the pace of financial inclusion. In a span of three years, 21 banking licences have been issued – for two universal banks, 10 small finance banks and 11 payments banks. The banking regulator is also exploring ways of setting up wholesale banks and depository banks and has put the universal banking licence on tap.
Bandhan was given a universal banking licence – the first instance of any MFI getting a banking licence in India and the first bank to be set up in the eastern part of the country after Independence. Acknowledging the grassroots-level presence of Indian microfinance entities, eight out of the 10 small finance bank licences have been granted to MFIs. These new banks are also being given a target of opening 25 percent of their branches in unbanked rural areas, which is a significant step towards pushing branch banking beyond the comfort of urban and metro regions.
While we are committed to serving the financially excluded, we face a few pressing difficulties in the field. The foremost among them is lack of network connectivity in deep rural pockets. For instance, the hand-held device which our employees use to collect deposits and loan installments could have a smooth run in village A where the network provider is X, but the scenario changes in the adjacent village B, where connectivity is poor as the network provider is Y. For a seamless service, such issues must be sorted at the earliest.
People sitting in the back of a truck travelling along a rural road flanked by huts and fields in Nandurbar district, Maharashtra, India. (Photographer: Dhiraj Singh/Bloomberg)
Bandhan Bank has since its inception recruited people from a rural background, hailing from families of limited means. Their educational qualification is also modest – either they have passed class 10 or 12. Most banks recruit employees from urban India. These people are reluctant to relocate to village settings. Why would they? The urban amenities are mostly lacking in rural areas, despite the government’s best efforts. We need good roads, quality education, and healthcare services. These are the basic requirements to motivate senior bankers to work in rural India.
I think the banks can consider developing a separate rural cadre to serve people at the bottom of the pyramid. A structured training module, focusing on the underprivileged customers could be designed for this special cadre. The products and the processes should be simple. As the level of awareness is low, the products are to be offered in phases – one at a time.
The most important cog in the wheel of financial inclusion is spreading awareness.
Like Jan Dhan Yojana, there is the need for a nationwide campaign and only the government can anchor this. In the era of digitisation, it becomes even more important. The awareness about financial products is a must, as it will protect the customers from frauds and cyber-attacks.
We are on the cusp of making history. Digitisation, combined with human efforts is rewriting the story of financial inclusion for inclusive growth in Asia’s third-largest economy.
Chandra Shekhar Ghosh is the Managing Director and CEO of Bandhan Bank.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.
Bloomberg Quint
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