Do we need more
bank branches or branches that work for financial inclusion?
Raghuram Rajan
in his maiden policy brief mentioned that the banks would be free to open
branches at places of their choice without seeking license within certain
boundary commitments. The predecessor
policy has been that the private bank licenses would be with the condition that
they open 25 percent of their branches in rural areas in the pursuit of
financial inclusion. Both emphasise on the reach of the banks to enlarge.
Post
liberalisation nationalised banks folded up un-remunerative branches in the
rural areas first and the restructuring of RRBs, in two bouts, led to closure
of branches in rural areas. In the name of viability, Primary Agricultural
Cooperative Societies, the only outfits closer to the rural population, have
been truncated in various States under the efficient guidance of the NABARD, a
dedicated supervisory arm for RRBs and rural Cooperatives. This situation begs
the question do we need more branches of commercial banks under a fully
de-licensing regime or a co-ordinated lending system in rural areas for
financial inclusion?
The option at
the moment should weigh with the second: a co-ordinated lending system in rural
areas for financial inclusion. Let me explain: PACS are age-old institutions
capable of performing the dual role of extending credit and also take care of
the backward and forward linkages to farming: supply of inputs and marketing of
agricultural products and produce under a single roof. NABARD clearly
acknowledged that the small and marginal farmers have been served better by the
PACS than others. But they lack financial resources, managerial, technological
and governance skills.
Commercial banks
of all hues have resources but found the brick and mortar structure in rural
areas not profitable. Earlier experiment of ceding some PACS to the Commercial
Banks, and some of them still continue, has been partly successful. The
Farmers’ Service Societies is their avatar. Those that are still functioning
offer a role model for enlargement to bridge the gap of presence of bank with
service in the rural areas through the rural cooperative credit system.
BCs performing
as ambassadors of financial inclusion would seem to be meeting the same fate of
earlier Janata or pigmy deposit schemes. There are issues of remunerative fees,
prompt payment of it to the BCs and the BCs fulfilling their role to the point
of expectations.
The role of BCs as mentioned in the 2012-13 first quarter monetary
policy emphasizes on quality of
services, setting up ICT-based BC and proving as an intermediate brick and
mortar structure between the present
base branch and BC locations so as to provide support to about 8-10 BC units at
a reasonable distance of 3-4 km. The forms can vary but should have a minimum
infrastructure such as a core banking solution (CBS) terminal linked to a pass
book printer and a safe for cash retention for operating larger customer
transactions leading in turn to efficiency
in cash management, documentation, redressal of customer grievances and close
supervision of BC operations.
The business correspondent model allows banks to do cash in-cash-out
transactions at a location much closer to the rural population, thus addressing
the last mile problem. As on March 31, 2013 banks have reported deploying
195,380 business correspondents that covered 221,341 villages, according to the
latest available RBI data.
In 2010, RBI allowed PACS to function as BCs but the takers are few.
Recently, taking a cue from the Report of the RBI Expert Committee on
restructuring of STCCS, NABARD advised the DCCBs/StCBs to separate the core and
non-core functions of PACS and let only those PACS that take on the role of BCs
to perform the core functions, for it defines the core function as lending for
farming and rural activities. There would seem to be little realization that
the core function would be ineffective without the accompanying non-core
functions and it is members’ mandate for functioning that is crucial in the
democratically run cooperatives.
While the States that continue to be the regulators of the PACS and the
PACS themselves have expressed dissent openly over such intrusive instructions,
the fact remains that the latter including the DCCBs lack financial muscle
comparable to the commercial banks for taking up technology infusion and credit
risk assessment abilities. Therefore, a hybrid model of allowing PACS to
function but with effective and efficient linkages to both the licensed
cooperative and commercial bank branch system would provide the best reach to
the rural areas and deliver the financial inclusion initiative, with the
required legal facilitation from the State Cooperative Laws. The existing
under-performing BCs can be subsumed with such a system. Institutional
inclusiveness is the need of the hour.
.
No comments:
Post a Comment