By Prashanta Chandra Panda & Payal Shah *  : Prime Minister Narendra Modi deserves kudos for launching Jan Dhan Programme, which provides a platform for Inclusive Growth. Some 11.5 crore new accounts have been opened in less than six months, though many of them are said to be no-frills accounts.

Bank managers, employees, Bank Mitras together made this inclusion possible. We need that speed also for processing of inclusive finance. Public sector banks are now being pushed to serve every rural market.

Now the well being, incomes, credit worthiness and the paying back capability of poor are possible with links to ‘Aadhaa’, RuPay card transactions, Direct Benefit Transfer Schemes. Spreading financial literacy, executing government schemes and plans within timeframe etc will make rural folks part and parcel of India’s growth story.

There is a genuine fear that an overdraft of Rs 5,000, accident insurance cover of Rs 1 lakh and a life cover of Rs 30,000 to 75 millions of poor families (or approx 15 million accounts) is going to become a huge burden in case account holders fail to repay dues. The Public Sector Banks are under tremendous financial stress. Know Your Customer (KYC) norms are sacrificed to attain this number in quick time.

The scheme is mainly promoted by public-sector banks, which are already under financial stress. P J Nayak Committee working on new Basel norms for capital adequacy found that Banks are already short of Rs 5.8 lakh crore. The banks will lose another Rs 75,000 crore. It is also true that credit co-operatives will be hesitant to come forward and operate in backward, non-served areas. Such areas there are much of ambiguity in terms of credit worthiness of the people. It is very high risk as they have fewer resources compared to scheduled banks to bear some bad debts.

Similarly looking into costs and benefits of banks in covering the non-banked areas, it will be too ambitious to compel public sector Banks to open brick and mortar branches in every gram panchayats. Even branches with large number of small account holders may not survive the competition. There is no need for RBI or Government to force multiple Scheduled Banks to open branches in non-feasible areas.

This may promote multi-bank single ATMs as an option to reduce costs. These measures are in addition to the agent based transaction, group lending, Self Help Groups [SHG] approach which are currently in practice. Mobile banking, banking extension centres, will also go a long way to fulfill the objectives of financial inclusion. So, broadband extension to every village is required.

The scheme may not have takers if right instruments are not available for the new users. This will take more time. Few branches which have been opened so far need to take a pilot study on the credit requirements and payment capacity of these people. For this project appraisal capacity of bank, professionals have to be enhanced.

The fear of non-payment and delay in payment will be there. The lack of local information system or regional market research feed-backs are major stumbling block. This unnecessarily categorizes local branch managers as major risk-takers when they make advances. The system of guarantor may not be enough for this system to take root. The database available through different surveys needs to be analyzed for this purpose.

It is everybody’s desire that the banking system must reach every doorstep. Well we can promote Credit Co-operatives and RRBs to come forward in addition to the scheduled banks with an arrangement of co-operation. Only that audit, systematic monitoring system, information communication system needs to be developed so that deposits are safe. This can be supported by established banks.

Ru Pay card, Kissan Card, insurance coverages and over-draft facilities may induce people to open accounts. But these are not fundamental in enhancing measures for strong banks in these areas. The awareness, skill development exercises and capital requirement may be allowed to be accommodated in their Corporate Social Responsibility [CSR] components.

Innovation is what is required to achieve total financial inclusion. In this context, reduction of 25 basis points in Cash Reserve Ratio [CRR] for those Banks who open more rural branches may help the cause. By reducing 25 basis points the Bank can have Rs 17000 to Rs 18000 crores additional liquid money. So depending on deposits, the banks may release Rs 200 to Rs 1000 crores or more. When this reserve money gets distributed, it could cross subsidise Rs 16 to Rs 85 crores for this effort. Similarly, repo discounts can be entertained to source easy finance for lending and liquidity.

Besides, these capital infusion norms by the Government may be slightly modified to accommodate for these new likely non performing branches for the initial few years. Banks who are showing interest to open branches in rural pockets may be rewarded with more capital infusion and possibility of more support with very soft rate of interest. Preferential treatment may also be given to them in cornering Government Bonds in case they are persuading this nation building goal.

It is now time for launching vigorous awareness campaign to infuse banking habits and understanding of different financial instruments and capital market for the New Bharat to emerge.

* (Prashanta Chandra Panda is Professor Economics, KIIT University, Bhubaneswar, and Payal Shah is currently pursuing MA, Economics, Mumbai University, Mumbai.)