Saturday, May 23, 2015

Financial Inclusion in India

Financial Inclusion in India

For sustainable inclusive growth, India is eying on financial inclusions and livelihoods promotions.

PMJDY is one of the bigger steps joining people of India with banking services through mass accounts opening to make delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society. It is yet to link with biometric, but it has opened a way for direct cash transfers to plug holes/leakages in subsidy driven programmes.

Indian people are living in saving culture. They care for their future and future of their children. Therefore eat less and save more. They don't know how brain develops in first two years of birth?; how their children are stunted?; how women's chicks go deep after 2-3 years of marriage? Many not been able to feed their family properly, carrying debts, and been able to spend on health and education need of the family. PMJDY has opened a silver line for them in dark clouds of poverty.

But will they be included beyond opening accounts? If accounts are not going to become active, will banks willing to hold them? Per capita income may have gone up in India but large mass do not earn even Rs. 5000/month.

Time will tell, that it will finance them or their savings will go in funding capital market as the size of banks are not big enough to fund large projects.

The experience of bank funding in State Sponsored schemes is not satisfactory. Banks either under finance or reject large number of applications. Priority Sector advance mostly go to SMEs and weaker section advances always trail behind the target.

Agriculture loans are many times book adjustment adding cost on State (5%) and keep farmers and banks happy as loans (12% interest minus subsidy) mostly converted into deposits (9%). Banks carry book entries and gain 3% and farmers gain 2%. The major objective of investing money for agriculture inputs missing in many cases.

On one side approach of Nationalised banks is liberal in funding corporate giants for highly mechanised projects (generate less employment). And the outcome may be to run distilleries and print "red calendars" so that their children lives in clubs and change cars frequently and they live 11 digit costing house to fly from the roof top. Cooperative banks pull money from people and lend to self, friends, relatives and go bankrupt. And other side, the informal sector, the backbone of the country tired visiting branch managers for small finance. For them "credit to go slow".

The NPAs and loss generated by corporates are eye opening. Are we ready to share those figures and open public debate so that they can come under public audit. After all banks money is people's money.

Dairy Development in Gujarat did lead white revolution in the country, generated livelihoods, and contributed in GDP but many children lost their milk share as people keep less at home for consumption.  Malnutrition due to dairy a question need examination.  Similarly if poor people put their small earnings in banks to keep the account on, what will happen to the minimum expenditure they need to incur in maintaining micro nutrients in the bodies of the family. People tend to eat potatoes, onions, dal, rice, roti but will avoid fruits and vegetables to save money. Food is the only voluntary cut available with them to save money.

Increase bank branches, go for credit-payment separation, involve NBFCs, involve cooperatives, add more BCs, run kiosk banking, add more agencies already exist in market in different formats, and increase financial transactions in billions but make the life of common man easy to pay, deposit and borrow from financial institutions of the country. "Win Win".

Capital freedom must be balanced with mass welfare.  Not to reach to a situation where rich funds elections and won votes of poor to continue their growth that lead economic disparities between rich and poor.


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