High on ambition
Government set ambitious targets for the financial inclusion plan, but ignored crucial needs
Three years after the Financial Inclusion Plan ( FIP) was implemented in the country, the Reserve Bank of India ( RIB) prepared the progress report of the first phase of the plan. The report states that the country is showing signs of improvement in including the low income and disadvantaged rural population in the formal banking system. The state- level bankers’ committees of different states, the nodal body for implementation of FIP, also claim similar achievements. Madhya Pradesh claims to have achieved its target of covering all villages with more than 2,000 people. In Maharashtra, against a population of 78 million, the state has 70 million bank accounts, says L M Deshmukh, member secretary of the state- level bankers’ committee. “Andhra Pradesh has successfully completed the task of providing banking services to all the 6,640 villages which have more than 2,000 people,” says M Bala Bhasker of Andhra Bank, chief manager state-level bankers’ committee. Jharkhand also claims having achieved the target.
Based on these, the Nachiketa Mor Committee, set up by RIB, stated in its report that the target of universal financial inclusion by January 1, 2016, is achievable. The committee was formed in September 2013 to prepare a roadmap of financial services for small business and low income households. Ground reality and facts belie the claim. RBI’s annual report states that 119,000 villages have been covered under FIP. According to Census 2011, the country has only 115,000 villages with more than 2,000 people. These villages comprise more than half of the rural population— 400 million. As per RBI’s annual report only 100 million accounts have been opened in the first phase.
The committee also based its report on the success of Aadhaar card enrolments for direct benefit transfer scheme, says Charan Singh, chair professor RIB at IIM Bangalore. The
Government banks have a combined staff
strength of 850,000. More than 200,000 posts are
vacant C H VENKATACHALAM, GENERAL SECRETARY, ALL INDIA BANK EMPLOYEES’
country has already given Aadhaar numbers to 550 million people. After linking them with their bank accounts, achieving the universal financial inclusion target would not be difficult, the committee assumed. But the mega programme lost its objective after the Supreme Court ordered that it was not mandatory to have an Aadhaar card to avail government benefits, says Singh. “The 2016 target is far too ambitious,” he adds.
When the government rolled out DBT in January 2013, there were only 4 million beneficiaries in the first phase. These, too, could not be covered because of the absence of banking infrastructure and technical glitches in preparing biometric Aadhaar card ( see ‘ Transition Failure’, June 16- 30, 2013). Covering 833 million rural people under FIP, no doubt, is a gigantic task.
When the government planned FIP, it adopted a technology- driven model. The aim was to reduce cost and curb corruption. But it ignored the fact that technology has its own constraints. Internet connectivity in remote areas is very poor and banking correspondents demand broadband services for seamless service in transferring biometric files. To overcome the crisis, the government launched a programme to provide broadband services to all the 250,000 panchayats in the country. It aimed to complete the task by 2013, but till date nothing has been done. The target has now been extended to 2015.
As per RIB rules, each bank branch must organise camps to make people aware of FIP. This has happened, but only on paper. Camps were planned in two blocks of Sagar district in Madhya Pradesh on April 21. It was cancelled at the eleventh hour. “This is the third time that such a programme has been cancelled. On paper, however, it was stated to be a success,” says a bank official on condition of anonymity. To educate people, banks have opened 896 financial literacy centres across the country, but few function.
There are serious flaws in the appointment of banking correspondents. Almost 200,000 correspondents were appointed in the first three years of FIP. Banks fix their IT service providers through bidding. The service providers appoint banking correspondents. “This is against the spirit of FIP,” says Navin Kumar of the National Institute of
Banking Management, Mumbai. It smacks of irresponsibility and is the prime reason for poor relations between correspondents and banks, he adds.
Besides, the schemes that banks offer are more for the urban population than rural folks. “To encourage credit lending, the financial products should suit rural needs,” says Gopal Naik, professor IIM Bengaluru.
Frequent changes in decisions by banks have not gone down well with people either. Banks had not even completed the target of covering villages with a population of more than 2,000 population, that the second phase was imposed. It targets covering villages with less than 2,000 people. “There have been instances in Karnataka where the area of operation for the bank was changed after it had started work,” says Singh. “The bank lost its investments, while thousands of people suffered.”
FIP implementation increased bank accounts by 100 million in three years. But the government made no effort to increase bank staff. “Currently, there are only 850,000 staff in government banks. More than 200,000 posts lie vacant,” says C H Venkatachalam, general secretary, All India Bank Employees’ Association. Banks’ approach towards FIP is, therefore, half-hearted.
People of Parsoria village in Madhya Pradesh queue up at the bank for transactions
Ramesh Kumar, 60-year-old tea vendor in Sagar district in Madhya Pradesh, could not open a bank account because of