The Pak Banker - - Front Page - S. M. Roy

ON'T be trapped by dogma which is liv­ing with the re­sults of other peo­ple's think­ing" was the quin­tes­sen­tial phi­los­o­phy of a pis­cean, who crossed the river of life in the re­cent past. The key to Steve Job's suc­cess was the re­lent­less pur­suit of 'what is bet­ter for the cus­tomer' even be­fore they knew that they needed it! Ap­ply­ing this anal­ogy to the fi­nan­cial ser­vices sec­tor, we present some thoughts on mak­ing life sim­pler for the end users, that is, the pub­lic. The start­ing point for this thought process was a credit card state­ment, re­flect­ing spend­ing in three dif­fer­ent for­eign cur­ren­cies. It un­am­bigu­ously re­flected the for­eign cur­rency, the amounts spent in each for­eign cur­rency and the ru­pee equiv­a­lent. This leads to an in­trigu­ing thought: If tech­nol­ogy can cap­ture transactions in mul­ti­ple cur­ren­cies in a sin­gle state­ment, what pre­vents it from cap­tur­ing transactions and hold­ing of shares as well in the same ac­count? In other words, why have a sep­a­rate de­mat ac­count when, with suit­able upgra­da­tion of the core bank­ing sys­tem, the ex­ist­ing bank ac­count it­self could, per­haps, do the job. Be­fore elab­o­rat­ing on this thought, a mi­nor di­gres­sion would be in or­der. A scaf­fold­ing is re­quired for con­struc­tion of a build­ing, but it is dis­man­tled once the con­struc­tion is com­plete. Sim­i­larly, with­out the de­mat sys­tem the sin­gle-most im­por­tant re­form in se­cu­ri­ties mar­ket in In­dia se­cu­ri­ties mar­kets would not have taken off to its present lev­els.

But now, the time has come to re­con­sider the rel­e­vance of a stand­alone de­mat and in­stead move to an in­te­grated sys­tem, wherein bank de­tails and de­mat de­tails are re­flected in a sin­gle ac­count. The above con­cept could be ex­tended to cover the en­tire spec­trum of fi­nan­cial as­sets. At present, dif­fer­ent fi­nan­cial as­sets are cap­tured in sep­a­rate si­los, namely, banks ac­count, de­mat ac­count, pen­sion fund ac­count, in­sur­ance poli­cies, and so on, re­flect­ing the com­part­men­talised ap­proach of the sec­toral ser­vice providers. Ob­vi­ously, from a user's per­spec­tive, this is not the most con­ve­nient op­tion. If the cus­tomer's in­ter­est is placed at the fore­front, then con­sol­i­da­tion of all fi­nan­cial as­sets in one ac­count is the log­i­cal way for­ward.

Ac­cord­ingly, we pro­pose a sin­gle ac­count, say fi­nan­cial ac­count (for want of bet­ter term) that would re­flect the hold­ing and trans­ac­tion in all fi­nan­cial as­sets. The UID or ' Aad­har' num­ber it­self could be the ac­count num­ber for this om­nibus ac­count. This ac­count should cap­ture ba­sic bank­ing de­tails.

A per­son may choose to have sav­ings ac­count with Bank A, based on prox­im­ity, and choose to place a fixed de­posit with Bank B, of­fer­ing a higher rate of in­ter­est. The pro­posed sin­gle ac­count should cap­ture his/her transactions and hold­ing in both these banks. In­vest­ment in gov­ern­ment small-sav­ings schemes such as NSC, PPF, and postal sav­ings schemes should be re­flected in this ac­count. It should cap­ture and re­flect de­tails of in­vest­ment in se­cu­ri­ties, in­clud­ing that in e-com­modi­ties.

This would elim­i­nate the need for sep­a­rate de­mat ac­count for in­vest­ing in e-com­modi­ties, through com­modi­ties spot ex­change. The pro­posed ac­count should also pro­vide de­tails of life in­sur­ance pol­icy, say, with Com­pany A and also the ve­hi­cle in­sur­ance pol­icy with Com­pany B. The re­ported pro­posal by IRDA to have 'repos­i­to­ries' to hold in­sur­ance poli­cies in elec­tronic form, is a typ­i­cally com­part­men­talised ap­proach of a sec­toral reg­u­la­tor. The de­tails of pen­sion and prov­i­dent fund sub­scrip­tions should also be cap­tured in the pro­posed ac­count, in­clud­ing that of the New Pen­sion Sys­tem (NPS). This will elim­i­nate the need for a sep­a­rate, per­ma­nent pen­sion ac­count num­ber (PPAN) num­ber en­vis­aged for NPS.

On the li­a­bil­ity side, the pro­posed ac­count should re­flect all types of li­a­bil­i­ties, in­clud­ing credit cards, con­sumer loans, hous­ing loan, loan against in­sur­ance pol­icy etc. across ser­vice providers. The ben­e­fits of the pro­posed con­ver­gence would be im­mense, apart from just con­ve­nience. There would be just one KYC for en­tire fi­nan­cial ser­vices sec­tor which would pro­vide a huge boost to the fi­nan­cial in­clu­sion drive of the Gov­ern­ment.

In re­mote ar­eas, innovations like busi­ness correspondents, oper­at­ing with hand­held de­vices, are fa­cil­i­tat­ing fi­nan­cial in­clu­sion. Pro­gres­sive ser­vice providers/NGOs have sup­ple­mented these ef­forts by in­tro­duc­ing ' non-ba­sic' fi­nan­cial as­sets like mi­cro in­sur­ance, mi­cro pen­sion, mi­cro money mar­ket mu­tual funds and mi­cro in­dex mu­tual funds in un­banked ar­eas.

Need­less to say, these first-time in­vestors would find it eas­ier to man­age/mon­i­tor one singe ac­count than mul­ti­ple ac­counts. Im­ple­ment­ing this pro­posal would need the com­bined ini­tia­tive and ef­fort of both the state and the fi­nan­cial ser­vice providers. The Fi­nan­cial Sec­tor Leg­isla­tive Re­forms Com­mis­sion (FSLRC), which is work­ing on har­mon­is­ing leg­is­la­tions across sec­tors, can, if re­quired, rec­om­mend a suit­able le­gal frame­work that will en­able the pro­posed con­ver­gence.

Co-op­er­a­tion and co-or­di­na­tion be­tween reg­u­la­tors and the ser­vice providers would be a pre req­ui­site for im­ple­men­ta­tion. Plenty of tech­ni­cal and tech­no­log­i­cal hur­dles would arise dur­ing im­ple­men­ta­tion, in­clud­ing hur­dles that are imag­i­nary and drummed up by vested in­ter­ests. How­ever, the real hur­dles that emerge would not be in­sur­mount­able. Keep­ing cus­tomer's in­ter­est in the fore­front, this com­plex task of con­ver­gence needs to be un­der­taken, just as what Steve Jobs did in IT. Upon im­ple­men­ta­tion, a sin­gle fi­nan­cial ac­count would be­come the norm, just as Graphic User In­ter­face (GUI) is the norm in per­sonal com­put­ing.

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