Deals with financial inclusion in India and the role of Indian commercial banks in financial inclusion

1. Indian Banking and Financial Inclusion
-B.V.Raghunandan
National Seminar,
SVS College, Bantwal
August 14, 2015

2. Financial Inclusion
• Extension of finance and
financial services to every
citizen of the country
irrespective of the regions,
income levels, caste and
creed
• A secular attitude to make
every citizen participate in
the economic progress
• It is also a basic economic
requirement to eliminate
differences in income and
wealth distribution

3. The Concept
• The terminology is new,
but the concept is not
• Bank nationalisation was
a giant step towards rural
penetration through bank
branches
• Opening agricultural
branches was also a step
in the same direction
• Compulsory priority
sector lending
• Setting up Regional Rural
Banks also contributed
• NABARD and its functions
addressed the problem to
a considerable extent

4. Banks in Dakshin Kannada
• Banks in Dakshina Kannada were unique that their main objectives were for
financial inclusion
• Lack of big industries and limited industrialisation helped the banks to focus
on the common man and also a seamless expansion of branches over urban
and rural areas
• The Pigmie Deposit of Syndicate Bank made the name a generic one
• They went one step more to aid the development of higher education since
the promoters of banks and education were the same

5. Founding Principles
Canara Bank
founding principles:
• To remove Superstition
and ignorance.
• To spread education
among all to sub-serve the first principle.
• To inculcate the habit of thrift and savings.
• To transform the financial institution not only as the financial heart of the
community but the social heart as well.
• To assist the needy.
• To work with sense of service and dedication.
• To develop a concern for fellow human being and sensitivity to the surroundings
with a view to make changes/remove hardships and sufferings.

6. The Setback
• The 1980s first dose of
liberalisation brought back the
question of profitability of Indian
banks, particularly PSU banks
• The early 1990s major dose of
second liberalisation questioned
the existence of unviable
branches and cost to the
exchequer
• Commercial principles strongly
pushed back social banking to
nullity

7. The Bounce-back and
Revival
Three factors contributed to the
revival:
• Amartya Sen getting Nobel
Prize in Economics in 1998 and
advocating social security net
for the people
• C.K.Prahlad of University of
Michigan publishing “Fortune
at the Bottom of the Pyramid”
to advocate social enterprises
• Mohammad Yunus and Bangla
Desh Grameen Bank getting
Nobel Peace Prize for their
efforts in microfinance

8. Micro-Finance: A Revolutionary Concept
Mohammad Yunus and Grameen Bank proved the following:
There is no viability size for a loan or deposit
Bank should go to the customer and not vice versa
Micro-finance can succeed universally
There is no need for support from the government or
International Funding Agencies like World Bank

9. Contribution of
Indian Banking
• Compelled by RBI and Government of India, used bio-metric
to cover even illiterates and to dispense government aid
• Spent around Rs. 13,000 crore to deliver the banking services
• Accepted RBI’s proposal to try Bank Correspondent System
• Different Models emerged in BCS
• Roped in NGOs and SHGs to disburse micro-finance
• A total of Rs.8,000 crore is spent in BCS

10. Indian Banks:
Misfits
• Inability to cover many rural
areas
• Personnel are outsiders
• Inconvenient operating hours
• Elitist Attitude of the employees
• Loan sanctioning is the
monopoly of the branch head
• Communication problem due to
national level transfer policy
• Corruption from branch level to
board level
• political intervention

11. Failure and
Prejudice of RBI
• Belief in Commercial banks to replace
individual money-lenders
• Deliberate, systematic and consistent efforts in
killing finance companies and money-lending
• Not studying the reasons for the success of
money-lending
• No serious efforts in developing a regulatory
mechanism for money lending and finance
companies
• Not giving a serious thought to build the
unorganised sector on healthy lines
• Not helping finance companies that got into
trouble due to its circulars
• Not prescribing the tolerable level of NPAs for
different categories of the borrowers
• Not examining the operational details of the
working of the banks in the light of developing
customer-friendly operations
• Too much importance to documentation and
KYC

12. Quo Vadis?
• Indian banks should become
funding agencies
• They have to identify the
institutions that are best
suited for financial inclusion
• The institutions funded by
the banks should be
accredited by CRISIL, ICRA or
Care
• RBI should bring in
comprehensive measures to
regulate money-lending and
not killing the concept of
money-lending
• Institutions should be
directed to develop flexibility
in the operations to suit the
requirement of the
customers

13. THANK YOU