RBI deputy governor at IIM-L leadership summit Manfest 2011.
Financial inclusion is imperative for India to reap the benefits of its demographic dividend, Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty has said.
“The challenge for the financial system is to become more efficient. Financial inclusion would mean efficiency of the the banking sector in allocations by reaching out to every individual,” he said.
He said efficiency in the financial sector is in terms of both allocation and operation. While the former pertains to easy access to people, the latter is about harnessing technology rather than mere mechanisation to improve functioning.
Chakrabarty was speaking today at ‘Arthashaastra’ —The finance leadership summit, as part of the Indian Institute of Management, Lucknow’s (IIM-L’s) annual international business conclave, Manfest 2011.
“The financial sector is surviving due to its regulator, which occasionally bails it out and neutralises competition,” he noted.
He said 50 per cent of India’s population did not have bank account, 90 per cent had no access to credit or life insurance cover, 95 per cent had no general insurance, while 98 per cent had no participation in the capital market.
“The financial sector has to improve upon its delivery mechanism, especially for the poor and launch innovative products for the agriculture and micro, small and medium enterprise sectors,” he said.
Exhorting future managers, Chakrabarty underlined that today’s business models lack the ability to reach out to the poor. “I do not espouse subsiding the poor or charity, but we can support them with appropriate financial products, one which is also commercially viable and does not exploit them.”
Quoting a report, Chakrabarty said by 2030, India would account for 10 per cent of the world’s gross domestic product (GDP) with the latter been estimated at 308 trillion dollars Rs 14,075.60 lakh crore) up from 62 trillion dollars Rs 2,833.40 lakh crore) at present.
“Two-third of the world’s GDP would be accounted for by the developing countries with India and China jointly accounting for 35 per cent by 2030,” he added.
Other speakers at the conclave included Fullerton Securities president and CEO Pallav Sinha, Axis Asset Management CEO and Managing Director Rajiv Anand, Standard Chartered Bank fixed income currencies and commodities (South Asia)-Head Ananth Narayan and IIM-L finance professor Vipul.
The speakers were unanimous that regulation in the financial sector would rather increase and be more stringent.
“Know your customer’s business, risk management and fair treatment of customers, apart from financial inclusion would acquire centrestage for the financial sector in the future,” Chakrabarty observed.
He suggested the country’s financial sector should first meet the aspirations of people, before venturing global or trying to integrate with global markets.
“The focus of the domestic financial sector should be local with the blend of brick-and-mortar and technology approach, while catering the needs of the Indian diaspora,” he said.
Commenting on black money in foreign banks, the RBI deputy governor said the money went to foreign shores, since the rate of returns in India were not attractive.
“Tax evasion is not the only cause for black money transactions, as it is not easy to siphon-off black money,” he added.
