 "Reserve Bank of India (RBI) Governor Raghuram Rajan gestures as he answers a question from the audience after delivering his keynote address at the \"Advancing Asia: Investing for the Future\" conference in New Delhi")
"We have been trying for decades to expand credit. We have focused much less on easing payments and remittances, on expanding remunerative savings vehicles, or on providing easy-to-obtain insurance against crop failures. In the emerging financial inclusion paradigm, the Government and the RBI are trying to expand inclusion by encouraging these other products, allowing credit to follow them rather than lead," Rajan said while suggesting moving away from credit as one of the three approaches with other two being mandates and subventions and transforming institutions.
The new initiatives in easing of payments and remittances will create an enabling environment in access to financial services in rural areas. Transfers from bank account to bank account will become easier in a few weeks via mobile through the unified payment interface. With the price of smart phones falling sharply, we are on the verge of solving the last mile problem, he said.
An important proposal by the government was to give small business Udhyog Aadhaar numbers, which are unique IDs tied to both the entity as well as the promoter. Such IDs could allow small firms to build credit histories with credit bureaus, especially as the histories are tied to specific promoters, according to him.
"We are steadily moving from mandates, subsidies, and reliance on the public sector for inclusion to creating enabling frameworks that make it attractive for all financial institutions to target the excluded, even while the interest of the excluded are protected through education, competition and regulation, I am confident that in the foreseeable future, we will bring formal financial services to every Indian who wants them,"he said.
Rajan said there was a need to expand the reach of credit bureaus, including by borrowing under self help groups into their ambit. Credit information bureaus have helped tremendously in solving both the information and incentive problem in retail credit. When an individual knows that a default will spoil their credit rating and cut off future access to credit, they have strong incentives to make timely payments, according to him.
Land is often the single most valuable source of wealth in rural area. the digitisation of land records, accompanied by a guarantee of certificates of final ownership by he state government, as proposed in Rajashtan, will ease the use of land as collateral against which funds can be borrowed, he said.
The RBI Governor wanted the lending institutions to have a system of flexibility and forgiveness in repayment with regard to borrowers who make bad choices in life. Should a student who chose the wrong college for studies and end up having to pay back huge loans with only a mediocre job be penalised for life? "So we need a system that has some flexibility in repayment, so that those who make bad choices or have bad luck can get some relief,"he said.
Later speaking at the banking technology awards function organised by the Institute for Development and Research in Banking Technology(IDRBT), Rajan said the last few years have seen the convergence of various factors in the payment systems sphere, which makes possible a near-revolutionary improvement in financial access.
Meanwhile cash transactions in the country have increased for a variety of reasons in the last few months and the RBI has been trying to understand this trend, according to Rajan. "Electronic transactions are not growing as we like to see. We need to disincentivise cash transactions,"he said.
