Financial inclusion mandates do not work: RBI official

ED, Deepali Pant Joshi, says banks need to identify correct target audience and have a dedicated financial literacy cell

Reserve Bank of India (RBI) Executive Director, Deepali Pant Joshi said that the financial inclusion mandates set by the government or the banks do not work until an enabling environment is created for the same.

"These mandates do not work, you need to create an enabling environment for it. In order to make the financial inclusion plan effective steps have to be taken to create a credit absorption capacity which can be built via financial literacy. Other things such as proximity to banking services and less documentation process should also be ensured," she said while addressing a financial inclusion conference in Mumbai.

She added that in order to make the new financial inclusion programs effective banks need to take certain steps such as-identify the correct target audience and have a dedicated financial literacy cell. Banks also need to leverage technology and telecom connectivity should be improved to make the financial inclusion plan more effective.

"We also need better monitoring of our own initiatives. Banks still treat it as a mandate as they could not build business case," said Pant.

The new financial inclusion plan is the 'Pradhan Mantri Jan Dhan Yojana' that was announced by Prime Minister Narendra Modi on independence day with an aim of increasing financial inclusion and insurance penetration in the country.

This scheme aims to help the poor open bank accounts and will come with the facility of a debit card and an accident insurance cover of Rs 1 lakh.Financial viability of the accounts opened under the financial inclusion drive has been a challenge for the banks.

Pant recommended that in order to build on the economic viability banks should be given 2% commission on the amount being transferred under the Direct Benefit Transfer Scheme (DBT) in order to cover up for the cost by the banks.

Even the Nachiket Mor committee report had mentioned that State Governments should pay a fee of 3.14% (subject to a cap of Rs. 15.71 per transaction) for Direct Benefit Transfer (DBT) payments originating from governments.

Also in order to make the job of business correspondents more lucrative in order to engage them, a minimum salary of Rs 5,000 per month has also been approved by the Indian Banks' Association.

Pant emphasized that it is important for the banks to also be able to make profit as a part of the financial inclusion plans. "Banks have been obeying it as a regulatory diktat but how do we make it profitable? If we leverage technology then banks will not feel shortchanged if they get a revenue scheme out of it. There is a huge untapped demand so there is a good business case," she added.