 "Deepak Mohanty")
The amount of credit that goes to the agricultural sector is huge but not much of it reaches where it is needed the most due to leakages in the system, said Reserve Bank of India (RBI) Executive Director Deepak Mohanty in an interview to Anup Roy. Mohanty, who chaired the committee on medium-term path on financial inclusion, said full inclusion is difficult, if not impossible, but the country can do so for at least 90 per cent of its population in the financial fold if some key reforms are initiated, as suggested by a recent report of the committee. Edited excerpts:
The financial inclusion report has proposed government-to-person cash transfer and abolishing subsidy. How does it help?
It is the government's policy and responsibility to make transfers. We are not questioning that. But, it is also true that cash transfer is the most efficient means of inclusion. Also, this makes the accounts opened for financial inclusion more viable. Access to banking might not be usage of banking. About 40 per cent of the PMJDY (Pradhan Mantri Jan Dhan Yojana) accounts remain inactive, and this is a sore point with banks. It will work if government-to-person transfer takes place. There are many countries in the world, including some in our region, which have consolidated many social schemes through direct cash transfers to beneficiaries.
The report has proposed that an effective insurance policy should substitute the subsidy schemes. Will insurance be enough?
We are not against subsidy. We are saying, give it in a different form. In insurance, the benefits are not apparent. Everybody thinks they can beat the odds. The cost of insurance is high because the coverage is not wide. The government's money is not well utilised and it has distorted the credit system. Even state governments sometimes give subvention but if there is a drought the cultivator gets affected. There is a huge problem in agriculture. Our preference is for cultivating wheat and rice. We don't try to experiment with other crops. Once you give crop insurance for all kinds of crops, diversification will happen. The subsidy is given for the short term but you need long-term investment in agriculture for productivity enhancement. You need to invest in improving soil quality, invest in irrigation, organic manure. That doesn't happen. Agricultural productivity is not good in India. Disbursement in loans was Rs 8.4 lakh crore in 2014-15. Production does not seem commensurate with credit flow, giving rise to suspicion that leakages are happening from the system.
You have said cultivators are not recipients of the subsidies
The committee found that credit access to small and marginal farmers is severely restricted. But they are the bulk of the agrarian economy. About 85 per cent of 138 million landholders are small and marginal farmers holding less than two hectares of land. Are they adequately getting credit from the formal sector? We found that once you are the asset owning class, you might not do farming yourself, you lease it out. In certain cases, we have seen that the landowner himself becomes the moneylender. That's the problem. Banks don't give loans if there is no proper land record. The landowners don't give tenancy certificates for the fear that the land could be occupied. So we suggested creating that kind of an eco-system where the land owner's right is also established and the tenants also get some record for the banks to give them money. From the banking side, we have recommended that the regulations should enable that the cultivation certificate should be good enough for loans.
The report mentions about an eco-system between banks, non-banks and new banks should be created.
The credit requirement is huge in India. Banking system has privileged access to deposits but their cost structure, incentive system is not suitable for disbursing small loans. But we are in a situation where there is no option. We should encourage other players, like NBFCs (non-banking financial companies) and MFIs (microfinance institutions), who are more suited for this kind of activities. And then they can securitise the portfolio and sell it to banks. It also helps the banks meet their priority sector targets. As a regulator, we should not discriminate whether banks are lending directly to that sector or they are directing someone to do the job. Why should I rush into something and make NPA (non-performing asset)? I can go through NBFCs, which can make better decisions.
Role of payments banks as business correspondents.
Payments banks are restricted. On the assets side, they cannot give credit but on the liability side, they are required to follow some strict norms. But, they have a very good delivery mechanism. With telecom companies and corporates with deep pockets coming in the field, these payments banks can have good technology backup and a nimble model and they can have the last-mile reach.
Role of mobile phones in financial inclusion.
The problem is the last-mile delivery. It should be at the convenience of the customer. Obviously, mobile is the best option. There are already mobile wallets. You seed your mobile number with Aadhar numbers and when the direct benefit transfer comes, it cancome directly to your mobile. From the regulator side we have to see that P2P (person-to-person) payment can happen through mobiles. This will help in the last-mile reach in a cost effective manner with usage of less cash. Such mobile banking can help in emergency where there is no immediate access banking facility. This is expanding the choices. Cards, wallets, or mobiles, it's your choice. There the payments banks have a greater role.If we can enhance the cash attribute of mobile money, its acceptability will increase. Here there is less risk, because the money is escrowed and regulated by RBI. With rapidly increasing use of mobile phones in rural areas,. why not use it also for financial transaction?
Is financial inclusion profitable for banks or is it only social responsibility?
It is both. At our stage of economic development, it is a developmental objective to usher in a real financial inclusion. But, I strongly believe that it is a paying proposition. Newer players are falling head over heels to acquire customers. The banks should realise that. Of course, everything has a start-up cost, but then our per capita income is also going to grow. The cash transfer by the government can change the game for banks. Initially, there is a cost, but very quickly you can break even, but you have to have the right model. Here coming through partnerships with other entities will help.
The Supreme Court has said Aadhaar is not compulsory, but RBI, including your report, wants to bring Aadhaar in the mainstream.
The court has said it is voluntary, but it can be used for social benefit transfer We are also saying it is voluntary. We are just saying to create a system for direct benefit transfer. You don't need Aadhaar to open a bank account.
Can a large country like India can ever be 100 per cent financially included?
That's why we have been realistic. Even the US is not 100 per cent included. There is still significant exclusion. We have
pitched for 90 per cent and this should be achievable.
