KC Chakrabarty, Deputy Governor, Reserve Bank of India believes that banking for the poor is always more viable than doing the same for the rich and said this is clear from the no-frills accounts that banks have opened under the financial inclusion programme.
Calling for a radical approach to banking, he said, "it is an irony that the poor always end up paying more for the same product and services than the rich. And this is true of banking too."
"My belief is that commerce or banking for the poor is always more viable than commerce or banking for the rich. That's why corporates get money at 7-8% and the poor MFI borrowers get it at a 60% interest rate. It is viable provided you have the ability to do business with the poor," Chakrabarty who oversees banking supervision, rural credit, customer service and the financial inclusion programme, said.
Pointing out that the inclusion banking project has already proved this point right, Chakrabarty said, "in many places, the inclusion banking is already profitable. When they are able to do transactions properly, these accounts will give them profits, and many such accounts are already doing so."
"What we are saying is that don't subsidise the poor, but don't exploit them, because so long as the rich get a thing cheap, they will not allow that item to reach the poor. And this has to change, at least in banking," he said.
Pegging the overall cost of financial inclusion project at around Rs 6,000 crore for the entire banking industry, he said, "my calculation is that the entire cost of this banking programme to cover all the targeted villages will not be more than Rs 6,000 crore."
Challenging banks to prove that inclusion banking is not profitable, he said, "Wherever a bank is able to provide three-four products together, it can make it profitable. When a bank uses proper technology and delivery model and devises saleable products, inclusion banking will easily be profitable."
What banks should do is to create a structured delivery model through which they are able to interact with the poor and do business with them, he said, adding, "pricing is left to the banks and it will be viable and sustainable. I am sure banks can and will lend to the poor at a much cheaper rate than MFIs."
On whether the apex bank is happy with the progress of the inclusion programme so far, he said, "We are never happy with anything nor are we depressed. It is not that nothing has happened on the inclusion front. Many things have happened, but we have to scale up."
Stating that the real issue is not about viability, but the ability of banks to do it properly, he said, "banks are not able to do this because they don't have the capacity to do so. That is why we are asking them to build their capacities through technology and new delivery models."
Comparing inclusion banking like buying a house, he said, "you have to invest first to make future profits. You will never say your are spending money on your house, but investing in your house. Banks have to look at the inclusion project as an investment and over a period of time they will get the return on their investment."
When queried whether instead of each bank being pushed to do inclusion banking, should not the government set up a separate bank to handle this programme by diverting the money it annually infuses into it banks, he quipped.
"No, the government should not get into any business as it can never be a good businessman. Its job is to facilitate, encourage and regulate business so that is it done in an ethical and in a non-exploitative manner, he concluded.
