The Reserve Bank of India and the Union government have been encouraging banks to expand their reach to the unbankable population in recent years. However, says a report from the Financial Stability and Development Council (FSDC), if banks aren’t adequately compensated for the exercise, it would become unprofitable for the sector.
“While there is a need to promote financial inclusion, it needs to be executed in a manner that is not detrimental to established commercial banking practices. If implementation of the financial inclusion is pushed beyond a point, it may have negative costs to the system,” says an FSDC report.
At the apex, FSDC is chaired by the finance minister, beside having two other secretaries from that ministry. It also has the governor of the Reserve Bank and the heads of the regulatory bodies for the capital markets, insurance and pension fund segments.
Also Read
Fair payoff for the lenders, especially public sector banks (PSBs) has become even more important as they are being expected to work akin to private entities in terms of business strategy, operations, controls and financial targets, under the government’s Indradhanush plan. This programme is aimed to improve the performance of PSBs. Even earlier, RBI had said banks, particularly PSBs, were not being fully compensated for the accounts being opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY).
“We should recognise that PSBs undertake public interest activities (such as the rollout of accounts under PMJDY) that are not always fully compensated. The government should endeavour to keep the competitive playing field level, by fully compensating banks for activities it wants undertaken in the public interest,” said Raghuram Rajan, the RBI chief, earlier this year. Under PMJDY till December 16, a total of 196 million accounts have been opened. Of this, 153.4 mn were opened by PSBs. Private and regional rural banks did the rest.
The FSDC report has also noted a significant rise in the opening of basic savings bank deposit accounts due to PMJDY, 441 million at the end of September as against 398 mn at the end of March.
Earlier this year, RBI granted in-principle approval for setting up of 11 payment banks and 10 small finance banks, aimed to further financial inclusion.
“A working group has been formed to examine and finalise the regulatory and supervisory framework for payment banks and small finance banks. The group is currently examining the various issues that need to be addressed, considering the size and scope of these banks,” said the report.
RBI has also set up a committee on a 'medium-term path on financial inclusion'. It is headed by Deepak Mohanty, executive director at the central bank.
