Objective
The Government commenced process of social banking and financial inclusion almost 51 years back when 14 banks owned by private sector or trusts were nationalized on 19th July 1969. The deposit base of each of these banks was in excess of Rs 50 crores, contributing to two-thirds of the deposits and advances of all scheduled banks. The objective of nationalization was to reduce concentration of economic powers resting with a few industrial magnets, in addition to mobilizing resources from backward and rural areas. Another objective was to provide financial support to the poor, small artisans and small scale industries. SSIs were contributing almost 40% of the industrial output but received just 4% of the funds. Agriculture sector was getting access to just 2.2% of the funds whereas contribution of farmers was much larger. Other objectives were to fund GoIs development projects, provide loans to priority sector, and divert funds to needy rather than black marketeers and hoarders. The GoI nationalized 6 more banks on 1st January 1980.
Priority Sector Advances
In order to extend credit to the farmers, village and cottage industries, weaker section, and small scale industries - RBI mandated 40% of the adjusted net bank credit (ANBC) to priority sector that comprised 18% to the agriculture sector, 7.5% to micro enterprises, 10% to weaker sections, education loans for vocational courses up to Rs 10 lakh, loans up to Rs 15 crores for non-conventional renewable energy generation, loans up to Rs 5 crore for building social infrastructure, loans to micro finance institutions, 2% of incremental export credit up to sanctioned limit of Rs 25 crore per borrower to export oriented units having turnover up to Rs 100 crore, etc. Later housing loans to a certain extent depending upon area and cost of dwelling unit included under affordable housing definition, thereby making it part of priority sector advances. Any shortfall by scheduled commercial banks in meeting 40% of the priority sector advances has to be deposited with Rural Infrastructure Development Fund (RIDF) with NABARD and other funds with NABARD/SIDBI/NHB/MUDRA Ltd. offering lower returns.
Recent Initiatives
Banks opened more than 380 million savings accounts, covering majority of un-served or under-served populace, under Pradhan Mantri Jan Dhan Yojana (PMJDY) launched in August 2014. These mammoth number of savings account opened under the scheme facilitated Direct Benefit Transfer (DBT) to beneficiaries under various Government schemes. Banks offered life insurance cover of Rs 2 lakh under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Rs 2 lakh accidental insurance cover under Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY) to subscribers, loans up to Rs 10 lakh under Pradhan Mantri Mudra Yojana (PMMY), Pradhan Mantri Vay Vandana Yojana (PMVVY) offering 8% guaranteed returns through LIC of India for maximum purchase price of Rs 15,00,000/-.
Payment Infrastructure
Building an efficient payment infrastructure is the gateway to financial inclusion. Responsibility for attaining this goal in the field of payment rests with the Central Bank. Remittance solutions were offered through NEFT, RTGS, NACH, and IMPS by the Central Bank. Adhaar based UPI and BHIM payment applications were launched by National Payment Corporation of India (NPCI). The Central Bank recently set up Payment Infrastructure Development Fund (PIDF) with initial corpus of Rs 500 crore, which will subsidize setting up of point-of-sale (PoS) at remote areas and north-eastern states. This will also facilitate acceptance of more than 100 crore debit cards, including RuPay cards, at small merchant establishments. Private Sector players have been offering payment solutions through PayTM, Google Pay, Amazon Pay, PhonePe, PayPal, etc.
Financial Inclusion
Financial Inclusion is the process of ensuring access of financial products and services needed by all sections of society such as weaker sections and low income groups at an affordable price in a fair and transparent manner. GoI had introduced IRDP, SEEYU, SEPUP, PMRY for lending through Banks to the needy and weaker sections of the society in coordination with DIC, BDO and Gram Sevaks. In 2005, Banks were allowed to engage intermediaries in the form of Business Correspondents (BCs) and Business Facilitators (BFs) - to expand their outreach in order to offer limited services. RBI first mandated opening of one semi-urban or rural branch for every three branches opened in metro or urban areas, which was subsequently modified to tier V and VI centres. The present distribution network comprises 150,000 branch outlets and 210,000 ATMs besides almost 10 lakh business correspondents and 50 lakh plus point-of-sale machines.
Keep watching this space for latest updates in the banking and payment space!
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