Stop ignoring the poor, RBI chief Subbarao warns banks

10 Dec 2009

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Reserve Bank of India governor D Subbarao on Wednesday issued a virtual ultimatum to banks to make their services more inclusive by covering more of the population, particularly the rural and less privileged sections of society. To this end, the central bank may soon introduce a system of performance evaluation of branch managers of banks, he said.

''Merely 40 per cent of the population have bank accounts, while just about 10 per cent have life insurance cover. Just opening no-frill accounts may not achieve full financial inclusion,'' Subbarao said at an event organised by the Bankers' Club of Kolkata.

''Financial inclusion is not just about opening bank accounts for financially excluded people, but also to encouraging them to undertake regular banking operations,'' he said. The banking regulator has asked the convenors of state level bankers' committees to open at least one financial-literacy-cum-credit-counselling centre in each district.

Subbarao said RBI will urge banks to cover all villages with population of 2,000 or more by March 2011. Subbarao suggested that lead banks prepare a specific roadmap by the end of this fiscal to achieve this target. ''We have taken a few decisions to make commercial banks more responsive towards financial inclusion,'' Subbarao said.

''RBI is committed to achieve bank-led financial inclusion,'' he said. ''If banks fail, we will not hesitate to use other models of financial inclusion,'' he warned. Using micro-finance institutions within the ambit of RBI may be one possibility, he suggested.

''MFIs have demonstrated how low income groups can be bankable proposition,'' he said, but added that the interest rates charged by MFIs at 24-30 per cent are still too high. ''Banks may not need to set up a branch, but can provide basic facilities through other means, such as business correspondents,'' he added.

The RBI governor also took exception to the banks' indifference towards giving education loans to the poor. ''We should not underestimate poor people's understanding of financial products. We should be more sensitive to what they need,'' Subbarao said.

Subbarao also urged banks to consider electronic transfer of government payments and social security benefits as profitable business opportunities.

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