Promoting Financial Inclusion

Shubhalakshmi Panse
Chairman and Managing Director
Allahabad Bank

“The rural areas will be the driving force for the revival of the economy in the coming five years,” says Shubhalakshmi Panse. In conversation with Nayana Singh

Allahabad Bank is one of the oldest commercial banks in the country. In your opinion what are the most important contributions that Allahabad bank has made to the banking industry in the country?
We have been serving the country through 149 years of vibrant presence and we are proud to proclaim ourselves as the oldest joint stock bank in the country. From a modest beginning with handful of branches in the year 1865, the bank has today created a pan India presence through its 2716 branches. We have already crossed the mark of `3,00,000 crore business and are planning to achieve `3,60,000 crore mark by 2014. We have always focused on serving the common people. Today have 61 percent of our branches located in rural and semi-urban areas, this enables us to serve at the grassroots level. For resolving the issues of unemployment and income inequality, we have established 21 RSETIs (Rural Self Employment Training Institute) across India. These are sponsored entities of the bank. We are endeavouring to empower the rural youths through training and subsequently by providing finance for the productive activities undertaken by them. We impart skills that will help the youths in building their own enterprise. Years back the Bank was assigned the responsibility of being the Lead Bank in the areas that were not so strong as regards the infrastructure is considered. Allahabad Bank opened branches in all such areas of Bihar, Jharkhand and Uttar Pradesh.

Reach Out in Rural Areas

Under its campaign to ensure that each family has at least one account in the rural areas the Allahabad Bank has covered all the families in the Bank’s Service area villages with one account in each family. The Bank has also contributed in the urban financial inclusion by way of opening accounts of migrant labourers thereby facilitating remittances. The Bank has established 13 Financial Literacy and Credit Counselling Centres (FLCC) in the States of Uttar Pradesh, West Bengal, Madhya Pradesh, thus predominantly covering the Bank’s lead districts. In addition to the above 13 FLCCs, there are 17 Financial Literacy Centre (FLCs) functioning in the premises of all the 17 Lead District Offices of the Bank.

The biggest challenge before the Indian banking industry comes from the rising Non Performing Assets

What kind of growth rate have you been seeing during the last few years? How do you see the growth prospects for the future?
The Bank has been growing consistently in the past few years within a range of 14-15 percent. The last quarter saw the Bank registering a growth of 15.63 percent. We are targeting a growth of around 16 percent in our business for FY14. Deposits are also expected to increase by around 15 percent in FY14 and advances by almost 17 percent.

Tell us about the products that Allahabad bank has developed for providing easy loans to the student community?
Along with the education loan scheme for under graduate and post graduate studies, the Bank also offers Gyaan Deepika Scheme to parents or guardians of students who are pursuing school education from nursery to 12th std. The money can be used for admission fee, education fee and tuition fee. The Bank provides education loan for meritorious students under management quota for higher education in India and abroad. Here the educational Institutions have been classified under four categories and quantum of loan, security requirement and rate of interest have been made institution specific. Quantum of loan for studies in India has been increased to maximum `20 Lakh. For the girl students a concession of 0.50 percent in the rate of interest is offered.

Financial Inclusion

Financial Inclusion has always been a priority for Allahabad Bank. The progress under the bank’s financial inclusion plan is as under:

*Bank has achieved coverage of 4311 villages on 30.06.2013 under its Board approved financial Plan by way of 116 brick & mortar branches, 4 Satellite branches, 22 villages by 3 mobile branches and 4169 villages through ICT based BC Model.

*Out of 4169 villages, 218 Ultra Small Branches(USB) have been opened, where one Officer visits the village on all working days with Lap top having VPN connectivity to render all type of banking solutions.

*Bank has enrolled 838209 rural population, out of which 611549 Savings accounts have been opened in the FI implemented villages upto 30.06.2013 through ICT based BC model.
*Bank has issued 410487 number of smart cards upto 30.06.2013, where transactions are being carried out through BCAs.

The Bank has also submitted the Three year plan for FI Implementation (2013-2016) for population below 2000 in 12785 villages allotted to it.

How has the approach towards financial inclusion changed over the years?
Financial inclusion is not a new concept for the banking industry. If we look back, we will find that way back in 1969 banks were nationalised with the objective of the inclusion of excluded economic sectors, social groups and regions into the formal financial system. Commercial Banks are committed to fulfil certain norms prefixed by the Government of India and Reserve Bank of India in the field of Priority Sector Lending which, I think, has been serving the cause to a great extent. However, there is no scope for complacency since a large number of landless and marginal farmer households and poor labourers are still excluded from the formal banking fold. Keeping them in view, Commercial Banks have been directed to take up Financial Inclusion initiatives which have been defined by the Rangarajan Committee on Financial Inclusion (2008). The committee recommended that a National Rural Financial Inclusion Plan (NRFIP) be taken up in a mission mode in a decentralised manner from village to the state with a view to providing access to at least 50 percent of excluded rural households by 2012 through rural/semi-urban branches of commercial banks and regional rural banks. The remaining households are to be covered by 2015.

What is your view of the Direct Benefit Transfer scheme? What kind of impact is it having on the banking sector?
Direct Benefit Transfer is a trend setter solution devised for expediting financial inclusion. It came into being from January 1, 2013. Under this system, the Government of India will transfer the subsidies and benefits under Social security schemes into direct cash transfers. To begin with, cash benefits under 26 schemes are being directly transferred into the bank accounts of beneficiaries in a phased manner in 43 identified Districts across respective States and Union Territories. Till now, `564 crores has been transferred through 10 million transactions as per the Ministry of Finance. This system is going to be most effective in cutting down leakages at the same time bringing millions of people under the fold of banking sector. This would be a good opportunity for banks to offer its products and services to people from these areas. Consequently, it will help in increasing the CASA (current and savings) deposits.

It is well known that the international financial system is going through a period of crisis. What is your view of the banking industry in the country?
In the current scenario, where in the international financial system is going through a rough weather, Indian banking industry is also experiencing the heat. The developments taking place in global financial markets have also impacted the country’s economy, which in turn has affected our banking industry. The most important challenge today for the Indian banking industry comes from the rising Non Performing Assets. Due to lack in demand for products and services, the corporate earnings have come down. With exports hard hit by the recession in Europe and anaemic growth in the US, the India Inc. has been severely affected leading to increase in NPAs. The NPAs do not earn anything for Bank and in addition to this loss in income; banks have to make a provision from the income. This has created a pressure on margins and volatility in non-interest income of the Banks. In the quarter ended on 30th June, the gross NPAs of the most of the Government owned Banks ranged between 4.00 to 5.00 percent. The restructured debts are on the rise. The banks will have to set aside money to cover their restructured loans, bad assets as well as depreciation in the value of their bond portfolio. This is going to eat away their profits and capital base. In June 2013, the capital adequacy ratio of most of the Indian banks was in the range of 11.00-12.00 percent. Under international banking norms that came into play in April, India’s banks would need `5 trillion of capital in the next five years. In order to facilitate lending, when the scenario of normal credit demand comes back, the banks would require deposit. Now with proposed new banks entering the banking arena, the next round of battle on the Indian banking landscape will be fought for deposits. In this demanding business environment, improved operational efficiency will help banks in standing up to the challenges and enable them to maintain their health and profitability.

In your opinion, what is the roadmap for development of the banking sector in the country?
The banking industry in any country plays a very important role, as it channelizes a major portion of the money. As far as India is concerned, we grew at a fiery pace of 8.5 to 9 percent from 2009-2011. Such high growth calls for consolidation of the economy. The present economic scenario of the country reflects exactly this situation. The entire banking industry and most of the businesses are undergoing course correction and are in a phase of consolidation. More than 60 percent of the population was not included in the banking system. The effort of bringing the excluded population in the fold of the banking system is causing empowerment of population at the bottom of the pyramid. The next five years will witness huge amount of activity in this space. The banking industry will be the driver of this change. The rural area will be the driving force for the revival of the economy.

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