Financial inclusion programme of Government of India has worked really well and succeeded by reaching to the last mile. P C Panigrahi, GM, FI, Union Bank of India believes that financial services and products should address needs of the have-nots and should be within their reach. Poulami Chakraborty of Elets News Network (ENN) during an interaction with Panigrahi tries to find out what efforts need to be taken to financially empower poor mass.
Now that Financial Inclusion (FI) has attained the benchmark set for its success, what’s the next big thing for FI? What kind of efforts are needed to bring unbanked mass under FI fold?
Broadly speaking, financial inclusion is an initiative by the Government of India to enable delivery of banking and financial services like Insurance, pension, Remittance and Mutual Funds among others at an affordable cost to the vast sectors of vulnerable and low income group. Initially, the idea behind the financial inclusion in banking was to enroll the unbanked mass in banking account to keep a track of the unbanked population and the money they are holding. As a matter of fact the idea worked really well and has succeeded surely by reaching to the last mile. Hence, this has become a subject of shifting people from poverty to prosperity. Being a long term strategy, the focus has now shifted from access to usage of accounts provided.
Thus, it didn’t end with opening of new accounts and providing the access to the unbanked mass. The challenge is to make these accounts usable to them, with proper knowledge of the same. The usage of financial services and products should address the needs of the poor and should be well within their reach. Earlier with a basic aim to cover as many villages, there was little emphasis on quality of service, including-financial literacy, credit counseling and insurance, pension. The concept of PMJDY was a game-changer in covering 100 per cent households of the economy with attractive features like, Accident Insurance of Rs 1 lakh, provision of Rupay card for transaction and overdraft facility of Rs 5,000.
It worked prominently because instead of the individuals, households were targeted and SLBCs and State governments were brought together to work with a common objective. In fact the target set for PMJDY with a total of 7.5 crores of accounts had an overdrive effect on the banking industry with over 20 crores of new accounts opened in the current date, with a cash deposit of over Rs 27,000 crores brought into formal banking channel.
What have been the major in way towards implementation of PMJDY across the country?
Despite there has been a scope for expansion of the Indian Banking sector, the challenges involved in PMJDY became formidable. The challenge was largely to make people transact their accounts, so that they are in fact brought to formal channel of banking besides availing banking and financial services at an affordable cost.
Secondly, the targeted populace of PMJDY which belong to Tier II and III cities, do not frequently transact with these accounts. They need to be educated on the benefits of having an account with bank, why to save and borrow from banks and of course, repay back on time. This concept knowingly or unknowingly has broken the monopoly of rapacious money-lenders in tier II cities.
What’s could be the next big thing in digital implementation in banking sector in the coming years?
The implementation of technology in banking sector has leveraged the facilities that can be availed by end-users a lot in the past few years. Today, banking facilities can be availed through internet, phone and apps, at one’s finger tips. Almost all banking facilities can be availed without visiting a branch near you, including payments and shopping through online wallets and payment apps.
The next big new in banking digitisation is about validating the existing available data to streamline all the accounts that have created the overdrive of PMJDY accounts. We have to strive hard to build robust infrastructure to support the tech upgradation happening across the country, besides making innovations in the same sector. Banks are expected to invest in technology, comprehensive MIS and be in collaboration with TPs and Mobile Network Operators and Business Correspondents (BCs) to develop hassle-free delivery models. Hence, leveraging technology is essential for efficient delivery of small value transaction in large volumes. The introduction of innovative technology like mobile banking and along with new age products suitable individually to various locations, transaction behaviors and above all and easiest access to people in its simplest use followed by expansion of BC outlets, banking outlets and ATMS and micro ATMs, which can only address the recent splurge of Jan Dhan Accounts.
What’s your take on introduction of payment and small finance banks?
It was a genuine and perfect step by the Government of India and RBI to introduce payments and small finance banks for success of Financial Inclusion, as it must be a business proposition for and involvement of all. The inherent aspect of introducing payments and small finance banks is to bring in more competition in furtherance of Financial Inclusion. The new banks will complement the existing system by transacting with the last mile.
Both payments and Small Finance Banks are coming up in the economy to deepen financial inclusion. Payment banks will complement universal banks; whereas small finance banks will be similar to the existing commercial leaders and will undertake basic banking activities of accepting deposits and lending to un-served and undeserved sections. International behavior of such types of banks exhibit that the payment banks will need to invest considerable amount to create and train Bank Mitr networks in rural centers and wait at least five years for the business to be above break-even level. A strong network of last mile banking agents to serve the underpenetrated area and unserved populace will be formed.
What are the basic few challenges faced by the banking industry?
It is pertinent to discuss on the gaps and challenges of financial literacy and the resources necessary to accelerate the pace and spread of it. Thus, the prime objective before all concerned is to see that the overdrive of 20 crores of bank accounts are kept away from dormancy, i.e. to reduce the zero balance accounts and link and habituate the people to savings and credit facilities of the formal banking channels. The primary challenge that’s being faced after reaching the benchmark for PMJDY is to educate crores of account holders to transact and keep the account and go for their individual economic upliftment while getting various benefits of government schemes. There is a need for shift from access to banking to usage of banking at present and this itself is an imperative issue now.
To enable keeping all the accounts fully active the banks are to provide adequate number of BC outlets put in place robust and effective system of business correspondents and provide with interoperable micro ATMs and engage Bank Mitrs beside remunerating them adequately, so that issues like attrition and trust deficit are done away with. Operation of accounts at regular interval through Rupay Cards is the single point issue to get benefit of insurance claims. Thus, insurance of RuPay Cards and PINs, knowledge of using Rupay Cards and operational aspects need to be developed among the customers.