Financial inclusion, when will it be priority?

In 2010, RBI Governor Duvvuri Subbarao and Deputy Governor Kamalesh Chandra Chakrabarty had taken bankers head on when the latter adopted the stance that financial inclusion is unviable.  “Commerce for the poor is always more viable, more profitable than commerce for the rich.” Mr Chakrabarty is quoted as saying.

What is it that makes Indian banks shy away from extending technology to rural markets and capitalizing on vast untapped potential of rural India? With 70% of India’s population living in villages and these households having growing incomes, corporate should make a beeline to stroke demand for consumer goods specially jeeps, scooters, televisions, fans and even washing machines. There is also an increasing market for cosmetics and mobiles and with multi-brand retail channelizing over Rs 400 billion, it will surely be boom time for the rural populace.

In this scenario, banks can project themselves as facilitators and project an image of being caring, much like a family member by initiating jatras and forums to educate about thrift, saving, availing loans for education and building small enterprises; establishing kiosks so that even the semi-literate farmer gets a feel and convenience of an ATM. In one such programme, Syndicate Bank adopted a poor locality in Hyderabad and mobilized 2,000 new savings accounts.

At the other extreme, social control of interest rates on loans less than Rs 2 lakh, renders financial services to micro-clients uneconomical and hinders financial inclusion.  Another factor for serious consideration is whether co-operative banks are fulfilling the lacuna? Probably a common accounting system without external influence and audit procedures will help to provide the much-needed co-operative credit reform. While few reforms have led to diversification of financial services, rural banking yet, till date continues to receive step- motherly treatment from the banking industry.

Wholesome growth for wholesale banking

What is it that makes Indian industry take an optimistic view of its scope for growth in an economy riddled with inflation and a not-too-evolved range of capital finance products? Should foreign banks continue vying with Indian banks for a share of the wholesale banking pie, when other BRIC countries such as Russia and South Africa require minimal procedures for new ventures?

Players in the wholesale banking scenario in our country need to gear up, to cash in on opportunities as number of outbound acquisitions increase. Besides, as foreign trade gets bigger, it is imperative for wholesale banking to focus on trade and treasury requirements. But these are extremely minor challenges which can be easily overcome by the banking industry, if it has to make an impact in today’s fiercely competitive Asian market - one characterized by China’s steep growth of over 10% per annum in the next five years.  

However, despite revenue slowdown and a fall in market capitalisation in the last two years, the future of wholesale banking in India holds promise. One positive factor contributing to this is the simplified FDI regulations which have opened up avenues like deal structuring and treasury and trade finance. Banks can meet these challenges by developing high-end technology platforms and talent pools. An off-shoot is that banks have begun to pursue smaller or mid-sized corporates for funding.

Another heartening factor is infrastructure, the raison d’etre of wholesale banking which will get a massive fillip in this year’s Five Year Plan (2012-2017). This means big time project financing in terms of lending, debt syndication and capital raising. But are banks ready to take the leap? If yes, then wholesale banking which currently contributes to 30% of India’s total banking revenue will see a spurt more than double its value.