Business   

Banks must hasten inclusive practices

Exercise should cover more than no-frills accounts

FINANCIAL INCLUSION has become a topical issue in India. Many banks have either announced their intention to launch or have already offered a scheme of "no-frills accounts'' for depositors. This is only a beginning. Issues of financial inclusion — the delivery of financial services at an affordable cost to the vast sections of disadvantaged and low income groups — are more complex and cannot be addressed by relatively easy-to-follow measures alone such as liberal bank account opening rules and insistence on negligible balances. While opening such accounts banks will not insist on the rules of introduction with the same vigour as they would for normal accounts.

These and other directives to "simplify'' banking procedures will, at a practical level, go against recent trends in commercial banking where banks have, for a variety of reasons, been pursuing strategies of differentiation if not outright discrimination among their clientele.

Discriminatory treatment

The first and the most recognisable one has been to treat the well heeled customer on an entirely different footing from ordinary customers. Business considerations may dictate so but favoured treatment to one segment ought not to come at the expense, in this case, of others. But this is precisely what has been happening. Emergence of private banking and the provision of value added services, concessions in, if not waiver of, certain bank charges and many other concessions are all meant to woo the rich.

In fact the moves towards universal banking (where some banks position themselves as financial supermarkets) are predicated on the belief that many of their well-heeled customers would find it convenient to meet all their requirements under "one roof.''

Nothing wrong with all these, but the preoccupation with the rich has not merely led to the neglect of other customers but in several cases has actively discouraged them from continuing their relationships.

The following anecdotal evidence of the past few years will illustrate. When State Bank of India and a few other government banks opened dedicated personal banking branches, they were obviously targeting their well- to-do clientele.

There were complaints from a few existing customers that they were asked to shift their accounts to other branches unless they kept a minimum balance of Rs. 30,000 or so. Such stipulations are meant to be differentiation techniques, the idea being that conferring "exclusivity'' on one section would encourage more of their ilk to bank with the same branch.

When ATMs first arrived in India, banks offering them asked their customers who wanted them to maintain a minimum balance of Rs.15,000.Over time and with competition the barriers have come down but evidently the technology involved in providing the service does not come free.

Somewhere and in an opaque manner all their customers, including those who have not benefited by the new technology, are bearing the cost.

The flip side to the strategy is this. Not only are some loyal customers alienated, there is the critical issue of how high should the norms be fixed for the particular branch of the bank to be exclusive.

For the government owned banks, it has been a question of catching up with the private and foreign banks.

Fast growing segment

That is a game, which, in the Indian context can, be taken to ridiculous lengths. A leading international bank seeks private banking clients, but only those who have a minimum of $5 million.

This is of course targeted at those possessing petrodollars and possibly other industrialists and businessmen. Since private banking is said to be the fastest growing segment among financial services in the Asia Pacific region, it may not be long before some banks in India — hopefully not the government owned banks — start emulating their counterparts.

However justified it may be in practice, the thrust on private banking with its implicit bias in favour of the rich can only alienate vast segments of society in India.

C. R. L. NARASIMHAN

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

TRAI's new initiatives on convergence
What is convergence?
Anomalies in administering service tax
Banks must hasten inclusive practices
How is the ceiling on senior citizens reckoned?
Dark clouds loom over ore exporter

Copyright © 2006, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu