Opinion - Editorials   

Financial inclusion an abiding virtue

It is the context rather than the message that makes the Reserve Bank of India's recent exhortation to banks to follow inclusive practices particularly significant. Financial inclusion, in the sense of extending banking products at an affordable cost to the vast sections of disadvantaged and low income groups, is not new to India. For more than two decades after bank nationalisation (1969), Indian banking consciously sought to position itself as a provider of services to the many unreached sections. The great wave of branch expansion that the government-owned banks undertook was without a parallel anywhere in the world. That not only had the salutary effect of extending mainline banks' geographical reach, but also gave the not-so-well-off sections of the population access to modern banking. In other ways too, public sector banks were in the forefront of reaching out to sections that were once neglected. Designing new, innovative loan products for small-scale and agriculture sectors was an outstanding example. On the deposits side, customers could open savings bank accounts with as little as Rs.5. While none of these measures aimed at broad basing their clientele has been withdrawn, Indian banks might be laying far less emphasis on inclusive practices. There could be many reasons for this reorientation of their priorities. The reform era's emphasis on profitability and stringent accounting standards have forced banks to consolidate before expanding and reaching out to wider sections of society.

The first step at reinculcating the virtues of financial inclusion has been to ask banks to reach out to all sections through "a no frills" bank account. While the modalities of implementing it are being worked out, it is important to realise that financial inclusion is much more than that and ought to be conceptualised and executed at different levels. Most important perhaps is to reorient the attitudes of the operating staff to make them appreciate the benefits of extending the reach to wider sections of the society. Fortunately, all public sector banks now have access to the latest technology, the absence of which had been a constraint on their expansion initiatives. In the developed countries there is a greater awareness of the positive role financial inclusion can play in empowering the low-income groups. Official policies in those countries actively promote inclusive practices, going as far as to give them statutory sanction. In the U.K. a dedicated fund has been set up to encourage inclusion and banks and credit unions have been assigned definite responsibilities. In the U.S., the Community Reinvestment Act prohibits discrimination by banks against low- and moderate-income groups, while in France it is a legal right for anyone to have a bank account. Clearly there is much to learn both from international developments and from the experience gained within the country during the first two decades after bank nationalisation.

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

Stories in this Section

Learning from Turkey
Financial inclusion an abiding virtue
India, Iran and the nuclear challenge
Congratulations
Right choice?
Of Qleanchit
Villainy in serials
"We are seeing the renaissance of Asia led by China and by India"

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