Citizens' Issues
Banks want crutches to hobble towards financial inclusion

Confidence levels among bankers seem to be at an all-time low about carrying out the financial inclusion plan; some even call for non-banking entities to be roped in for the effort

The optimism among the banking fraternity about achieving financial inclusion seems to have waned. Head honchos of several leading banks have raised concerns about the current situation on this front and have also admitted to their inability to do the job themselves.

On the occasion of the FICCI-IBA Conference on 'Global Banking: Paradigm Shift' held in Mumbai today, some bankers expressed their views on the role of banks in the coming decade, of which financial inclusion is a key function being performed by banks. A tinge of exasperation and restlessness was fairly evident in the discussion as the bankers spoke about the 'progress' being made in this regard. Clearly, the confidence and optimism of a few years ago has given way to a sort of uneasiness, as bankers are being forced to rethink their strategies.

Saurabh Tripathi, partner and director, BCG India highlighted that bankers are not confident of being able to find a solution to serve the financially excluded in a profitable manner. "The possibility of creating a low-cost model for financial inclusion cannot be done with incremental changes in the existing models. 'No-frilling' is not going to work. The industry needs to think differently about creating a business model from scratch for this business, which has very low ticket size."

Mr Tripathi feels that this will not happen without the government supporting the effort in a significant manner. "Financial inclusion is not the solution to inclusive growth. It is just one of the ingredients. While the spotlight is on the banking industry to find a solution to financial inclusion, more efforts are required from the government to create rural infrastructure and livelihoods." 

Chanda Kochhar, CEO, ICICI Bank said, "It is a fact that very little has been done in terms of financial inclusion, compared to the needs of the country. Every one is still trying to find models that make this activity more economically viable.

Can things be done very differently and on a much larger scale? I think they can be, because there is a tipping point for everything. Now that we have the requisite technology and the regulations in place, there is enough scope to get more things done."

Commenting about the need to get non-banking entities involved in the process, Ms Kochhar said, "My strong belief is that it essentially has to be a bank-led model. But the bank needs to work with all entities in the ecosystem. For instance, banks and telecom companies need to operate together to facilitate the remittance part of financial inclusion. True financial inclusion means covering every need - saving, lending, insurance, remittance etc."

Rana Kapoor, managing director and CEO, Yes Bank believes that banks themselves cannot create a viable model around financial inclusion. "I believe financial inclusion efforts have to be based on market principles. I don't think that banks will ever be able to compete in this business unless there is an architecture which is somewhat subsidised. For banks, it will be very difficult to be able to create an economically-viable financial inclusion model. But if we are allowed to set up NBFCs and different cost structures and electronic interfaces, some of these things can be achieved."




7 years ago

Mr. kapoor wants to set up NBFC s. we had any number of NRFCs specially in Chennai which cheated common people by collecting deposits promising attractive rates of interest. They closed shop and people lost their lifelong savings. Can somebody enlighten as to what they did with all the money collected? Surely it ran to several thousands of crores. Instead of starting new NBFCs the closed shops can be revived by making the proprietors accountable for their misdeeds. Evidently several thousands of crores cannot vanish in thin air. It is not clear why no one including the PM talks about it.



In Reply to pantulu 7 years ago

Where is the time for our honourable PM to worry about all these things.He is more bothered to be subservient to the US in singning the nuclear deal and ensuring passing the nuclear liability bill in the parliament with favourable terms to the US and other EU countries.He is a honest man subservient to the other ministers in his cabinet who are looting the country.Where are the competent people in our country to lead the nation as ministers.Look at BJP falling at the feet of Sibu Soren and Reddy brothers.We are relatively blessed to have MMS as PM.If you voluntarily put your money in the greedy hands of the NBFCs offering huge return even God cannot help forget the PM


In Reply to K NARAYANAN 7 years ago

The incidents occured in 1996. At that point of time RBF was not considered to be a cheat. My point is how so much money can simply vanish and there is no one to question in our wonderful system. We saw some MP talking about Margadarsi Chit in Hyderabad though no depositor lost any money. We have yet to see someone talking about various NBFCs which swallowed thousands of crores deposited by ordinary people. I simply disagree with the suggestion that they do not have time to concentrate on the problems faced by common people. They do not have the will to do something constrictive.

Wipro may pass the rise in costs from visa fees to clients

New Delhi: The country's third largest software exporter Wipro today said it may increase the billing rates of clients to mitigate the extra cost arising due to the hike in visa fee by the US government, reports PTI.

"We will speak to our customers and seek price adjustments for the extra cost...we will work with them to see how to mitigate it (cost due to increased visa fee)," Wipro CFO Suresh Senapaty told reporters at the sidelines of a Confederation of Indian Industries (CII) event.

Mr Senapaty added that the US Border Security Bill, which will lead to a hike in visa fees, will have moderate impact in the current fiscal on the IT firm.

However, he warned that "next year there will be impact."

Notwithstanding the increased cost, he said that Wipro will continue to invest in the US.

"Our medium and long-term plan is to have more and more local hiring. So at some stage we should be able to mitigate the high visa cost," he said.

The Indian IT industry had slammed the US government's proposal to sharply increase visa fee to raise funds for its border security needs.

The Border Security Bill increased the visa fee to be about $4,500 per visa from $2,500 currently.

The Bill aims to raise about $600 million by increasing fee for H-1B and L-1 visas.

Earlier, IT industry body Nasscom had projected that the impact of the Border Security Bill on Indian IT firms could be as high as $200-250 million per year.

Several Indian IT firms avail H-1B and L-1 visas in thousands every year to fly their software engineers to the US for working at their clients' locations as on-site techies.


Are Indian lenders ready for global banking?

India is one of the unacknowledged drivers of global recovery. There has been an impressive improvement in the quality and quantum of financial intermediation. However, the question is whether this phenomenon will help Indian banks to become global players

Are Indian lenders ready for global banking? This was the question asked by participants in the banking conference organised by the Indian Banks' Association and the Federation of Indian Chambers of Commerce and Industry (FICCI) in Mumbai.

The answer to this question is 'yes' and 'no'. Yes, because, despite making inroads into all parts of the country, there still is an opportunity to tap the unbanked segment and bring a huge number of people into the banking system. No, because, there is a dearth of skilled workforce and capital in the industry, said participants.

Speaking about the shortage of skilled manpower in banking, OP Bhatt, chairman, State Bank of India (SBI) said, "We do not have skilled manpower in the country and it is a challenge to build a pool of well-trained employees, which is a challenge for the Indian banking system. In addition, we also lack such institutions which can teach the necessary skills to students."

Last year, SBI, the country's largest lender, recruited a number of people. However, Mr Bhatt said that is not enough and the bank needs to recruit "thousands" of people. "We need to recruit more manpower, in large numbers, train them. We also need to build a leadership pipeline so that all employees are in sync with the management and vice versa," the SBI chairman said.

Retaining talent may be a challenge for public sector banks (PSBs), where the salary structure and other perquisites are very low compared with private banks. Warning that PSBs may lose employees to private sector lenders, the Reserve Bank of India (RBI) governor Dr D Subbarao said there is a need to revisit the compensation structure in PSBs.

He said, "The executive compensation in the public sector, as is well known, is lower than that in the private sector. Notwithstanding the historical reasons for this, there is perhaps a good reason to revisit this. If public sector banks are required to compete with private banks on a level playing field, there is a good case for compensating them too on a competitive basis. There is also the risk that if public sector bank compensation is not improved, the public sector may lose talent to the private sector."

The RBI governor said that a "flawed incentive framework" underlying the compensation structures in advanced country banking sectors fuelled the economic crisis. "With the benefit of hindsight, the compensation framework overlooked the perverse incentives it would engender. Bank executives focused too much on short-term profits and compromised long-term interests with disastrous consequences," he added.

Following the crisis, the Financial Stability Board (FSB) has evolved a set of principles to govern compensation practices and the Basel Committee has developed a methodology for assessing compliance with these principles. The proposed framework involves increasing the proportion of variable pay, aligning it with long-term value creation and instituting deferral and claw-back clauses to offset future losses caused by executives, Dr Subbarao said. 

Earlier, speaking about the challenges faced by Indian banks, Dr Amit Mitra, secretary general, FICCI, said that the country needs to improve the savings ratio, develop bond markets and move banking towards 'mass banking' rather that 'class banking'. Over the coming decade, said Dr Mitra, we need to encourage micro, small and medium enterprises (MSMEs) and be ready to handle large infrastructure projects, which require long-term financing. But the question is whether Indian banks are ready for this change. 

The RBI governor also spoke about the proposed Basel-III norms. He said, "Basel III reflects the lessons of the crisis, and I believe it is going to be quite game-changing. However, as I indicated, not all the reform measures are going to be binding constraints for us."

According to the Basel Committee on Banking Supervision (BCBS) proposal, under Basel III, banks are required to hold more and better quality capital and to carry more liquid assets. It will also limit their (banks') advantage and mandate them to build up capital buffers in good times that can be drawn down in periods of stress.

"The buffers built into the reform package are expected to provide automatic stabilisers obviating the need for external support during a downturn. Also, as the buffers will be built up over time and during the upturn of the business cycle, the system should not be unduly stretched," Dr Subbarao said.

Speaking about the scope for Indian banks over the next decade, Mr Bhatt said that young people would drive economic growth. Over the next decade, home loans could top volumes of
$1 trillion in India, he said.

Banks are supporting infrastructure-related activities in the country and the sector will need finances worth over $1 trillion in the next five years, especially in urban areas, Mr Bhatt said. As more and more people are shifting to urban areas from rural areas, there is a need to develop basic infrastructure like roads, sanitation and drinking water, he added.

Terming technology as the "backbone of the banking industry", the SBI chairman said the banking system cannot survive without the help of technology and there is a need for better and cost-effective technology.


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