RBI’s New Financial Inclusion Committee: Rife with conflicts of interests

While Dr Raghuram Rajan is trying to give out banking licences in a fair and transparent manner, several members of the newly appointed financial inclusion committee are associated with groups looking to get a banking licence. The institutions that some of the committee members are associated with are focusing on the micro-finance/financial inclusion segment for their commercial interests, creating more potential conflicts of interest

I was impressed when Kumar Mangalam Birla, chairman of the Aditya Birla Group, resigned from the Reserve Bank of India (RBI)’s central board of directors. He had been appointed to the Central Bank’s board in June 2006. The resignation came several weeks after one of the companies in his group—Aditya Birla Nuvo—had applied for a banking licence. The group and company had all along maintained that there is no conflict of interest though. However, when the Chairman of a Group which applies for a Banking license has been serving as a Director of the RBI for the last several years and continues to be a director even while the applications are being processed, there is most certainly a conflict of interest. Anyway, it was good that finally Mr Birla resigned and with that the conflict of interest issue concerning ‘new banking licenses’ appeared to have died down.  Or so one thought!


Dr Raghuram Rajan’s speech on 4th September assured that a highly transparent process would eliminate conflicts of interest in the grant of banking licenses. He said, “The RBI will give out new bank licenses as soon as consistent with the highest standards of transparency and diligence. We are in the process of constituting an external committee…this committee will screen licence applicants after an initial compilation of applications by the RBI staff. The external committee will make recommendations to the RBI governor and deputy governors, and we will propose the final slate to the Committee of the RBI Central Board.”


Well, since Dr Rajan raised a lot of expectations, we only wish conflicts of interests would be eliminated elsewhere too. The fact is, several members of the recently appointed RBI financial inclusion committee have direct (as well as indirect) links with institutions that have applied for (and/or partnered with others in the application for) banking licenses.


Remember, the committee is chaired by former banker Nachiket Mor, who is associated with Sughavazhvu Healthcare (which also appears to have a relationship to IFMR Trust1), besides being part of the 19-member central board of the Reserve Bank. The 13-member committee has some big names, including former Citigroup chief Vikram Pandit and Zia Mody, chief of corporate law firm AZB & Partners. Other bankers in the committee include Sunil Kaushal, CEO, Standard Chartered Bank India; SS Mundra, chairman and managing director, Bank of Baroda and Shikha Sharma, managing director and CEO, Axis Bank. The committee also has Bindu Ananth, president, IFMR Trust; Prakash Bakshi, chairman, NABARD; Bharat Doshi, chairman, Mahindra & Mahindra Financial Services; AP Hota, managing director and CEO, National Payments Corporation of India; Roopa Kudva, managing director and CEO, CRISIL Ltd; Ramesh Ramanathan, chairman, Janalakshmi Financial Services.


How strange that while Dr Rajan is trying to give out banking licences in a fair and transparent manner, several members of the newly appointed financial inclusion committee, themselves are associated with groups looking to get a new banking licence.

  • Pandit, who had steered Citigroup during the financial crisis of 2008-09 and moved out of the bank last year, is spearheading the JM Financial’s entry into the Indian banking sector
  • Ramesh Ramanathan is the promoter of microfinance institution Janalakshmi Financial Services, which is one of the 27 companies that have applied for a banking licence.
  • Ms Bindu Ananth is the Chair of the IFMR Trust and as per the website of IFMR trust, one of the trust’s subsidiary companies (IFMR Capital – has a strong relationship with Janalakshmi Financial Services Private Ltd, which has applied for a banking license. Ms Bindu Ananth is also on the board of IFMR Capital.
  • Mrs Shika Sharma is the CEO of AXIS Bank which has been one of the major lenders to Bandhan Financial Services Pvt Ltd, which is also an applicant for a banking license. AXIS bank is also very closely involved with Bandhan in other initiatives as Bandhan’s own website suggests.
  • Besides, the respective websites indicate that Mrs Rama Bijapurkar is a common independent director serving on the boards of CRISIL, Janalakshmi Financial Services Pvt Ltd and Mahindra & Mahindra Financial Services Ltd. Ms Roopa Kudva, Managing Director & CEO, CRISIL is a member of the committee, as is Mr Bharat Doshi, CEO of Mahindra and Mahindra Financial Services Ltd.


The larger point here is that there are multiple relationships between people on the recently named new financial inclusion committee and some of the entities that have directly applied for a banking license. Given these, I am not sure that one will be able to take Dr Rajan’s statement—regarding the highest standards of transparency and diligence to be followed in the grant of banking licenses—with a great degree of seriousness.


A second kind of conflict of interest


There is a possibility of a second kind of conflict of interest here. Many of the members of the committee are involved (directly or indirectly) with institutions providing commercial services to low income people - in other words, engaged in the business of ‘financial inclusion’. Some examples:

  • IFMR Trust has subsidiaries which invest in MFIs and other channels like their own rural channel and could stand to gain from any suitable recommendation made by the financial inclusion committee
  • •  “ICTPH and Sughavazhvu are working with IFMR Rural Finance, the Kshetriya Gramin Financial Services (KGFS) network of small branch-based village banks and insurance partners, to design and market a product that will couple fixed-price, pre-paid primary care and insurance mechanisms to pool risk for secondary and tertiary care.”2
  • Even if Janalakshmi does not get a banking licence, it will still be involved in financial inclusion efforts and could stand to gain from any suitable recommendation made by the financial inclusion committee
  • AXIS Bank has been one of the major lenders to micro-finance sector and what applies to AXIS bank will apply to the other banks as well (Standard Chartered and others). Again, all of these banks could stand to gain from any suitable recommendation made by the committee as also other financial service providers such as Mahindra and Mahindra Financial Services Ltd
  • CRISIL provides credit ratings services to the low income financial services sector including MFIs. It is also involved in rating of market and financial instruments that MFIs are increasingly getting to use. Naturally, they could also stand to gain from any suitable recommendation made by the committee


Therefore, institutions such as the above—with whom the financial inclusion committee members have a known and proven relationshipwhich are involved in the business of financial inclusion could stand to benefit from the recommendation of the committee to the RBI especially with regard to norms and procedures regarding regulation and monitoring of financial inclusion efforts (if the RBI were to implement these). And this is precisely what happened with MFIs, which resulted in lax supervision by RBI and culminated in the 2010 Andhra Pradesh micro-finance crisis.


To set the record straight, I have great professional regard for the members of the new financial inclusion committee. However, I am not sure that it is appropriate for a committee composed primarily of individuals, belonging to a set of highly inter-related service providers (financial and related services like credit rating, legal consulting for equity, health insurance etc), to alone set the regulatory and monitoring terms for a broad area (financial inclusion) where they currently operate or could do so in the future!


I am indeed shocked that a professional organisation like the RBI has created such a lopsided committee in the first place! What is really conspicuous is the lack of people representing clients, or small businesses or their associations, chambers of commerce and those with an experience in the rural/urban informal sectors and related areas. Protection of clients is a very critical issue and the lack of sufficient attention to this is what perhaps caused the US sub-prime and 2010 AP micro-finance crisis.


Committees, with a large and important mandate such as this one, need to have a diversity to have maximum effectiveness. There must be checks and balances and there is a strong need for pluralism. Packing a financial inclusion committee completely with (inter-related) people - whose institutions are themselves involved in the delivery (and related aspects) of financial services - could become a recipe for disaster as clearly demonstrated by past crisis situations.


Indeed, this committee itself is redundant. If at all the RBI is really interested in financial inclusion, it should push for concrete ground level action on plans already made (and gathering dust in the shelves) using products, processes and institutions that already exist. Even a mid-term review of the Dr Rangarajan Committee Report on Financial Inclusion could be seriously considered by the RBI so that we know what has been achieved on the ground vis-a-vis the ‘financial inclusion’ vision that was meticulously developed a few years ago. Further, planning and design can be made as we go along and I sincerely hope that Dr Rajan would strongly emphasise ‘action’ rather than unveiling yet another report of yet another committee! 



[1] See end note below for a complete explanation of the relationship between IFMR Trust and SughaVazhvu Health Care Pvt. Ltd.

[2] Quoted from State of the Sector Report, 2012, Sage Publications, page 116. According to this source, The IKP Centre for Technologies in Public Health (ICTPH) and partner Sughavazhvu Health Care are demonstrating an innovative managed healthcare model designed to provide high-quality, cohesive and low-cost health services to rural populations.  SughaVazhvu Health Care Pvt. Ltd. is a wholly owned subsidiary of IKP Trust.” (page 116). Independently, The websites of ICTPH (,  SughaVazhvu Health Care Pvt. Ltd ( and IKP Trust ( show Dr Nachiket Mor as a director. Additionally, the websites of ICAAP ( shows Dr Nachiket Mor as a director and also says under about us that: IKP Centre for Advancement in Agricultural Practices (ICAAP) ( is jointly owned by IKP Trust (51%) and IFMR Trust (49%) ( and is a Company under Section 25 of the Companies Act (1956).” One final point – Ms Sucharita Mukherjee is a director serving on the boards of IFMR Trust and ICTPH.  


(Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward—is the first authentic compendium on the history of microfinance in India and its possible future.)

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Hugh Sinclair

4 years ago

A thought-provoking and yet disappointing article. However, could we have expected any better? This is the standard operating procedure in financial services, and in particular in the microfinance sector. This problem is not unique to India, and it will indeed lead to more crises. Transparency and regulation, particularly self-regulation, is about giving the appearance of "all is well" while maintaining healthy profit margins for the insiders that broadly run the sector and reap the profits. The net losers are the poor, who are the main group of people excluded from this body. Of course.


Ramesh S Arunachalam

In Reply to Hugh Sinclair 4 years ago

Thanks Hugh. The practice of insiders developing regulation will have to stop. India is going through a lot of changes and the young India is impatient as can be seen even from the political space. So, Change will come and if regulators and others dont change, they will get left behind. I strongly believed that the RBI under Dr Rajan will set the highest standards. He in fact said in his inaugural speech, “But I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism,” (quoted from Dr Rajan's speech of 4th September 2013)

I am very hopeful that Dr Rajan will recognise the right thing - the huge conflicts of interest that exist and will also hopefully do the needful

Saif Ahmed

4 years ago

I would also like to add to Mr. Ramesh's point on such committees having more diversity was the need to also look at the religious community angle to financial inclusion with Indian Muslims being at the lowest rung as mentioned by the Sachar Committee Report - what is needed to financially include Indian Muslims is the provison of Islamic finance in the country that is a proven alternative financial model in various parts of the world. The committee would have benefited by having an expert/Islamic banker in its membership as you cannot have financial inclusion by including the needs of the largest minority in the country.
Saif Ahmed, Bangalore



In Reply to Saif Ahmed 4 years ago

Islamic finance is costlier, less efficient and isn't really different except the cash flows. If Muslims are discriminated for the lack of Islamic finance, as you seem to believe, then perhaps they are also discriminated because we don't have sharia. However, as a matter of fact, then there are more than 50 Islamic nations for them, India isn't the right choice.

Ramesh S Arunachalam

In Reply to gunjan 4 years ago

Mr Gunjan, I disagree and I believe there are many good facets in islamic banking also. The concept of sharing risk with the borrower comes from Islamic finance and i have seen it work wonders in many places including Afghanistan, when I was involved in setting up MISFA, way back in 2003, with support from the world bank and other stakeholders.

Yerram Raju Behara

4 years ago

Ramesh has hit the nail on the head and it is for the RBI to take the call. The new players in financial inclusion, rural cooperatives and B Cs should have their spokesman on the Committee.


4 years ago

Excellent article

Smita Premchander

4 years ago

This article is very pertinent. It is important that we call the bluff, first of all the Committee is not even needed... and secondly, why fill it with people from commercial microfinance alone, where are the representatives of cooperatives and cooperative banks? And could the country not field people who dont have conflict of interests? Or maybe this is an exercise in promoting vested interests?

Ramesh S Arunachalam

4 years ago

Please see related article

M&M to hike vehicle prices by Rs6,000 to Rs20,000 from October

The company is facing margin pressure due to higher input costs, devaluation of the rupee and increase in some raw material costs

Mahindra & Mahindra (M&M), India's largest utility vehicle (UV) manufacturer, said it would increase  prices of its passenger as well as its commercial vehicles by up to 2%. This increase would be in the range of Rs6,000 to Rs20,000, depending on the model  from 1 October 2013. The increase is primarily due to higher input costs, devaluation of the rupee and increase in some raw material costs.

Pravin Shah, chief executive for automotive division at M&M said, “We have been holding back prices for a while but now it has become necessary to raise them due to increasing input costs, devaluation of the rupee and increase in some raw material costs. As always, Mahindra remains committed to its customers".

Maruti Suzuki (India) Ltd, the country’s largest carmaker, too had said that it would increase prices of all its vehicles from first week of October by up to Rs10,000 mainly due to the depreciation of the rupee.


Economy & Nation Exclusive
NSEL investors unlikely to receive more than 60% of their money
Indications are that the government may soon drop the kid gloves treatment to NSEL and its management and allow the CBI to take over. If that happens, most investors will not get anything back from their investment
Even as the government begins to distance itself from the woes of National Spot Exchange Ltd (NSEL) investors, we learn that actual recovery, in the form of physical assets, is unlikely to be more than 60%.  Moreover, this information is already known to the investigation agencies and the government. It may be recalled that Jignesh Shah and his team borrowed a lot of time by saying that it was imperative for all involved to be on the same side so that recovery of assets would give investors their money back. Our information from insiders of the Financial Technologies–MCX (FT-MCX) group indicate that this 60% is probably the most optimistic estimate. 
Further, we learn that Mr Shah has been negotiating with top brokers such as Anand Rathi Financial Services Ltd, Motilal Oswal Securities Ltd, India Infoline Ltd and others to accept a 20% haircut on the money recoverable.  Repeated talks with the brokers have failed, since the brokers refused to accept the haircut and wanted to pass it on to investors. Some high-networth individual (HNI) investors, who were consulted, also refused to accept the loss. The FT-MCX group had suggested that brokerage houses must take part of the loss and refund money to their investors. However, brokers want to pass on the loss to their HNI investors. From our interaction, it would seem that those who have invested over Rs1 crore in NSEL are bound to take a significant hit. 
Interesting, while NSEL investors have refrained from filing litigation against brokers, on the assumption that they are all working and negotiating on the same side, this is likely to be far from the truth. Indications are that the government may soon drop the kid gloves treatment to NSEL and its management and allow the Central Bureau of Investigation (CBI) to take over. If that happens, most investors will end up kissing their money goodbye. In the history of scam investigations, whenever the CBI has taken over a case, there is no question of investors’ getting back their money. 
The present situation raises several questions. Although multiple agencies including the Income Tax (I-T) department, CBI, Enforcement Directorate (ED), Forward Markets Commission (FMC) and the finance ministry have investigated NSEL, there is no authentic information in the public domain about the actual assets available with defaulters, the valuation of these assets and whether enough pressure has been brought to bear on them to transfer these to NSEL.  
There are also frequent rumours that several powerful people who had invested in NSEL may have used their clout to get their money back. These persons too may have been fooled by its appearance of a regulated exchange with a genuine trade guarantee, prefixed by the word ‘National’. However, it seems increasingly as though NSEL investors, who live in hope that their informal forum will get them justice, may be in for a shock. This scenario could only change if the FT-MCX group is also forced to add its own assets to the kitty to make good the loss. But there are no indicators that the government wants to bring such pressure on the group. One indicator of this is that Jignesh Shah, founder of FT-MCX blames NSEL's former managing director Anjani Sinha and a few others who have been sacked and have also admitted to their actions, but no action has been initiated against them either.
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4 years ago

I am reminded of a story in which, a monkey gets away with a big loot & the other participants just watching the disappearance of their money.Poor NSEL investors !!

Dilipkumar Shah

4 years ago

ICAI has not conduscted any inquiry against auditors of NSEL for 2011-12, because no complaint has been lodged. such a scam would not have taken place in one year. ould you please take up the matter furhter.

Jeetendra Agarwal

4 years ago

It is very well evident that the government is in hand and glove with NSEL and let us wait for a much bigger scam in MCX. Strangely enough which is being allowed to go on even after knowing the owner of both the exchange is the same person.
Height of Corruption......

D N dalal

4 years ago

As can be seen from this article that you have the requisite network to get the information.

If so, kindly lead the battle to expose (i) the precise fraud committed, (ii) in what manner it was committed, and (iii) who were IN FACT responsible for the same.

Make sure that the Government is not able to hand out kid gloves treatment to those responsible.


4 years ago

Monopoly of NSE ?



In Reply to Harish 4 years ago


the nse and bse and sebi take the investors for an ride and the law makers are law brakers this loss by stock brokers is not actual loss they cheat the investors if the investors is online client they trade in the client account as offline with haircut margins and vice versa and this profit is taken to brokers account and literally we can say that all the accounts of stock brokers firma are fudged for which ICAI ia also well aware and they are also party to it now days even Chartered accountant certification of balance sheet and other certification dependability is under million dollar question so as whole morale integrity honesty and accountabiltiy is totally lost after the advent of Shri ManMohan sing where they themself cheated the public cash for vote scam everything is hushed up even an learned person like Manmohan sing and Chidamabaram stooping to cheap politics is pitable state of affiars people should teach an fitting lesson and GOD should punish them let us pray for evil doers to get punishement in the current life itself is our sincere prayers would pay rewqard

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