'Ill-conceived financial inclusion strategy may have negative social impact'

The Reserve Bank of India (RBI) wants commercial banks to view financial inclusion as a business opportunity and not a social obligation.

“The social costs and consequences of badly conceived and executed inclusion strategy could be enormous. Understanding what the potential consumer needs and why he needs it is one such knowledge input that is critically important,” said Subir Gokarn, deputy governor of RBI at a recent event.

He said that every aspect of a financial inclusion strategy – whether it is the design of products and services or the delivery mechanism – needs to be viewed in terms of the business opportunity that it offers and not as a deliverable that has been imposed on the service provider.

He also said commercial viability need not necessarily be viewed in terms of immediate cost and profitability calculations. Establishing a relationship with first-time consumers of financial products and services offers the opportunity to leverage this relationship into a wider set of financial transactions as at least some of these consumers move steadily up the income ladder, said Gokarn.

“In fact, in a high growth scenario, a high proportion of such households are likely to move quite quickly from very basic financial services to more and more sophisticated ones.”

Financial inclusion had taken centre stage since the RBI had mandated all commercial banks to cover all villages with a population of 2,000 and above by the end of FY 2012. Banks were also asked to prepare and submit their financial inclusion plans to RBI last year. Banks are currently in the process of implementing the plans.

To bring the unbanked population under the ambit of financial services, banks are offering no frills accounts and overdraft facilities on such accounts to make them more attractive. One need not maintain a minimum balance in these accounts.