Financial inclusion plan key for bank licences: D Subbarao

Tells banks it is not an obligation and asks them to open at least 25% branches in villages

Reserve Bank of India (RBI) Governor D Subbarao today said the financial inclusion plan would be a key criterion in issuing new bank licences. “Banks should be led more by moral persuasion than government regulation. There is a fortune at the bottom of the pyramid,” Subbarao said at a function on financial inclusion, organised by the World Bank and Organisation of Economic Co-operation and Development (OECD).

Subbarao said banks still see financial inclusion as an obligation, rather than a business opportunity.

“We have 600,000 habitations. Only 60,000 of them have bank branches. The extent of financial inclusion (needed) in India is quite staggering. Financial inclusion is a win-win situation for the poor, banks and the government. Financial inclusion would reduce the leakages in redistribution programmes. But, financial inclusion is less meaningful when most bank accounts remain inactive. The Unique Identification Number (project) is expected to simplify the process.” He said banks should open at least 25 per cent of their branches in villages with a population of less than 10,000.

“After the financial crisis, central banks are becoming increasingly aware of the link between financial stability and financial literacy. We have asked banks to create a financial literacy centre in every district. There are 35,000 rural banks in the country. They should run a financial literacy camp in every village every month.”

Subbarao said RBI had always been on the forefront of the campaign for financial inclusion.

RBI had issued the new guidelines for banking licences in February. In the guidelines, RBI had said, “Applicants for new bank licences will be required to furnish their business plans for the banks, along with their applications. The business plan will have to address how the bank proposes to achieve financial inclusion.”