Financial inclusion: RBI asks banks to review plans

The Reserve Bank of India (RBI) has asked all banks to go back to their boards and re-work their plans on financial inclusion.

In order to increase banking penetration and promote financial inclusion, the central bank had asked both public and private sector banks to present their financial inclusion plans (FIP) for the next three years, duly approved by their respective boards by March 31. After going through the proposed plans, the regulator has now asked the banks to review them.

In the drafts forwarded to the RBI, banks had indicated the number of villages — with a population of at least 2,000 but without banking facilities — where they planned to extend their services.

State Bank of India (SBI), the country’s largest lender, planned to extend its footprint to 11,943 villages in this financial year.

However, K C Chakrabarty, deputy governor of RBI, who is spearheading the central bank’s financial inclusion drive, said the targets need not be changed.

“It does not mean the target needs to be changed but may be the approach or the emphasis needs to be changed,” Chakrabarty told Business Standard. Banks have to submit their revised plan by the end of this month.

According to Chakrabarty, who has reviewed FIPs of all banks, said Punjab National Bank’s coverage plan is the most ambitious one. “We need to have a sustained structure for financial inclusion. The technology is available. What we require is a business model and a delivery model,” Chakrabarty said.

He also emphasised on product innovation by banks to meet customer needs.

“When we are talking of reaching to the people we must understand what type of problems are faced by customers and what is the solution.”

The government has embarked on an ambitious plan to cover all villages having a population of more than 2,000 to have banking facilities by March 31, 2012. There are about 64,000 such villages in the country lacking a formal banking channel.

Banks were advised by the RBI to devise FIPs in line with their business strategy and to make it an integral part of their corporate plans, but it had not imposed a uniform model so that each bank is able to build its own strategy in line with its business model and comparative advantage.

Banks were also required to include criteria on financial inclusion in the performance evaluation of their field staff, RBI had said in its annual policy statement in April.