Panel sets a/c target for banks in rural areas

The public sector and regional rural banks should open 250 new accounts every year per branch to provide credit and banking services to more marginal farmers, a top committee on financial inclusion led by economist C Rangarajan has suggested.

The recommendation is aimed at uplifting marginal farmers by providing credit through these accounts. The panel wants branches of state-run banks to continue the account opening spree for the next five years to include at least 55.7 million financially excluded households by 2012.

"Access to finance by the poor and vulnerable groups is a pre-requisite for poverty reduction and social cohesion. This is a modest target, which banks can achieve easily," Rangarajan, who heads the Prime Minister's Economic Advisory Council, said.

The remaining households, with such shifts as they may occur in the rural or urban populations, had to be covered by 2015, the committee recommended.

The recommendation, among many others, was submitted to the finance minister last month.

The committee has also proposed creation of two funds - Promotion and Development Fund and Financial Inclusion Technology Fund - of Rs 500 crore each with Nabard.

"The funds will be offered as a support to commercial banks for expansion of financial inclusion activities and technological innovation."

"We is drafting the guidelines for the funds and they should be operational in the next couple of months," R Krishnamurthy, chief general manager, Nabard, said.

The funds will be jointly contributed by the Centre, RBI and Nabard.

While the Centre and RBI would contribute 40% each, Nabard would contribute 20%, which will be funded through its annual surplus.

While suggesting a national mission on financial inclusion with a national rural financial inclusion plan, the committee stressed on the banking correspondent and facilitator models to extend financial services in unbanked areas.

"Adoption of appropriate technology would enable the branch to go where the customer is present instead of the other way round," Rangarajan said.

The committee has suggested relaxation of norms for expanding the coverage of these models and that banks should endeavour to have banking correspondent touch points in each of the 6 lakh villages in the country.