Poverty definition immaterial for financial inclusion: Rajan

The Governor spoke after meeting Queen Maxima of Netherlands, who is the UN Secretary General's Special Advocate for Inclusive Finance for Development

Amid the controversy over the definition of poverty, Reserve Bank of India (RBI) Governor Raghuram  Rajan on Wednesday said it did not matter whether there was a precise definition, but what mattered was extending financial services to the poor.

“It doesn’t matter that we have a precise definition. There’s so much demand for financial services in the country that we don’t need to delineate ‘you get it, you don’t’. Everybody needs it,” Rajan said.

The governor spoke after meeting Queen Maxima of the Netherlands, who is the UN Secretary-General’s Special Advocate for Inclusive Finance for Development, at the RBI headquarters here.

“Just creating an environment in which it can expand is enough. We have to work on creating that environment. But we don't need to choose between people. Whoever can benefit, they should get it,” Rajan said.

Last year, a debate broke out over the definition of poverty after a Planning Commission report said the overall number of poor households declined from 37 per cent in 2004-05 to around 22 per cent in 2011-12. The figures were arrived at after applying the Suresh Tendulkar committee’s methodology for estimating poverty to draw the poverty line.

“We have to work on creating that environment but we don’t need to choose between the people,” Rajan added.

Queen Maxima appreciated the approaches adopted in the country to achieve financial inclusion goals and specifically mentioned the use of prepaid cards.

“I am happy to see the good work being done in the direction of financial literacy to achieve the inclusion goals,” the Dutch queen said.

She called for more innovative efforts at making financial products available to low-income households.

The government and RBI have been driving financial inclusion through the banking system and banks are required to submit a financial inclusion plan, duly approved by the board.

RBI has relaxed the branch authorisation policy and banks do not require prior permission to open branches in centres with a population of less than 1 lakh. To further step up the opening of branches in rural areas, banks have been mandated to open at least 25 per cent of their new branches in unbanked rural centres.

In the Annual Policy Statement for 2013-14, banks have been advised to consider frontloading the opening of branches in unbanked rural centres over a three year cycle co-terminus with their financial inclusion plans.

In the first phase, banks were advised to draw up a roadmap for providing banking services in every village having a population of over 2,000 by March 2010. According to the central bank, banks have successfully met this target and have covered 74398 unbanked villages.

In the second phase, roadmap has been prepared for covering remaining unbanked villages that is, with population of less than 2,000 in a time bound manner.