Private banks should play bigger role to raise banking reach: RBI

The Reserve Bank of India (RBI) has called for more involvement of private sector banks for extending financial services in the un-banked areas of the country. 

A high-level committee of the central bank, headed by Deputy Governor Usha Thorat, has set the target of providing financial services to every village by March 2011. The central bank said private sector banks should involve themselves more actively by bringing in their expertise in strategic planning and leveraging on information technology. Lead banks at the district level have also been asked to ensure that private sector banks were more closely involved in the lead bank scheme while drawing up and implementing annual credit plans. 

The committee has recommended that a sub-committee of the district consultative committee should draw a road map to provide banking services in any form to every village with a population of over 2,000 at least once a week by March 2011. 

“In states where banking penetration is better, the date may be suitably advanced,” the committee said. 

With about 1.09 lakh villages with population over 2,000 out of six lakh villages with 47,000 branches of scheduled commercial banks in rural and semi-urban centres, the committee has noted banking penetration in several parts of the country was still limited, inhibiting the development of payment system in those areas. 

The committee has asked state governments to ensure road and digital connectivity to all centres where penetration by the formal banking system was required. 

RBI has also suggested that state governments should expedite use of IT solutions for disbursal under the National Rural Employment Guarantee Act (NREGA) and social security payments and extend support to banks in dues recovery. 

The committee has also suggested simplifying Know Your Customer (KYC) guidelines for opening small value accounts where outstanding balances at any time do not exceed Rs 50,000 and total transactions remain Rs 2,00,000 in a year on the basis of only a photograph of the account holder and self-certification of address. 

“Banks having presence in cities with more than one million population may take the leadership role in convening a meeting of bankers and allocating responsibility for various wards to different banks to ensure that all urban households have easier access to banking services,” the committee said.