RBI warns banks on poor customers

In the name of financial inclusion, banks should not blindly follow a policy of customer acquisition, providing new access to new customers. Instead, they must address the issues faced by poor customers properly, for it might otherwise lead to a long term mistrust and loss of confidence in the banking system.

According to Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty, financial inclusion is an important tool for economic development, but it might also impact the poor adversely by increasing their indebtedness and wiping out their savings and assets.

“While financial inclusion is a necessary pre-condition for financial stability and inclusive economic development, the negativities that may affect a poor, ill-informed, new customer can be enormous — from high level of indebtedness due to excessively high prices and predatory lending, to complete loss of savings and assets created out of loans and those collaterally charged to the banks,” Chakrabarty said during his address at INFO, 2011, at Vancouver.

He added if problems faced by the poor ill-informed customers are not addressed in a proper manner, it might lead to a long term in formal financial institutions and loss of confidence in the banking system. It is, therefore, imperative that all consumers should benefit from the same level of security and protection, whatever be the institution they operate with, he said.

Hence, for banks, these initiatives should not be treated as costs, but need to be reckoned as investments necessary for business stability, he added.

“Unchecked market forces and lax policies, combined with relaxed regulatory oversight, can result in customers being exploited while efforts to open financial markets to serve the bottom of the pyramid are made through financial inclusion measures,” he added.