Rural customers must understand products: RBI

To attract the rural masses and meet financial inclusion targets, banks are offering no-frills accounts with in-built features like remittance, micro-credit and micro-insurance. However, the regulator is concerned about the risks that banks may be exposed to, in case customers do not understand the product.

Once a no-frills account is opened, customers can receive payments from government schemes like MNREGA directly, make or receive remittances and borrow a sum from the bank without any balance in the account. They are also provided life and general insurance covers.

“There should not be a double negative. This means even if I don't want a product, I'm saddled with it. For instance, I need to tell I don't need an insurance policy or I automatically get an insurance policy,” said Deepali Pant Joshi, chief general manager, Reserve Bank of India (RBI).

“This is what we are uncomfortable with. Because we are dealing with vulnerable and poor clientele, we don't want products to be pushed through to them,” she said, while addressing a seminar on financial inclusion in Mumbai on Tuesday.

A senior official with a large Mumbai-based public sector bank said the bank provided an accident cover with the no-frills account. “The bank is taking the initiative and the premium is paid by the bank itself. Each no-frills customer is covered for Rs 50,000. In case there is a claim, the insurance company settles it on verification,” he said.

Currently, apart from the zero-balance norm, there are no standard products mandated by the apex bank for financial inclusion. Banks are free to innovate, according to their business strategy. “The range of the products depends on the requirement of the particular area. These are simpler products, but they require financial literacy,” said another Mumbai-based public sector banker.

Over the last two years, banks have embarked on the financial inclusion drive to cover under-banked and un-banked villages in India. No-frills, or zero balance, accounts are opened at doorsteps on the submission of basic know-your-customer norms. Banks have appointed business correspondents that enable them to reach out to areas which lack basic technology and infrastructure.

On interoperability, Joshi said there was still time. Business correspondents cannot operate for two banks at the point of interaction. This means the agent cannot sell the products of two banks at the same time. “It (the business correspondent model) is a new model. Let it stabilise. Agents should be clear and there should be no confusion at the bottom of the pyramid. Going forward, we may look at it,” said Joshi.

She also said banks needed to insure financial literacy while meeting their inclusion targets. “They (customers) must understand the products they are getting, and from the demand side, financial literacy becomes all the more important,” she said.