Inclusion indecisiveness

Government and RBI should move fast on financial inclusion

Perhaps on no issue have the finance ministry and the Reserve Bank of India (RBI) been in concordance over the past several years - except for financial inclusion. From the target of a banking presence in villages with a population of over 2,000 to the motivation to expand the banking sector by issuing new licences and a host of other goals and initiatives, the agenda has taken centre stage, culminating in the Nachiket Mor committee's report submitted to the RBI a few months ago. It might have been expected that the core recommendations of the report would have received priority attention from the RBI and the government with a view to initiating implementation wherever possible, while putting in place the supporting ecosystem for the more far-reaching ones.

It is somewhat surprising, then, that a road map for implementing the key recommendations of the Mor committee is yet to be outlined. Although hesitancy over this causing the delay has been denied, the fact that the last monetary policy announcement on April 1 did not specifically mention any plans to implement the recommendations lends some credence to the concern. Considering the importance that Governor Raghuram Rajan attaches to the agenda, one of the five pillars on which he is building his financial stability and development strategy, there were expectations of a big push based on the report. However, what seems to have come in the way are reservations expressed over their implementation. The new institutional model that is being proposed in the form of payment banks as a way to expand reach and access quickly apparently raises questions about appropriate prudential norms and, more importantly, the capacity to supervise and monitor them effectively. As is prone to happen in government, this process can continue endlessly, resulting in the whole initiative being stalled or, at best, implemented piecemeal, with no significant impact.

This is really no time for indecisiveness on this front. The record of delivery by the existing banking structure has been weak. The Mor committee provides a comprehensive solution encompassing services, new delivery mechanisms and the optimal use of technology, for both authentication and delivery. If the government and the RBI find the recommendations unacceptable for whatever reason, they should say so clearly as soon as possible; at least the RBI still has the authority to do that. If they see merit in them, then the focus should be precisely on building the right support structure, including an appropriate prudential framework and, particularly, supervisory capacity. On the face of it, there is little question that mainstream commercial banks are pushing inclusion because they are mandated to, not because they see great opportunities in it. In whatever shape or form, other institutions must play a key role in the process. Whether as suggested by the Mor committee or in any other avatar, these will pose regulatory and supervisory challenges to the RBI. Either way, the bullet has to be bitten and it might as well be now rather than later.