Letters: Financial inclusion

This refers to the report "No target for number of new bank licences" (July 16). It is comforting to find that "supporting financial inclusion", which was included as an objective for opening new banks when the discussion paper on the subject was released almost three years ago, remains in the back of the Reserve Bank of India (RBI)'s mind. The observation that "Financial inclusion has to be a precondition for such banks…" coming from RBI Executive Director R Gandhi, who had also said earlier in the same context that "enormous challenges lie ahead for us in achieving financial inclusion," gives credibility to the central bank's intentions.

A recent CRISIL study conducted on the basis of three parameters, branch, deposit and credit penetration, across 632 districts showed that the bottom 50 districts had just three banks per 100,000 people; just half of the 7.6 bank branches on an all-India level. These districts had just two per cent of the total bank branches in the country.

A lack of awareness, low income, poverty and illiteracy were among the key factors identified for the low demand for financial services and, consequently, to exclusion. After many years the RBI has started taking interest in improving banking outreach by propagating the slogan of "financial inclusion". But branch expansion had lost priority in the anxiety to reduce costs and save on regular staff by allowing banking correspondents etc.

During the one year or so that the prospective new banks will take to get started, the RBI, through the existing mechanism of State Level and District Level Bankers Committees, should revisit the process of identifying potential centres for opening "brick and mortar" bank branches in semi-urban and rural areas and publish the list to provide existing banks an opportunity to open branches.

M G Warrier Mumbai

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