Strengthen existing institutional framework: Rangarajan

The objective of financial inclusion is to extend the scope of activities of the organised financial system so as to include within its ambit people with low incomes.

The attempts here must be to lift the poor from one level to another so that they come out of poverty, said C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister.

"The institutions, which currently provide financial services in the rural areas include branches of commercial banks, regional rural banks, cooperative societies and micro finance institutions. To strengthen the commercial banking system in the country, we need to strengthen the existing institutional framework rather than creating new institutions," he said.

Rangarajan was addressing the gathering after inaugurating SUUTI Tech Options Limited, a joint venture between UTI Technology Solutions Limited and Hyderabad-based CoOptions Technologies Limited, here on Monday.

Stating that commercial banks have a large outreach and that there are 33,478 commercial bank branches in rural and semi-urban centres in the country at present, he said the critical question was how to make these rural branches more effective in terms of delivering credit to the small and the very small borrowers.

First, a critical factor required for providing credit to marginal and sub-marginal farmers as well as other small borrowers is the empathy of the bank officers.

Second, rural branches must go beyond providing credit and extend a helping hand in terms of advice on a wide variety of matters relating to agriculture.

Third, the self-help group (SHG)-bank linkage scheme has proved to be an effective way of providing credit to very small borrowers. This needs to be further strengthened.

Fourth, the bank facilitator and correspondent model needs to be effectively implemented, he said.

"In order to increase the outreach of the banking sector, the RBI has permitted banks to use the services of specified institutions and some categories of individuals as intermediaries for providing banking services. However, this scheme has not taken off. This model has a high potential," he added.

"Technology has to be leveraged to create channels beyond branch network to reach the unbanked and to extend them banking services similar to those dispensed from branches. In short, technology has to enable the branch to go to the customer instead of the other way round," he said.