A panel appointed by the Reserve Bank under former ICICI banker Nachiket Mor to provide comprehensive financial services to small businesses and low income households has presented its report asking for a comprehensive overhaul of the Indian banking system.
It is trying to introduce universal banking or the familiar word financial inclusion. The panel report begins with recognition that after so many years we have still not got perhaps more than 50 percent of India in banking accounts and in some states like Bihar the banked percentage is as low as 16 percent.
Also read: Nationality details of RBI guv cannot be given: GovHence, it is asking for a overhaul of the entire system. It is asking for getting away from the old priority sector requirements that banks have been saddled with, overhauling that system and asking non-bank financial companies (NBFCs) to become the banking correspondents of banks.
In the past five years, the RBI has experimented with something called correspondence where banks are not existing in all the villages but their agents go and fetch the money and provide the banking services that the bank branch would have provided.
The Nachiket Mor Committee is recommending that the NBFCs be treated as banking correspondents. So, a microfinance institution (MFI) would become a banking correspondent and they become the go-between the last mile villager and a branch.The report calls for very big changes. For instance, it is asking for the abolition of statutory liquidity ratio (SLR). It is asking for several amendments in the Banking Regulation Act as well. It asks to permit certain categories of banks called Payment Banks. These banks only do payments and the maximum deposit one can have is Rs 50,000 per customer.
Since it is a payment bank, its SLR requirements will be different, it will not have any liabilities of giving loans; it is only a payment gateway which should be available within 15 minute walking distance for every Indian.
The committee plans to use Aadhaar as its backbone. It is planning to use mobile technology and it is planning to get away from the current banking system.
It is also calling for a very different role for organisations like Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD), which at the moment provide a lot of assistance to rural lending as well as to small industries.
Instead of merely refinancing loans given to rural areas what they have asked is that NABARD should become a kind of a market maker i.e. the loans given to rural Indians can be packaged and resold to others.
It is a whole host of many such ideas. It is laying out a blueprint which can perhaps revolutionise the way in which we access financial products to every Indian. It is almost writing a new constitution for financing rural India or financing the excluded Indian so far. If it succeeds this would be as big a success as Aadhaar itself.
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