State of GovernanceState of Governance 2016

Make Overdraft Need Based

Pradhan Mantri Jan Dhan Yojana has found good traction and done well by including a large part of unbanked population into the banking fold. Number of transaction in these accounts are going up. S S Mundra, Deputy Governor of Reserve Bank of India (RBI) says in conversation with Sameer Kochhar, Editor-in-Chief, INCLUSION that he is worried about provision of overdraft as well as decelaration of the SHG movement

Sameer Kochhar: What has changed as a result of Pradhan Mantri Jan Dhan Yojana (PMJDY)?

S S Mundra: One is outreach and second is awarness about banking. These are the two main successes of PMJDY.

SK: Earlier you were opening only bank accounts, now you are giving a multitude of services to these accounts. Do you find it more utilitarian?

SSM: It has emerged as a well-rounded concept but it is yet to get translated into a well-grounded product. At a fundamental level, the first thing, which can happen and which can make all the difference, is to start channelising all social benefits through bank accounts. That will happen soon.

SK: What about the OD facility, which was thought to be one of the gamechangers?

“Product that was designed was more of liability linked. The point was that account should be opened, used and then whatever savings were accumulated, certain number of this would be entitlement of OD—more or less like SHG model.”

SSM: I don’t know in what way was the OD facility supposed to be the gamechanger. From RBI’s perspective, even when it was mentioned, we had cautioned against that. It is not possible to generally tag all accounts with OD facility of Rs 5,000. At best, it has to be need-based. When it comes to financial inclusion, globally, there are two schools of thought – whether financial inclusion should be liability linked or credit linked. Basically, financial inclusion account can not become a vehicle of consumption credit. So, product that was designed was more of liability linked. The point was that account should be opened, used and then whatever savings were accumulated, certain number of this would be entitlement of OD—more or less like SHG model, where group is formed, bank account is opened and savings are done for a limited period before becoming entitled for credit.

SK: How has it been performing on the liability side?

SSM: Liability side performance is improving. From the original apprehension that these accounts will remain dormant or zero balance, the situation is quite different. We see transaction are increasing by the day. But I would say that we are still scratching the surface. Such large number of accounts to become viable for the system, the number of transactions have to be much more. The number of products on offer also has to go up.

SK: What percentages of accounts have been given credit?

SSM: Very little, I believe. The sense that we get is that while many accounts have been opened, several of them are duplicate. So, while the productive credit is available, it is not getting reflected into accounts. Since many accounts are rural accounts, it is possible that some of these account holders could be part of SHGs, where credit is already made available in a different way. Since SHG data capturing is more in the name of group rather than individual, it may not be reflected.

SK: It has been said that RBI’s focus has traditionally been more on ways of lending than the lending itself – differentiated banking, small banks, payment banks – now with NPCI’s Universal Payment Interface (UPI), do you really think there is a business model or a need for small or
payment banks?

SSM: As far as payment banks are concerned, of course, you know that things have changed since the original idea of payment bank was conceived. The UPI is a major breakthrough. Naturally, it will have certain implications on the original model of the payment bank.

They can not be in the credit space directly but the revenue, which they can make is from normal remittances and some savings that they are allowed to carry. It is in distribution space where they can have the possibility; they can tie-up with mainstream banks and undertake distribution work from them.

SK: Essentially a Business Correspondent (BC) by another name?

SSM: Yes. They remain remittance bank in original version and for the other, become BC.

SK: And how has the priority sector been doing – the livelihood linkages, SHG formation have been historically coming down?

SSM: Yes, I am also concerned that the SHG movement, which is a good thing if followed in right way, has been losing momentum. Moreover, it has become very concentrated in geographies – something which is pan India. But my sense is that with the new definition of priority sector lending and separate niche being carved out for small and marginal farmers, I think will give good impetus to the revival of SHG model and I have seen some activity in various pockets of the country including by some of the private sector banks too.

Sameer Kochhar

Sameer Kochhar, Chairman of SKOCH Group, is a passionate advocate of social, financial and digital inclusion. In 1997, after spending 15 years in the corporate world, he decided to follow his inner calling and become a development thinker. Ever since, he single-mindedly applied himself to the rigours of self-education, academic research and field tours. The SKOCH Group – which has a think tank, media and consultancy arms – was established as part of this endeavour. His expert opinion is sought by the government. In Kochhar's thinking, writings and activities, his profound admiration for Indiaís economic reforms – and in extension, those outstanding personalities who strive to make these reforms more meaningful and broad-based – comes out clear and unambiguous.
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