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Updated: January 8, 2014 02:36 IST

RBI panel moots credit access to all by January 1, 2016

Special Correspondent
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Recommending sweeping changes in the banking structure, the Nachiket Mor-led RBI panel suggested setting up specialised banks to cater to low income households to ensure that all citizens have bank accounts by 2016. File photo.
The Hindu Recommending sweeping changes in the banking structure, the Nachiket Mor-led RBI panel suggested setting up specialised banks to cater to low income households to ensure that all citizens have bank accounts by 2016. File photo.

Recommends risk and liquidity transfers through markets

A committee on comprehensive financial services for small businesses and low-income households, set up by the Reserve Bank of India (RBI), has suggested that each low-income household and small business should be provided with convenient access to formally regulated lenders who have the ability to assess and meet their credit needs and offer a full-range of suitable credit products at an affordable price.

The committee, headed by Nachiket Mor, Central Board Member of the RBI, submitted its report on Tuesday.

The committee has set January 1, 2016, as the deadline for achieving this.

By that date, each district and every significant sector (and sub-sector) of the economy would have a credit to GDP ratio of at least 10 per cent. This ratio would increase every year by 10 per cent, the report said.

The committee was hopeful that by January 1, 2016, each district would have a total deposits and investments to GDP ratio of at least 15 per cent.

The committee felt that everyone should have access to a range of insurance and risk management products at reasonable charges by January 1, 2016. “This will allow them to manage risks related to commodity price movements, longevity, disability, and death of human beings, death of livestock, rainfall and damage to property,” it pointed out.

By that date, each district should have a total term life insurance sum assured to GDP ratio of at least 30 per cent. This ratio should increase every year by 12.5 per cent with the goal of reaching 80 per cent by January 1, 2020.

Every resident should be issued a Universal Electronic Bank Account (UEBA) automatically at the time of receiving his/her Aadhaar number. “An instruction to open the bank account should be initiated by Unique Identification Authority of India (UIDAI) upon issuance of an Aadhaar number to an individual over the age of 18,” the committee said.

However, it (UEBA) should attract no account opening fee, it said. The bank, however, would be free to charge for all transactions. The committee recommended that the RBI issue a circular indicating that no bank could refuse to open an account for a customer, who had adequately fulfilled KYC (know your customer) requirements.

Priority sector lending

On priority sector, the committee recommended adjusted priority sector lending target of 50 per cent against the current requirement of 40 per cent with sectoral and regional weightage based on the level of difficulty in lending. It also recommended risks and liquidity transfers through markets. ``In view of the fact that banks may choose to focus their priority sector strategies on different customer segments and asset classes,’’ the committee recommended the regulator to provide specific guidance on differential provisioning norms at the level of each asset class.

On definition of non-banking finance companies (NBFCs), the committee favoured two categories — one for core investment companies and another for all other NBFCs. It advocated regulatory convergence between banks and NBFCs based on the principle of neutrality with regard to classification of non-performing assets and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 eligibility.

The committee suggested the creation of a state finance regulatory commission (SFRC). All the existing State Government-level regulators could be merged into it. Functions such as the regulation of non-government organisations, micro finance institutions and local money services business could be added on, it felt.

More In: Economy | Business

Some of the suggestions of RBI Committee on comprehensive financial
services for small businesses and low-income households are worth for
consideration and implementation:
(i) Every resident over the age of 18 should be issued a Universal
Electronic Bank Account (UEBA) automatically at the time of receiving
his/her Aadhaar number.
(ii) Everyone should have access to a range of insurance and risk
management products at reasonable charges by January 1, 2016 which
will allow them to manage risks related to commodity price movements,
longevity, disability, and death of human beings, death of livestock,
rainfall and damage to property.
(iii)Priority Sector lending could be adjusted priority sector lending
target of 50 per cent against the target requirement of 40 per cent
with sectoral and regional weightage based on the level of difficulty
in lending.
(iv) The creation of a state finance regulatory commission (SFRC)and
merger of all the existing State Government-level regulators in it.

from:  C. C. Tosh
Posted on: Jan 8, 2014 at 10:33 IST

The objective is laudable but this is like chasing a mirage. Neither the banks nor many among the people are for opening the bank accounts and carrying out transactions through bank accounts. Even in metropolitan cities, there are thousands of people without a bank account and even if they have accounts they prefer to deal only in cash. To make the RBI's proposal a reality, it has to be made obligatory that no cash transactions above a cut off point say Rs 1000 should be entertained by any one in the society. Majority of self employed categories in the economy engaged in all sorts of economic activities do not take cash and issue any receipt is the ground reality and RBI cannot be of any help in bringing them into the banking fold.

from:  Dr.T.V.Gopalakrishnan
Posted on: Jan 8, 2014 at 09:00 IST
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