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.
