Reserve Bank of India Governor D. Subbarao on Tuesday said that “growth itself can be destabilising if it has no equity dimension.” 

“Is the financial sector inherently equity promoting, or at least equity neutral? Our experience in India has been that left to itself, the financial sector does not have a pro-equity bias. 

“Indeed, it is even possible to argue that the financial sector does not necessarily reach out to the bottom of the pyramid,” said Dr. Subbarao while inaugurating the First Centre for Advanced Financial Research and Learning (CAFRAL)-BIS international conference on ‘Financial sector regulation for growth, equity and stability in the post-crisis world', here.

“Our response to counter this bias has been to use regulation to encourage socially optimal business behaviour by financial institutions,” he added.

The extent of financial exclusion is staggering. Out of the six lakh habitations in India, less than 30,000 have a commercial bank branch. Just about 40 per cent of the population across the country have bank accounts, and this ratio is much lower in the Northeast of the country. The proportion of people having any kind of life insurance cover is as low as 10 per cent and proportion having non-life insurance is an abysmally low 0.6 per cent.

These statistics, said Dr. Subbarao, distressing as they are, do not convey the true extent of financial exclusion. Even where bank accounts are claimed to have been opened, verification has often shown that the accounts are dormant. Few conduct any banking transactions and even fewer receive any credit. Millions of households across the country are thereby denied the opportunity to harness their earning capacity and entrepreneurial talent, and are condemned to marginalisation and poverty.

Branchless banking

Over the last few years, the RBI has launched several initiatives to deepen financial inclusion. “Our goal is not just that poor households must have a bank account, but that the account must be effectively used by them for savings, remittances and credit. Our most ambitious initiative has been the ‘Business Correspondent' model or branchless banking which, leveraging on technology, helps reach banking services to remote villages at a low overhead cost.”

World scenario

Mentioning the current scenario around the world, Dr. Subbarao said, “We only have to look around the world.  What began with demonstrations in Madrid this spring has coalesced into something on a much grander scale. The discontent has traversed from southern Europe across the Atlantic and has inspired the ‘Occupy Wall Street' movement in New York's Zuccotti Park and beyond.  Despite its amorphous nature and its refusal to formulate a set of demands, the protest campaign across the world is fired by a simple, but powerful idea - that the elite cannot go on doing obscenely well even as the rest keep moving backwards.  The message from this collective rage is that growth itself can be destabilizing if it has no equity dimension.  That is a sobering thought.”

Keywords: RBIfinancial sector

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