The Reserve Bank of India has revealed
that almost half of the country’s population is unbanked. The
Reserve Bank will now ramp up its efforts to encourage financial
inclusion and says it is not only a social responsibility, but a
business opportunity for the country’s banks. Douglas Blakey
reports.
A mere 9% of Indians hold credit accounts, with barely over
one half (55%) holding deposit accounts. Just 18% of Indian adults
holds a debit card and for credit cards, it is a mere 2%.
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According to Reserve Bank of India
deputy governor KC Chakrabarty, such statistics have to change.
“Exclusion is staggering, whichever
parameter one chooses to look at,” said Chakrabarty.
Other damning statistics noted by
Chakrabarty included:
- India has 145m households
currently unbanked; - less than 20% of the
population has any form of life insurance; - only 9.6% of Indians hold
non-life insurance cover; and - despite growth in the past
decade in the number of bank branches, there is still only one bank
branch per 14,000 people.
Chakrabarty said that despite past
initiatives such as nationalising much of the banking sector,
promoting the co-operative moment, “still we failed”.
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By GlobalDataFailure was due to a number of
reasons with Chakrabarty noting a lack of investment in banking
technology, poor delivery mechanisms, inadequate business models
and a lack of compassion for the poor.
To kick-start the drive to achieve planned, sustained and
structured financial inclusion, the Reserve Bank identified the
need to sort out the banking sector’s technology issues.
All bank branches must apply core
banking solutions with all regional rural banks deploying core
banking by September this year. A multi-channel approach, including
the use of handheld devices, mobiles, cards, micro-ATMs and
kiosk-style branches is being pursued.
In terms of branch channel growth,
the Reserve Bank is committed to bringing financial services
through mainstream institutions to 600,000 villages.
It has set out a roadmap to cover
villages of more than 2,000 population by March 2012; the Reserve
Bank has also mandated that a minimum of 25% new branches opened in
the country are located in unbanked rural areas.
The central bank has also decreed
that banks must ensure the availability of a minimum of four
banking products through ICT (Information and Communication
Technologies) models.
The four products minimum, in
practice means:
- a basic No-Frills banking
account – one for which no minimum balance is required and for
which there are no service charges for not maintaining the minimum
balance – with an overdraft facility; - a remittance product for
electronic benefit transfer; - a pure savings product,
ideally a recurring or a variable deposit; and - entrepreneurial credit, such as a general credit
card.
India – an attractive market for
foreign banks?
A report from the consultants Value
Partners, Destination India: an attractive opportunity for foreign
banks, released in September, highlights the attractiveness of
India to the international banking sector.
While the Reserve Bank continues to
target the unbanked and underbanked segments, international banks
will be attracted by India’s favourable demographic profile.
Some 65% of India’s population is
below 35 years of age and there is a strong trend towards
urbanisation, resulting in a large and growing urban middle
class.
According to industry estimates,
more than 9% of Indian households will have an annual income of
more than $11,000 by 2020; this figure currently stands at closer
to 3% of households.
Given India’s huge potential, it
has emerged as one of the focus markets for the many global
financial institutions already present in India, such as HSBC (50
branches in India), Citigroup (43 units) and Standard Chartered (94
outlets).
Value Partners concludes that India
remains an attractive investment destination for foreign banks,
given the forecast growth rate of India’s GDP, the extent of
private consumption and the under-penetration of its financial
services.
While the regulatory environment in
India remains restrictive for foreign banks, they can remain
profitable in the near future by serving niche banking segments
that are not served by Indian banks.
Significant growth in the long term can be achieved by expanding
their offerings, both in terms of products and geographical
coverage and by venturing into partnerships with local players.
