Financial inclusion-Surmounting the insurmountable-M G Warrier
Global Analyst, December 2012
Banking Special
Financial Inclusion
Surmounting the Insurmountable
M G Warrier Former General Manager Reserve Bank of India
For historic reasons, in India, the responsibility to purvey social justice is shared between government and banks. Perhaps these are the only two institutions which get to the grassroots. The outreach of the government is limited to tax collection and law-enforcement in several geographical areas and segments of population. Banks’ reach out to more people as part of resources mobilization efforts and as purveyor of timely and need-based credit. These are sweeping statements. Though this article will be brief and will not attempt the adventure, a deeper study will tell us that a revisit to Kautilya’s Arthasastra is overdue for those in charge of governance, to understand the rights and responsibilities of an administrator of governance. Similarly, banks should introspect how much has changed in the banking business, beyond the ambience and technology, from the moneylender days.
Of late, there is a clear recognition of the magnitude and dimensions of the inadequacies in credit flow to weaker sections and sectors with low individual credit needs at higher levels in GOI and RBI. Perhaps, rural credit is the most talked about and studied subject in our country since late 1950’s and from the establishment of SBI to the current efforts to develop MFIs, there have been a number of fresh initiatives to support rural development. Last July, while speaking on ‘Challenge of financial inclusion’ RBI Governor Duvvuri Subbarao referred to the magnitude and dimensions of the inadequacies in credit flow to weaker sections and sectors with low individual credit needs. Such recognition of the need for action, at the highest level, is comforting.
Post-independence and perhaps till the emergence of the LPG (Liberalisation- Privatisation- Globalisation) dimension in policy thrust at national level, circa 1991, agricultural and rural credit and financial inclusion received undivided attention from Reserve Bank of India (RBI) with support from Government of India(GOI). The period also saw extensive surveys and studies like All India Rural Credit Survey, All India Rural Credit Review, Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) and the study by Agricultural Credit Review Committee (Khusro Committee, 1991). Initiatives taken by RBI and GOI in improving the institutional framework in the financial sector saw the emergence of State Bank of India, setting up of institutions like National Bank for Agriculture and Rural Development (NABARD), Industrial Development Bank of India (IDBI), Small Industries Development Bank of India (SIDBI) and Unit Trust of India.
Measures like reviving cooperatives, Lead Bank Scheme which THE GL BAL ANALYST
significantly improved the outreach of commercial banks in rural and semi-urban areas and coordinated supports from different agencies involved in rural development, establishment of Regional Rural Banks, NABARD and SIDBI have all contributed to improved credit flow to small and medium borrowers in rural and semi-urban areas.
Increasing the outreach of banks to cover the rural borrower with low credit needs has been one objective the nation has been pursuing religiously since 1950’s (when State Bank of India was established), till date (now SBI has come out with facility to open account with one rupee!). But the reality of financial inclusion is eluding. Banking system has done a commendable job in this direction through the network of rural branches, rural financial institutions (RFIs) including cooperatives, Regional Rural Banks (RRBs) and rural branches of commercial banks. The focus shifted midway, somewhere during 1990’s to urban and metropolitan lending.
Rise in rural deposits and burgeoning urban credit created imbalances and certain bypass routes were allowed for banks to achieve their priority lending targets. Banks started searching for other intermediaries like Microfinance Institutions (MFIs) for providing credit to small borrowers. MFIs, in some cases borrowed from banks at low rates and disbursed credit to the ultimate borrower at up to three times or more the borrowing rates, in the same area where bank branches functioned. So long as banks source rural deposits, they should also shoulder the responsibility of providing credit in rural areas at reasonable interest rates.
GOI and RBI should at this stage take up a comprehensive review of the entire rural credit architecture for an overhaul. The changes necessary may include:
• Reviving the role of Rural Financial Institutions( RFIs) including rural and semi-urban branches of commercial banks, cooperatives and Regional Rural Banks which have strayed away from their mandated responsibilities,
• Identifying costs for financial intermediaries that cannot be factored into interest costs and specifying the agency which should meet them, if the activity has to remain bankable,
• Without going back to the abandoned ‘regulated interest rates regime’, working out and specifying broad bands within which ultimate lending rates should remain when bank funds are sourced for the purpose and
• Reducing the number of bypass routes allowed for priority sector lending to the minimum.
Such a review may be necessary at this stage, irrespective of who gets licenses for new commercial banks.
Sometime back, Reserve Bank had constituted a Committee (Chairman: Shri M. V. Nair) to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues. During the Monetary Policy announcement on April 17, 2012 RBI Governor mentioned that the Committee submitted its report in February 2012 and indicated that it made the following major recommendations: (i) the existing target of the domestic scheduled commercial banks for lending to the priority sector be retained; (ii) the sector ‘agriculture and allied activities’ be a composite sector within priority sector; (iii) a sub-target for small and marginal farmers within agriculture and allied activities be segregated; (iv) a sub-target for micro enterprises under the micro and small enterprises (MSE) category be stipulated; (v) the priority sector target for foreign banks be increased to 40 per cent of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is higher with sub-targets of 15 per cent for exports and 15 per cent for the MSE sector; (vi) non-tradable priority sector lending certificates (PSLCs) be allowed on a pilot basis; (vii) bank loans to non-bank financial intermediaries for on-lending to specified segments be allowed to be reckoned for classification under priority sector, up to a maximum of 5 per cent of ANBC or CEOBE, whichever is higher; and (viii) the present system of report-based reporting may be improved through data-based reporting.
Taking into account these recommendations and other relevant factors, GOI and RBI should also take a re-look at the definition of the priority sector, as these have not been comprehensively revised after the introduction of the concept of targeted lending to priority sector by commercial banks in the 1970’s, except for minor modifications, by way of adding some new activities under priority sector or raising the financial ceilings taking into account the inflation impact on costs. The banking infrastructure has also undergone changes with the entry of new private sector banks, consolidation of Regional Rural Banks (RRBs), changes in the role and business models of cooperatives and the change in focus of public sector banks with an increased bias to profitability. All these and
the developments during the last two decades have not reduced the need for differential treatment to the conventional priority sector especially agriculture and small borrowers in small industries and service sub-sectors.
As public sector banks including State Bank of India and its associates, old private sector banks, new private sector banks, RRBs and cooperative banks have different approaches to resource mobilization, lending and profitability, varying capabilities in terms of outreach and expertise and different mandates from the stake-holders, each category of these institutions will have to be given resource mobilization and credit delivery tasks factoring in these structural and policy aspects.
The reorganization of the banking system may be further delayed for political reasons. As essential reforms cannot wait for a change in the political weather, in the medium term, GOI and RBI may consider the following steps:
• Redefine sub-sectors in the priority sector reckoning the changes that have taken place during the last two decades and realign the targets for sub-sectors. Beyond inclusion of a few additional activities as eligible for classification under priority sector or raising certain ceilings to factor in inflation impact, nothing much has happened in the recent past from this perspective.
• Ask banks to ensure that their rural, semi-urban, urban and metro branches realign their credit portfolios to meet local credit needs
• Instead of prescribing straight-jacket targets for lending to sub-sectors like agriculture, make necessary policy changes which will reflect the availability of expertise and outreach of each category of banks. E.g. If a bank has more branches in urban areas and cities and are able to lend more to microfinance, allow a set-off their disbursal to microfinance over and above a bench-mark against their target for lending to agriculture.
• Route all concessions and subsidies in interest rates through the banking channel and make the lending banker responsible to ensure that the ultimate borrower is charged a minimum interest of, say the rates paid on savings bank deposits by the bank.
Perhaps, rural credit is the most talked about and studied subject in our country since late 1950’s and from the establishment of SBI to the current efforts to develop MFIs there has been continuous initiatives to support rural development.
Measures like reviving cooperatives, Lead Bank Scheme which significantly improved the outreach of commercial banks in rural and semi-urban areas and coordinated supports from different agencies involved in rural development, establishment of Regional Rural Banks, NABARD, SIDBI and recent support to encourage MFIs to function more efficiently through increased intermediation have all contributed to improved credit flow to small and medium borrowers in rural and semi-urban areas.
Although UID project, Financial Inclusion Plans and business correspondent (BC) model will all help to improve linkages at the ground level, the best option in the present scenario, for the institutions referred to above, viz. Cooperatives, RRBs, rural and semi-urban branches of commercial banks, NABARD and SIDBI would be to revisit and focus on their original mandates. Such a ‘diversion’ in approach would go a long way in achieving the desired results, namely to improve financial inclusion.
RBI’s discussion paper on new banks has generated some discussion on financial inclusion which is one of the stated purposes of having more banks in the private sector. Perhaps increasing the outreach of banks to cover the rural borrower with low credit needs has been one objective the nation has been pursuing religiously since 1950’s (when State Bank of India was established), till date (now SBI has come out with facility to open account with one rupee!). But the reality of financial inclusion is eluding. Banking system has done a commendable job in this direction through the network of rural branches, rural financial institutions (RFIs) including cooperatives, Regional Rural Banks (RRBs) and rural branches of commercial banks.
The focus of commercial banks shifted midway, somewhere during 1990’s to urban and metropolitan lending. Rise in rural deposits and urban credit created imbalances and certain bypass routes were allowed for banks to achieve their priority lending targets. Like Mutual Funds(MFs) investing in schemes of other MFs to pair risks, banks started searching for other intermediaries like Microfinance Institutions (MFIs) for providing credit to small borrowers. MFIs, in some cases borrow from banks at low rates and lend at up to three times the borrowing rates, in the same area where bank branches function. So long as banks source rural deposits, they should also shoulder the responsibility of providing credit in rural areas at reasonable interest rates.
In April 2011, RBI Deputy Governor Usha Thorat in a speech in Kuala Lumpur on “Financial inclusion beyond microfinance” traced the recent developments in MFI sector in India and flagged the challenges in microfinance, concluding with an observation that the public policy intervention in financial inclusion calling for fiscal support-directly or indirectly-will have to be carefully crafted looking at the international experience of such schemes and their effectiveness. In the globalised economy today, learning from international experience and following ‘successful models’ will cut short the time-lag from lab to field. But, it is also essential to evolve our schemes and institutional infrastructure to suit India’s local needs with reference to our own past experience and success stories. Reason being, our resources including land, infrastructure and literacy rate vary widely from those obtaining in other countries where poverty, deprivation and unemployment have been successfully alleviated. We have states like Haryana, Kerala and Andhra Pradesh which have gone ahead in certain development parameters and are still finding difficult to manage economic development successfully. We have also states like Bihar and UP where people accept starvation wages and curse their fate for poverty and low level of literacy.
In the financial sector, we have several banks and NBFCs doing very well and still not able to penetrate to rural areas or extend credit to sectors in which individual credit need is small. There are commercial bank branches, Regional Rural Banks and cooperative which are able to meet the entire credit needs of small borrowers in their respective areas of operation. During the last two decades or so, policy interventions to achieve financial inclusion, especially where fiscal support has been essential, have been sporadic and piece meal.
Subsidy has been considered a bad word and the compulsions of coalition politics have been forcing central government to close their eyes when subsidy is provided by various state governments through backdoor at the wrong end in the shape of interest subsidy and write offs. A more realistic approach to the financial needs of the small borrowers with an appropriate mix of incentives and disincentives for the conduits of credit delivery will help salvage the institutional framework responsible for financial inclusion.
Role of cooperatives
Cooperatives have played a significant role not only in providing agricultural and rural credit, but in ensuring other linkages like inputs for farming and marketing avenues for products. As they were mainly operating in rural and semi-urban areas, it took longer time for this sector to access modern skills and technology. NABARD was established in 1982 with the specific mandate of supporting cooperatives and rural sector in general. Initial enthusiasm of NABARD faded away in the absence of legislative and administrative support from central and state governments and the institution had to satisfy itself by continuing to be an appendage of RBI doing some ‘safe’ business through established and credit-worthy cooperative banks and commercial banks. Legislative support in adequate measure for revitalizing the cooperatives which comprises state and district central cooperative banks and more importantly about a lakh primary agricultural credit societies is not forthcoming from central and state governments. At a time when the government and the regulatory and supervisory institutions are struggling to make a breakthrough in financial inclusion and improvement in productivity, if appropriately utilized, the already available infrastructure and membership of cooperatives will make their work much simpler.
Out of one lakh PACSs only one-fifth situated in the four southern states and West Bengal are doing well. The remaining societies will need financial and managerial support for rehabilitation. Still, if a political will can be evolved, reviving the cooperatives with technological, financial and administrative support will give a boost to the efforts for financial inclusion.
Epilogue
The speed with which changes are brought about in the approach to governance and financial sector reforms will define the timeframe within which India will be able to come out of the present impasse. Coming out, India will. Present eruptive symptoms show that ‘we, the people’ will not show the patience with which they waited for generations to gain independence for realizing basic human rights. Financial inclusion will expedite empowerment towards achieving this goal. The segment of the generation which benefited maximum from LPG (those who were in the age group of 15-35, circa 1991) should take the responsibility to take India out of the mess in which the lazy generation to which I belong has landed the country. It will be in their self-interest.
Banking Special
n GA x 13 14
Banking Special
Financial Inclusion
Surmounting the Insurmountable
M G Warrier Former General Manager Reserve Bank of India
For historic reasons, in India, the responsibility to purvey social justice is shared between government and banks. Perhaps these are the only two institutions which get to the grassroots. The outreach of the government is limited to tax collection and law-enforcement in several geographical areas and segments of population. Banks’ reach out to more people as part of resources mobilization efforts and as purveyor of timely and need-based credit. These are sweeping statements. Though this article will be brief and will not attempt the adventure, a deeper study will tell us that a revisit to Kautilya’s Arthasastra is overdue for those in charge of governance, to understand the rights and responsibilities of an administrator of governance. Similarly, banks should introspect how much has changed in the banking business, beyond the ambience and technology, from the moneylender days.
Of late, there is a clear recognition of the magnitude and dimensions of the inadequacies in credit flow to weaker sections and sectors with low individual credit needs at higher levels in GOI and RBI. Perhaps, rural credit is the most talked about and studied subject in our country since late 1950’s and from the establishment of SBI to the current efforts to develop MFIs, there have been a number of fresh initiatives to support rural development. Last July, while speaking on ‘Challenge of financial inclusion’ RBI Governor Duvvuri Subbarao referred to the magnitude and dimensions of the inadequacies in credit flow to weaker sections and sectors with low individual credit needs. Such recognition of the need for action, at the highest level, is comforting.
Post-independence and perhaps till the emergence of the LPG (Liberalisation- Privatisation- Globalisation) dimension in policy thrust at national level, circa 1991, agricultural and rural credit and financial inclusion received undivided attention from Reserve Bank of India (RBI) with support from Government of India(GOI). The period also saw extensive surveys and studies like All India Rural Credit Survey, All India Rural Credit Review, Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) and the study by Agricultural Credit Review Committee (Khusro Committee, 1991). Initiatives taken by RBI and GOI in improving the institutional framework in the financial sector saw the emergence of State Bank of India, setting up of institutions like National Bank for Agriculture and Rural Development (NABARD), Industrial Development Bank of India (IDBI), Small Industries Development Bank of India (SIDBI) and Unit Trust of India.
Measures like reviving cooperatives, Lead Bank Scheme which THE GL BAL ANALYST
significantly improved the outreach of commercial banks in rural and semi-urban areas and coordinated supports from different agencies involved in rural development, establishment of Regional Rural Banks, NABARD and SIDBI have all contributed to improved credit flow to small and medium borrowers in rural and semi-urban areas.
Increasing the outreach of banks to cover the rural borrower with low credit needs has been one objective the nation has been pursuing religiously since 1950’s (when State Bank of India was established), till date (now SBI has come out with facility to open account with one rupee!). But the reality of financial inclusion is eluding. Banking system has done a commendable job in this direction through the network of rural branches, rural financial institutions (RFIs) including cooperatives, Regional Rural Banks (RRBs) and rural branches of commercial banks. The focus shifted midway, somewhere during 1990’s to urban and metropolitan lending.
Rise in rural deposits and burgeoning urban credit created imbalances and certain bypass routes were allowed for banks to achieve their priority lending targets. Banks started searching for other intermediaries like Microfinance Institutions (MFIs) for providing credit to small borrowers. MFIs, in some cases borrowed from banks at low rates and disbursed credit to the ultimate borrower at up to three times or more the borrowing rates, in the same area where bank branches functioned. So long as banks source rural deposits, they should also shoulder the responsibility of providing credit in rural areas at reasonable interest rates.
GOI and RBI should at this stage take up a comprehensive review of the entire rural credit architecture for an overhaul. The changes necessary may include:
• Reviving the role of Rural Financial Institutions( RFIs) including rural and semi-urban branches of commercial banks, cooperatives and Regional Rural Banks which have strayed away from their mandated responsibilities,
• Identifying costs for financial intermediaries that cannot be factored into interest costs and specifying the agency which should meet them, if the activity has to remain bankable,
• Without going back to the abandoned ‘regulated interest rates regime’, working out and specifying broad bands within which ultimate lending rates should remain when bank funds are sourced for the purpose and
• Reducing the number of bypass routes allowed for priority sector lending to the minimum.
Such a review may be necessary at this stage, irrespective of who gets licenses for new commercial banks.
Sometime back, Reserve Bank had constituted a Committee (Chairman: Shri M. V. Nair) to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues. During the Monetary Policy announcement on April 17, 2012 RBI Governor mentioned that the Committee submitted its report in February 2012 and indicated that it made the following major recommendations: (i) the existing target of the domestic scheduled commercial banks for lending to the priority sector be retained; (ii) the sector ‘agriculture and allied activities’ be a composite sector within priority sector; (iii) a sub-target for small and marginal farmers within agriculture and allied activities be segregated; (iv) a sub-target for micro enterprises under the micro and small enterprises (MSE) category be stipulated; (v) the priority sector target for foreign banks be increased to 40 per cent of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is higher with sub-targets of 15 per cent for exports and 15 per cent for the MSE sector; (vi) non-tradable priority sector lending certificates (PSLCs) be allowed on a pilot basis; (vii) bank loans to non-bank financial intermediaries for on-lending to specified segments be allowed to be reckoned for classification under priority sector, up to a maximum of 5 per cent of ANBC or CEOBE, whichever is higher; and (viii) the present system of report-based reporting may be improved through data-based reporting.
Taking into account these recommendations and other relevant factors, GOI and RBI should also take a re-look at the definition of the priority sector, as these have not been comprehensively revised after the introduction of the concept of targeted lending to priority sector by commercial banks in the 1970’s, except for minor modifications, by way of adding some new activities under priority sector or raising the financial ceilings taking into account the inflation impact on costs. The banking infrastructure has also undergone changes with the entry of new private sector banks, consolidation of Regional Rural Banks (RRBs), changes in the role and business models of cooperatives and the change in focus of public sector banks with an increased bias to profitability. All these and
the developments during the last two decades have not reduced the need for differential treatment to the conventional priority sector especially agriculture and small borrowers in small industries and service sub-sectors.
As public sector banks including State Bank of India and its associates, old private sector banks, new private sector banks, RRBs and cooperative banks have different approaches to resource mobilization, lending and profitability, varying capabilities in terms of outreach and expertise and different mandates from the stake-holders, each category of these institutions will have to be given resource mobilization and credit delivery tasks factoring in these structural and policy aspects.
The reorganization of the banking system may be further delayed for political reasons. As essential reforms cannot wait for a change in the political weather, in the medium term, GOI and RBI may consider the following steps:
• Redefine sub-sectors in the priority sector reckoning the changes that have taken place during the last two decades and realign the targets for sub-sectors. Beyond inclusion of a few additional activities as eligible for classification under priority sector or raising certain ceilings to factor in inflation impact, nothing much has happened in the recent past from this perspective.
• Ask banks to ensure that their rural, semi-urban, urban and metro branches realign their credit portfolios to meet local credit needs
• Instead of prescribing straight-jacket targets for lending to sub-sectors like agriculture, make necessary policy changes which will reflect the availability of expertise and outreach of each category of banks. E.g. If a bank has more branches in urban areas and cities and are able to lend more to microfinance, allow a set-off their disbursal to microfinance over and above a bench-mark against their target for lending to agriculture.
• Route all concessions and subsidies in interest rates through the banking channel and make the lending banker responsible to ensure that the ultimate borrower is charged a minimum interest of, say the rates paid on savings bank deposits by the bank.
Perhaps, rural credit is the most talked about and studied subject in our country since late 1950’s and from the establishment of SBI to the current efforts to develop MFIs there has been continuous initiatives to support rural development.
Measures like reviving cooperatives, Lead Bank Scheme which significantly improved the outreach of commercial banks in rural and semi-urban areas and coordinated supports from different agencies involved in rural development, establishment of Regional Rural Banks, NABARD, SIDBI and recent support to encourage MFIs to function more efficiently through increased intermediation have all contributed to improved credit flow to small and medium borrowers in rural and semi-urban areas.
Although UID project, Financial Inclusion Plans and business correspondent (BC) model will all help to improve linkages at the ground level, the best option in the present scenario, for the institutions referred to above, viz. Cooperatives, RRBs, rural and semi-urban branches of commercial banks, NABARD and SIDBI would be to revisit and focus on their original mandates. Such a ‘diversion’ in approach would go a long way in achieving the desired results, namely to improve financial inclusion.
RBI’s discussion paper on new banks has generated some discussion on financial inclusion which is one of the stated purposes of having more banks in the private sector. Perhaps increasing the outreach of banks to cover the rural borrower with low credit needs has been one objective the nation has been pursuing religiously since 1950’s (when State Bank of India was established), till date (now SBI has come out with facility to open account with one rupee!). But the reality of financial inclusion is eluding. Banking system has done a commendable job in this direction through the network of rural branches, rural financial institutions (RFIs) including cooperatives, Regional Rural Banks (RRBs) and rural branches of commercial banks.
The focus of commercial banks shifted midway, somewhere during 1990’s to urban and metropolitan lending. Rise in rural deposits and urban credit created imbalances and certain bypass routes were allowed for banks to achieve their priority lending targets. Like Mutual Funds(MFs) investing in schemes of other MFs to pair risks, banks started searching for other intermediaries like Microfinance Institutions (MFIs) for providing credit to small borrowers. MFIs, in some cases borrow from banks at low rates and lend at up to three times the borrowing rates, in the same area where bank branches function. So long as banks source rural deposits, they should also shoulder the responsibility of providing credit in rural areas at reasonable interest rates.
In April 2011, RBI Deputy Governor Usha Thorat in a speech in Kuala Lumpur on “Financial inclusion beyond microfinance” traced the recent developments in MFI sector in India and flagged the challenges in microfinance, concluding with an observation that the public policy intervention in financial inclusion calling for fiscal support-directly or indirectly-will have to be carefully crafted looking at the international experience of such schemes and their effectiveness. In the globalised economy today, learning from international experience and following ‘successful models’ will cut short the time-lag from lab to field. But, it is also essential to evolve our schemes and institutional infrastructure to suit India’s local needs with reference to our own past experience and success stories. Reason being, our resources including land, infrastructure and literacy rate vary widely from those obtaining in other countries where poverty, deprivation and unemployment have been successfully alleviated. We have states like Haryana, Kerala and Andhra Pradesh which have gone ahead in certain development parameters and are still finding difficult to manage economic development successfully. We have also states like Bihar and UP where people accept starvation wages and curse their fate for poverty and low level of literacy.
In the financial sector, we have several banks and NBFCs doing very well and still not able to penetrate to rural areas or extend credit to sectors in which individual credit need is small. There are commercial bank branches, Regional Rural Banks and cooperative which are able to meet the entire credit needs of small borrowers in their respective areas of operation. During the last two decades or so, policy interventions to achieve financial inclusion, especially where fiscal support has been essential, have been sporadic and piece meal.
Subsidy has been considered a bad word and the compulsions of coalition politics have been forcing central government to close their eyes when subsidy is provided by various state governments through backdoor at the wrong end in the shape of interest subsidy and write offs. A more realistic approach to the financial needs of the small borrowers with an appropriate mix of incentives and disincentives for the conduits of credit delivery will help salvage the institutional framework responsible for financial inclusion.
Role of cooperatives
Cooperatives have played a significant role not only in providing agricultural and rural credit, but in ensuring other linkages like inputs for farming and marketing avenues for products. As they were mainly operating in rural and semi-urban areas, it took longer time for this sector to access modern skills and technology. NABARD was established in 1982 with the specific mandate of supporting cooperatives and rural sector in general. Initial enthusiasm of NABARD faded away in the absence of legislative and administrative support from central and state governments and the institution had to satisfy itself by continuing to be an appendage of RBI doing some ‘safe’ business through established and credit-worthy cooperative banks and commercial banks. Legislative support in adequate measure for revitalizing the cooperatives which comprises state and district central cooperative banks and more importantly about a lakh primary agricultural credit societies is not forthcoming from central and state governments. At a time when the government and the regulatory and supervisory institutions are struggling to make a breakthrough in financial inclusion and improvement in productivity, if appropriately utilized, the already available infrastructure and membership of cooperatives will make their work much simpler.
Out of one lakh PACSs only one-fifth situated in the four southern states and West Bengal are doing well. The remaining societies will need financial and managerial support for rehabilitation. Still, if a political will can be evolved, reviving the cooperatives with technological, financial and administrative support will give a boost to the efforts for financial inclusion.
Epilogue
The speed with which changes are brought about in the approach to governance and financial sector reforms will define the timeframe within which India will be able to come out of the present impasse. Coming out, India will. Present eruptive symptoms show that ‘we, the people’ will not show the patience with which they waited for generations to gain independence for realizing basic human rights. Financial inclusion will expedite empowerment towards achieving this goal. The segment of the generation which benefited maximum from LPG (those who were in the age group of 15-35, circa 1991) should take the responsibility to take India out of the mess in which the lazy generation to which I belong has landed the country. It will be in their self-interest.
Banking Special
n GA x 13 14
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