LEADER’S CORNER DEEPENING FINANC IAL€¦ · undergoing a paradigm shift. Financial Inclusion is...
1
N early 70 years have passed since Jawahar- lal Nehru and India’s midnight tryst with destiny, and as yet a large section of the Indian population still re- mains unbanked. Without ac- cess to financial products and services, financial instability and poverty is the norm among the lower income classes. Indeed, Financial in- clusion poses policy chal- lenges on a scale and with an urgency that is unique for de- veloping countries, which house nearly 90% of the world’s unbanked population. However, in recent years the Government and Reserve Bank of India has been stead- fastly promoting the idea of fi- nancial inclusion. Devising solutions and de- ploying them are two very dif- ferent things though, espe- cially in the context of devel- oping countries. There are complex and multi-dimen- sional factors at work that lend weight to financial exclu- sion and therefore a compre- hensive variety of providers, products and technologies are required. What’s more, all of them must work within and be a reflection of the so- cio-economic, political, cultur- al and geographic conditions unique to the country. There isn’t a one size fits all solution when it comes to financial in- clusion. There simply is no standard global solution that can be rapidly replicated across the board. It is perhaps more prudent then to pursue tailor-made solutions based on available good practices. The Economic Times under- stands and appreciates the pivotal role Financial Inclu- sion plays in driving away poverty, enabling sustainable development initiatives and generating employment gen- eration opportunities. With this in mind, ET Edge held the ‘3rd edition of the Economic Times Financial Inclusion Summit’ in Mumbai with a view to discuss the sector’s course ahead & figure out ways to mitigate risks & fu- ture-proof business profitabil- ity. The summit saw the par- ticipation of senior policy makers and industry leaders under one platform to chart the way forward, such as S.K. Roy (Chairman, LIC India), Anil Jaggia (CIO, HDFC Bank), Sudhir Mungantiwar (Hon'ble Minister of Finance, Govt of Maharashtra), S K Srivastava (Additional Chief Secretary, Ministry of Finance, Govt of Maharashtra), B. Madhav Reddy (Managing Director & Chief Executive Officer, Cal- cutta Stock Exchange) and several others. The honorable Dr. Has- mukh Adhia, (Secretary, De- partment of Financial servic- es, Ministry of Finance, Govt. of India) was the Chief Guest at the event, with the Keynote address given by Rajesh Ag- garwal, (Joint Secretary, Fi- nancial Services, Govt. Of In- dia) to a rapt audience. The summit focused on various topics that were of deep rele- vance for proponents of Fi- nancial Inclusion everywhere, such as ‘Regulatory Reforms- A Post-Budget Analysis’, ‘Technol- ogy changing the Financial Inclusion landscape’ and ‘Next step focuses towards Product Development and ini- tiating new credit lending models-achieving the 150 million bankers mission’. The merits of financial in- clusion are intrinsically linked to empowerment. Access to credit is a key link between economic opportunities and the economic outcome of it all. By empowering individu- als and families to cultivate economic opportunities, fi- nancial inclusion can be a powerful agent for strong and inclusive growth. There have been several laudable steps taken to facilitate Finan- cial Inclusion and not rel- egate it to the realm of lip service, such as the Prime Minister’s Jan Dhan Yo- jana (PMJDY), which has helped a majority of poor households in India open bank accounts. However, there are many elements of fi- nancial inclusion that have been on the anvil for too long. The fact is that it goes beyond the broader economic agenda of allowing a wider range of people, especially those on lower incomes, access to fi- nancial services, which adds to economic growth. Financial inclusion is fundamental to the social agenda of reducing income inequality and pover- ty. In this way, it can be one the levers to achieve higher welfare and lasting peace. In fact, accord- ing to a World Bank survey con- ducted in 2012, only 35% of adults polled in India had ac- cess to a formal bank account and only 8% borrowed from institutional and formal sources. This underlines the point that despite the sheer size and depth of India’s fi- nancial system, the majority of the rural poor simply do not have access to formal fi- nancial services. Reaching about 5 percentage of the population, micro-finance be- gan primarily with non-profit organisations delivering mi- cro-credit and pioneered the use of collateral substitutes and self-help groups (SHGs) to ensure high repayment. Having proven that financial services can be adapted to meet the needs of poor, households can contribute in the fight against poverty. The challenge now is to bring those benefits to more of In- dia’s poor in a financially sus- tainable way. Opening formal credit av- enues to a largely unbanked population should be the key. Even with several joining the banking fold, a large swathe of Indians have been overly dependent of informal chan- nels of credit such as family, friends and moneylenders. The availability of adequate and transparent credit from formal banking channels shall allow the entrepreneurial spirit to blossom and spread prosperity among the Indian hinterland. A classic example of what easy and affordable availability of credit can do for the poor is the micro-finance sector. Some of the trends that were identified over the course of the panel discus- sions was an acceptance and recognition of the changing role of policymakers and the importance of leadership to successful financial inclusion strategies and response. Moreover, reaching out to In- dia’s teeming rural milieu would be made possible through microfinance, which can be used as an entry point for issues of access since they have more of a feet-on-the- street business model. Once can also not ignore the role which new-age tech- nology has to play. It is with- out doubt a very important, but not the only, considera- tion for developing country policymakers. Considering that most customers being in- troduced to the fold of bank- ing will have little to no knowledge on how to lever- age them to the fullest. The panels also agreed that banks have an important role to play in order to achieve the goals of Financial Inclusion and that Financial Inclusion policy can and should not only focus on the supply-side. The barriers that cropped up often in the course of discussions includ- ed issues of market response, a need for greater stakehold- er coordination and the need for greater consumer under- standing, trust and protection. Financial inclusion of the unbanked masses is a critical step that requires political will, bureaucratic support and dogged persuasion by RBI. It is expected to unleash the hugely untapped potential of the bottom of pyramid sec- tion of Indian economy. With the right intent and will, Fi- nancial Inclusion can surely be the harbinger of the next great revolution of growth and prosperity. LEADER’S CORNER AN ET EDGE INITIATIVE “If you have to do hundreds of millions of account, credit account, loan accounts linked to livelihood opportunities, We have to bring in the banks because it has to be sustainable. Otherwise what is the option? Perhaps interest subsidies, but this invariably gets misused. So we have to ask ourselves, what is the ultimate outcome of what we’re doing? This is the difficult question that we have to address.” USHA THORAT, Former Deputy Governor, RBI “To my mind, one of the most important regulatory reforms on the anvil is the introduction of Payment Banks. The introduction of Payment Banks can potentially change the way all of us make payments and I would see this as an extremely transformative step that can make a significant change to the payment landscape in the coming years and decades.” G V NAGESWARA RAO, MD & CEO, NSDL “Amongst the things the country would need to do to achieve the goals for Financial Inclusion, we could focus on 3 of them. The first is what I call Demand. The second issue is another D, Distribution and the third D that we need to get right, and possibly the most important one, is Delivery.” S K ROY, Chairman, LIC of India “The new customers that are coming into the fold of banking need to be trained because their knowledge of banking is very, very minimal. That’s why it is absolutely important to train them; why save? Why borrow from a bank? Why make timely payments? This is presently being done through infrastructure which was already created for the earlier avatar of Financial Inclusion.” SHUBHALAKSHMI PANSE, Former CMD, Allahabad Bank “I think when we talk about Financial Inclusion, access is one of the primary criteria that we need to service. The advantage that the MFI’s possibly have is the feet on street model that MFI’s represent i.e., the MFI’s go to the client. That could be a key factor as far as Financial Inclusion is concerned.” RATNA VISHWANATHAN, Dy. CEO & CCO, MFIN “Insurance is one of the four pillars of Financial Inclusion. Insurance has always been treated as a push product. The penetration for the Life Insurance industry is only 3.7% so far whereas the rural penetration of Life Insurance is hardly 1%, and if I go further beyond health insurance penetration, it is .25%. It shows the kind of market available and how financially excluded our population is.” YOGESH GUPTA, SVP, Bajaj Allianz Life Insurance “I think one right thing that the budget has done is the merger of FMC and SEBI. That will go a long way because there are different costs for equities, commodities and so on. Now we need to basket all financial products, which will lead to a lower cost of doing business and help reach out to a larger number of people.” B MADHAV REDDY, MD & CEO, Calcutta Stock Exchange “We have opened about 27 lakh accounts out of which 70% still have zero balance. So there’s a huge savings potential to be had there and huge business potential for the branches in those areas.” ASHWANI KUMAR, CMD, Dena Bank ET EDGE SPEAK: DEEPAK LAMBA, PRESIDENT, TIMES CONFERENCES LIMITED, BCCL “The Indian banking industry has witnessed a period of consistent growth, with banks along with their customers embracing robust systems and processes. With this summit, we aimed to address the issues faced by the industry and chalk out a way forward.” DEEPENING FINANCIAL INCLUSION IN INDIA > PANEL 1: (LEFT TO RIGHT) S K Roy, Chairman, LIC, G V Nageswara Rao, MD & CEO, NSDL, Shubhalakshmi Panse, Former CMD, Allahabad Bank, R Amlorpavnathan, DMD, NABARD, Abizer Diwanji, Partner & National Leader – Financial Services, E&Y, Ratna Vishwanathan, Dy CEO & CCO, MFIN THE ECONOMIC TIMES FINANCIAL INCLUSION SUMMIT SOUGHT TO UNDERSTAND HOW TO ENSURE FINANCIAL INCLUSION FOR ALL T he Indian financial services landscape is undergoing a paradigm shift. Financial Inclusion is high on the government’s agenda and there have been investments in regulatory re- form, improvements to the banking system and a re- newed focus on digital pay- ments. The Government is looking to target the bottom of the pyramid and micro, small, and medium enter- prises (MSMEs), and this is where NSDL’s drive in en- abling digital payments holds sway. We are seeing the begin- nings of digital technologies being widely embraced and banking services (such as basic savings accounts and smartphones), driven by specific uses such as govern- ment subsidies, are starting to gain a lot of ground. This is the onset of a wave of tremendous innovation with the potential to greatly am- plify financial inclusion for millions across India. The financial sector reform in India has had many false starts, and there are still many regulatory and struc- tural hurdles to be over- come, but with digital pay- ments and technologies coming of age, a change for the better is inevitable. India is nearing an inflection point with changes playing out in three areas that are giving birth to exciting startup fi- nancial services models: MSME finance, digital pay- ments, and consumer servic- es, and NSDL is at the fore- front of this exciting new wave of change. NSDL’S ROLE IN FINANCIAL INCLUSION
Transcript of LEADER’S CORNER DEEPENING FINANC IAL€¦ · undergoing a paradigm shift. Financial Inclusion is...
Nearly 70 years havepassed since Jawahar-lal Nehru and India’s
midnight tryst with destiny,and as yet a large section ofthe Indian population still re-mains unbanked. Without ac-cess to financial products andservices, financial instabilityand poverty is the normamong the lower incomeclasses. Indeed, Financial in-clusion poses policy chal-lenges on a scale and with anurgency that is unique for de-veloping countries, whichhouse nearly 90% of theworld’s unbanked population.However, in recent years theGovernment and ReserveBank of India has been stead-fastly promoting the idea of fi-nancial inclusion.
Devising solutions and de-ploying them are two very dif-ferent things though, espe-cially in the context of devel-oping countries. There arecomplex and multi-dimen-sional factors at work thatlend weight to financial exclu-sion and therefore a compre-hensive variety of providers,products and technologiesare required. What’s more, allof them must work withinand be a reflection of the so-cio-economic, political, cultur-al and geographic conditionsunique to the country. There
isn’t a one size fits all solutionwhen it comes to financial in-clusion. There simply is nostandard global solution thatcan be rapidly replicatedacross the board. It is perhapsmore prudent then to pursuetailor-made solutions basedon available good practices.
The Economic Times under-stands and appreciates thepivotal role Financial Inclu-sion plays in driving awaypoverty, enabling sustainabledevelopment initiatives andgenerating employment gen-eration opportunities. Withthis in mind, ET Edge held the‘3rd edition of the EconomicTimes Financial InclusionSummit’ in Mumbai with aview to discuss the sector’scourse ahead & figure outways to mitigate risks & fu-ture-proof business profitabil-ity. The summit saw the par-ticipation of senior policymakers and industry leadersunder one platform to chartthe way forward, such as S.K.Roy (Chairman, LIC India),Anil Jaggia (CIO, HDFC Bank),Sudhir Mungantiwar (Hon'bleMinister of Finance, Govt ofMaharashtra), S K Srivastava(Additional Chief Secretary,Ministry of Finance, Govt ofMaharashtra), B. MadhavReddy (Managing Director &Chief Executive Officer, Cal-
cutta Stock Exchange) andseveral others.
The honorable Dr. Has-mukh Adhia, (Secretary, De-partment of Financial servic-es, Ministry of Finance, Govt.of India) was the Chief Guestat the event, with the Keynoteaddress given by Rajesh Ag-garwal, (Joint Secretary, Fi-nancial Services, Govt. Of In-dia) to a rapt audience. Thesummit focused on varioustopics that were of deep rele-vance for proponents of Fi-nancial Inclusion everywhere,such as ‘Regulatory Reforms-A Post-BudgetAnalysis’, ‘Technol-ogy changing theFinancial Inclusionlandscape’ and‘Next step focuses towardsProduct Development and ini-tiating new credit lendingmodels-achieving the 150million bankers mission’.
The merits of financial in-clusion are intrinsically linkedto empowerment. Access tocredit is a key link betweeneconomic opportunities andthe economic outcome of itall. By empowering individu-als and families to cultivateeconomic opportunities, fi-nancial inclusion can be apowerful agent for strong andinclusive growth. There havebeen several laudable steps
taken to facilitate Finan-cial Inclusion and not rel-egate it to the realm of lipservice, such as the PrimeMinister’s Jan Dhan Yo-jana (PMJDY), which hashelped a majority of poorhouseholds in India open
bank accounts. However,there are many elements of fi-nancial inclusion that havebeen on the anvil for too long.The fact is that it goes beyondthe broader economic agendaof allowing a wider range ofpeople, especially those onlower incomes, access to fi-nancial services, which addsto economic growth. Financialinclusion is fundamental tothe social agenda of reducingincome inequality and pover-ty. In this way, it can be onethe levers to achieve higherwelfare and lasting peace.
In fact, accord-ing to a WorldBank survey con-ducted in 2012,only 35% of
adults polled in India had ac-cess to a formal bank accountand only 8% borrowed frominstitutional and formalsources. This underlines thepoint that despite the sheersize and depth of India’s fi-nancial system, the majorityof the rural poor simply donot have access to formal fi-nancial services. Reachingabout 5 percentage of thepopulation, micro-finance be-gan primarily with non-profitorganisations delivering mi-cro-credit and pioneered theuse of collateral substitutesand self-help groups (SHGs)to ensure high repayment.Having proven that financialservices can be adapted tomeet the needs of poor,households can contribute inthe fight against poverty. Thechallenge now is to bringthose benefits to more of In-
dia’s poor in a financially sus-tainable way.
Opening formal credit av-enues to a largely unbankedpopulation should be the key.Even with several joining thebanking fold, a large swatheof Indians have been overlydependent of informal chan-nels of credit such as family,friends and moneylenders.The availability of adequateand transparent credit fromformal banking channels shallallow the entrepreneurialspirit to blossom and spreadprosperity among the Indianhinterland. A classic exampleof what easy and affordableavailability of credit can do forthe poor is the micro-financesector.
Some of the trends thatwere identified over thecourse of the panel discus-sions was an acceptance andrecognition of the changingrole of policymakers and theimportance of leadership tosuccessful financial inclusionstrategies and response.Moreover, reaching out to In-dia’s teeming rural milieuwould be made possiblethrough microfinance, whichcan be used as an entry pointfor issues of access since theyhave more of a feet-on-the-street business model.
Once can also not ignorethe role which new-age tech-nology has to play. It is with-out doubt a very important,but not the only, considera-tion for developing countrypolicymakers. Consideringthat most customers being in-troduced to the fold of bank-ing will have little to noknowledge on how to lever-age them to the fullest. Thepanels also agreed that bankshave an important role to playin order to achieve the goalsof Financial Inclusion and thatFinancial Inclusion policy canand should not only focus onthe supply-side. The barriersthat cropped up often in thecourse of discussions includ-ed issues of market response,a need for greater stakehold-er coordination and the needfor greater consumer under-standing, trust and protection.
Financial inclusion of theunbanked masses is a criticalstep that requires politicalwill, bureaucratic support anddogged persuasion by RBI. Itis expected to unleash thehugely untapped potential ofthe bottom of pyramid sec-tion of Indian economy. Withthe right intent and will, Fi-nancial Inclusion can surelybe the harbinger of the nextgreat revolution of growthand prosperity.
LEADER’S CORNER
AN ET EDGE INITIATIVE
“If you have to do hundredsof millions of account, creditaccount, loan accountslinked to livelihoodopportunities, We have tobring in the banks becauseit has to be sustainable.Otherwise what is theoption? Perhaps interestsubsidies, but thisinvariably gets misused. Sowe have to ask ourselves,what is the ultimateoutcome of what we’redoing? This is the difficultquestion that we have toaddress.”
USHA THORAT, Former Deputy Governor, RBI
“To my mind, one of themost important regulatoryreforms on the anvil is theintroduction of PaymentBanks. The introduction ofPayment Banks canpotentially change the wayall of us make payments andI would see this as anextremely transformativestep that can make asignificant change to thepayment landscape in thecoming years and decades.”
G V NAGESWARA RAO, MD & CEO, NSDL
“Amongst the things thecountry would need to do toachieve the goals forFinancial Inclusion, we couldfocus on 3 of them. The firstis what I call Demand. Thesecond issue is another D,Distribution and the third Dthat we need to get right,and possibly the mostimportant one, is Delivery.”
S K ROY, Chairman, LIC of India
“The new customers that arecoming into the fold ofbanking need to be trainedbecause their knowledge ofbanking is very, veryminimal. That’s why it isabsolutely important totrain them; why save? Whyborrow from a bank? Whymake timely payments? Thisis presently being donethrough infrastructurewhich was already createdfor the earlier avatar ofFinancial Inclusion.”
SHUBHALAKSHMI PANSE, Former CMD, Allahabad Bank
“I think when we talk aboutFinancial Inclusion, access isone of the primary criteriathat we need to service. Theadvantage that the MFI’spossibly have is the feet onstreet model that MFI’srepresent i.e., the MFI’s goto the client. That could be akey factor as far as FinancialInclusion is concerned.”
RATNA VISHWANATHAN, Dy. CEO & CCO, MFIN
“Insurance is one of the fourpillars of Financial Inclusion.Insurance has always beentreated as a push product.The penetration for the LifeInsurance industry is only3.7% so far whereas therural penetration of LifeInsurance is hardly 1%, andif I go further beyond healthinsurance penetration, it is.25%. It shows the kind ofmarket available and howfinancially excluded ourpopulation is.”
YOGESH GUPTA, SVP, Bajaj Allianz Life Insurance
“I think one right thing thatthe budget has done is themerger of FMC and SEBI.That will go a long waybecause there are differentcosts for equities,commodities and so on. Nowwe need to basket allfinancial products, whichwill lead to a lower cost ofdoing business and helpreach out to a larger numberof people.”
B MADHAV REDDY, MD & CEO, Calcutta Stock Exchange
“We have opened about 27lakh accounts out of which70% still have zero balance.So there’s a huge savingspotential to be had thereand huge business potentialfor the branches in thoseareas.”
ASHWANI KUMAR, CMD, Dena Bank
ET EDGE SPEAK: DEEPAK LAMBA, PRESIDENT, TIMES CONFERENCES LIMITED, BCCL
“The Indian banking industry has witnessed a period ofconsistent growth, with banks along with their customersembracing robust systems and processes. With this summit,we aimed to address the issues faced by the industry andchalk out a way forward.”
DEEPENING FINANCIAL INCLUSION IN INDIA
> PANEL 1: (LEFT TO RIGHT) S K Roy, Chairman, LIC, G V Nageswara Rao, MD & CEO, NSDL, Shubhalakshmi Panse, Former CMD, Allahabad Bank, R Amlorpavnathan,DMD, NABARD, Abizer Diwanji, Partner & National Leader – Financial Services, E&Y, Ratna Vishwanathan, Dy CEO & CCO, MFIN
THE ECONOMIC TIMES FINANCIAL INCLUSION SUMMIT SOUGHT TO UNDERSTAND HOW TOENSURE FINANCIAL INCLUSION FOR ALL
T he Indian financialservices landscape isundergoing a paradigm
shift. Financial Inclusion ishigh on the government’sagenda and there have beeninvestments in regulatory re-form, improvements to thebanking system and a re-newed focus on digital pay-ments. The Government islooking to target the bottomof the pyramid and micro,small, and medium enter-prises (MSMEs), and this iswhere NSDL’s drive in en-abling digital payments
holds sway. We are seeing the begin-
nings of digital technologiesbeing widely embraced andbanking services (such asbasic savings accounts andsmartphones), driven byspecific uses such as govern-ment subsidies, are startingto gain a lot of ground. Thisis the onset of a wave oftremendous innovation withthe potential to greatly am-plify financial inclusion formillions across India.
The financial sector reformin India has had many false
starts, and there are stillmany regulatory and struc-tural hurdles to be over-come, but with digital pay-ments and technologiescoming of age, a change forthe better is inevitable. Indiais nearing an inflection pointwith changes playing out inthree areas that are givingbirth to exciting startup fi-nancial services models:MSME finance, digital pay-ments, and consumer servic-es, and NSDL is at the fore-front of this exciting newwave of change.
NSDL’S ROLE IN FINANCIAL INCLUSION
