Sense on Financial Inclusion from RBI





The Mohanty committee offers good advice

The RBI committee on financial inclusion headed by Deepak Mohanty has done well to take a systemic approach, instead of confining itself to banking channels.This, of course, runs the risk of converting the report into a broad narrative of needed reform across the real economy , and being added, with nods of weighty approv al, to the shelf of expert reports that need to be acted on sometime this century . But it has the benefit of bringing out the interconnectedness of popular access to formal finance with institutions and practices relating to the real economy , whether land records and agricultural subsidy or the tax treatment of securitisation vehicles. The Supreme Court stands to gain much clarity on the utility of Aadhaar as it ponders the legitimacy of its use in assorted government schemes, if it were to glance through just the summary recommendations of the panel.While the report deserves broad endorsement, some specific recommendations stand out. The panel wants to remove the eight-percentage-point maximum mark-up on the interest rate charged to the end-borrower by financial intermediaries over their cost of borrowing from a bank. This would encourage inclusion of remote areas and communities. The recom mendation to liberalise the norms for banking correspondents, while streamlining their regulation, and use mobile technology to cover the last mile, instead of asking banks to open yet more unviable rural branches, is hugely welcome. The focus should be on smartphones and their applications, as these will replace feature phones even in rural areas with remarkable speed not anticipated by the committee.
The committee does well to endorse direct cash transfers to administer subsidies. The use of Aadhaar to tag bank accounts of the beneficiaries will help reform the country's subsidy administration and cut graft. The panel's recommendation to link Aadhaar to each individual credit account and share the information with credit rating agencies makes sense. However, India must enact a robust privacy law to prevent any abuse of Aadhaar.

Source: Economic Times, 31-12-2015