Mor Gives Vision for Financial Inclusion - The New Indian Express

Mor Gives Vision for Financial Inclusion

Published: 08th January 2014 06:00 AM

Last Updated: 08th January 2014 01:29 AM

A Reserve Bank of India (RBI) panel set up to promote financial inclusion has recommended the creation of a universal electronic bank account (UEBA) for all adult Indian citizens and access to formal credit for low-income households and small businesses by January 2016.

By January 1, 2016 each Indian resident, above the age of 18 years, would have an individual, full-service, safe, and secure electronic bank account, said the panel headed by Nachiket Mor, a member of RBI’s central board and former executive at ICICI Bank.

The committee also called for major changes in “priority sector” lending norms, and recommended raising priority sector lending cap for banks to 50 per cent from the current 40 per cent.

It also called for creating a new category of banks, called payments banks, to provide payment services and deposit products to small businesses and low-income households.  Such banks would have a minimum entry capital requirement of `50 crore, compared with `500 crore required for full-service banks, since they will have a near-zero risk of default, as their prime purpose will be to accept deposits and provide funds to its customers. Existing banks should be permitted to create a payments bank as a subsidiary, the panel has recommended.

Besides Mor, other members of the panel include Prakash Bakshi, ex-chairman of National Bank for Agricultural and Rural Development, and Bharat Doshi, chairman of Mahindra and Mahindra Financial Services Ltd.

The committee was one of the first steps taken by RBI Governor Raghuram Rajan when he was appointed in September 2013. Its mandate was to study various aspects of financial inclusion.

The panel also recommended some wholesale changes in the way banks function. For instance, it has recommended that the statutory liquidity ratio (SLR) – the portion of every deposited rupee that has to be invested in government securities as per RBI mandate - has outlived its utility for  both banks and NBFCs and eventually needs to be removed.

The panel also said that banks should not be permitted to price farm loans below the base rate.

It also recommended abolition of interest subsidies and loan waivers, instead saying that the government should transfer benefits directly to farmers using mechanisms like the Aadhar number.

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