Are Toilets and Bank Accounts Connected? In India, Yes

Wednesday, October 1, 2014

Prime Minister Narendra Modi’s plan to develop India includes creating toilet access for all 1.2 billion people and opening a bank account for every adult who doesn’t already have one. India’s state-owned lenders are being called on to do both, threatening to erode profits and add expenditures at firms saddled with nonperforming loans.

Modi has asked banks to open branches within 5 kilometers (3 miles) of all of India’s 664,000 villages in order to reach 75 million households that have no access to formal financial services. After he announced on Aug. 15 a mission to build toilets in public schools, the Finance Ministry sent a memo to state-owned lenders urging them to pay for construction, according to a senior banking executive who saw it and didn’t want to be identified as the communication wasn’t public.

Banks have committed 740 million rupees ($12 million) to the toilet-building efforts, using funds for tax-advantaged corporate social responsibility projects, according to G.S. Sandhu, banking secretary at India’s Finance Ministry. They also registered 50 million new account holders and collected 35 billion rupees in deposits using temporary kiosks in villages and enlisting rural shop owners as representatives, he said.

“The announced financial-inclusion mission will be a drag on profitability of the government-controlled banks in the short-to-medium term,” Vibha Batra, the New Delhi-based head of financial-industry ratings at ICRA Ltd., the local unit of Moody’s Investors Service, said in an interview. “The lenders’ ability to recover the costs from these marginal customers through fee-based initiatives and low-cost savings deposits remains to be proven.”

Source: Bloomberg (link opens in a new window)

Categories
Health Care
Tags
banking, financial inclusion, financial services, government, sanitation, unbanked