Indian government backs banks in drive towards the base of the pyramid.

Monday, January 2, 2006

Several banks have launched ’no-frills’ accounts in the recent weeks in response to the Reserve Bank of India’s call of social and financial inclusion of customers at the bottom of the pyramid.

The central bank believes that with a little innovation, banks can make sound business sense by providing basic banking services.

Last year, the Reserve Bank of India had emphasised more than once on the significance of greater financial inclusion – delivery of banking services at an affordable cost to sections of disadvantaged and low income groups. Banking services, even the very basic, are not available to a large section of the Indian population, while banks assiduously court the high-end customers.

The quantum of the number of accounts (current and savings) per 100 of adult population points to the disparity in different states. In Punjab, the figure is at a high of 105, while in Bihar it drops to 32.

In order to boost the availability of banking services in such low-serviced areas, the banking regulator, in its annual credit policy for 2005-06 (April-March), mooted the idea of a ’no-frills’ account.

“In many banks, the requirement of minimum balance and charges levied, although accompanied by a number of free facilities, deter a sizeable section of population from opening and maintaining bank accounts,” said V Leeladhar, deputy governor, RBI, at a recent seminar on financial inclusion. A no-frills account is essentially a nil or low balance account with charges that make it accessible to vast sections of the population.

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Source: Business Standard (link opens in a new window)