Banks Say Inclusiveness Is Costly
Wednesday, March 16, 2011
The Reserve Bank of India may want all banks to focus on financial inclusion-service the poor at the bottom of the pyramid-but is it a viable business?
“It’s not really profitable to have people in financial inclusion,” admitted Neeraj Swaroop, regional chief executive India and South Asia, Standard Chartered Bank.
“A lot of the accounts are dormant and not activated because there’s no credit as those people are really poor,” he added. “You can’t have financial inclusion go ahead without economic inclusion and if those people don’t have access to roads, electricity, [a steady stream of income].”
Mr. Swaroop uttered a rarely spoken truth as he spoke on a panel at Mint’s Annual Banking Conclave in Mumbai Tuesday. (The WSJ has a content sharing partnership with Mint and the two announced at the conclave a new collaboration on mergers and acquisitions coverage called Deals India)??
Making a clever pitch to K.C. Chakrabarty, deputy governor RBI, to ease up regulation to allow foreign banks into India, Stuart Fraser, chairman of policy for the City of London, said while it wasn’t profitable to bank the poor, it can be “an obligation that banks coming into India will have to take on if they want to enjoy the benefits of long term growth.”
O.P. Bhatt, chairman of the State Bank of India, the country’s largest bank, agreed that financial inclusion wasn’t profitable. But he said that as the volume of transactions at a particular outlet increased, losses would reduce.
“The question is how quickly can you enroll more people,” he said. “This could be an investment for the future especially if rural India is [expected to grow] faster than urban India. You may not see profits for the first three to four years, and you lose or invest rupees 10-50 crore [100 million to 500 million rupees, about two million to 10 million dollars] whatever your balance sheet can bear, whatever your board approves, and profits will come in the future.”