Financial exclusion has to end

Monday, August 10, 2009

The inclusive story is still a distant dream. Despite the government drive to reduce the unbankable population, the status is far from rosy. With less than 50% of India’s population operating a bank account, the country continues to have one of the highest number of financially excluded households world-wide.

What’s has been disappointing is the manner in which the Indian banking industry is pursuing the goal of financial inclusion. Banking experts say financial inclusion, as it exists today, remains a mere target to be achieved than an aim to bring financial service

to the masses.

Stats are evident to support the claim. A study done by Skotch Development Foundation states that though 2.5 crore no-frill accounts were opened between April 2007 and May 2009, barely 11% of those are currently functional.
A closer look at the no-frills account features reveals that operating this account is a rather expensive proposition for the masses. Most of the banks levy high charges ranging from Rs 50 to Rs 250 for doing additional transactions above a certain threshold.

Says Robin Roy, associate director, PricewaterhouseCoopers (PwC); “The threshold levels for number of free transactions is based on business considerations and primarily to optimise the costs needed to serve this segment. But banks would need to seriously look at the bottom of the pyramid. It’s the quality of no frills account holders that holds the key.”

Source: Economic Times (link opens in a new window)