Indian banks gung-ho about financial inclusion, but not agents

Tuesday, March 4, 2014

Financial inclusion is not yet a profitable proposition, but banks remain gung-ho about the initiative, predicting future dividends from the market reach that comes with improved access to finance. Public sector banks entrusted with the task of taking their services to rural parts of the country are suffering losses of 66-93 paise on every ?100 they transfer to Aadhaar-linked no-frills accounts under the direct subsidy benefit transfer mechanism, finds international consulting firm MicroSave on the basis of inputs from four banks in India.

The banks earn revenue of ?2.26 for every ?100 of cash distributed under the Government’s welfare schemes, according to the existing compensation mechanism. But their costs are as high as ?3.19 per ?100, translating into a negative gross margin of as high as 41.2 per cent, say estimates by MicroSave.

The firm studied a mix of private and public sector banks, and small banks (including RRBs), says Puneet Chopra, Associate Director for Microsave, which has been providing financial inclusion consulting for 15 years.

Source: The Hindu Business Line (link opens in a new window)

financial inclusion, governance