OPINION: Financial inclusion in India needs another model

Wednesday, November 12, 2014

Khatakholna, or opening basic bank accounts, is all the rage now. Whether it is the RBI’s no frills accounts or the Prime Minister’s Jan Dhan accounts, the growth of such accounts has been notable.

While the number of no-frills or zero-balance account holders touched 103.21 million in 2012, up from 49.33 million in 2010, more than six crore Jan Dhan accounts have been opened at breakneck speed since its launch.

Since millions of Indians don’t even have a bank account, these are laudable efforts, at least when measured through the prism of intent.

But on the credit side, the mainstay of RBI’s financial inclusion drive since the late 1960s has been the priority lending scheme, which requires banks to set aside a share of credit for the weaker sections.

Presently, banks are required to direct 40 per cent of their total credit to the ‘priority sector’ (PSL) consisting mainly of agriculture and allied activities and small and medium enterprises. In further directives, the RBI has mandated a sub-target of 18 per cent of banks’ credit for the agricultural sector.

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

financial inclusion