NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, April 25, 2014

Perhaps on no issue have the finance ministry and the Reserve Bank of India (RBI) been in concordance over the past several years – except for financial inclusion. From the target of a banking presence in villages with a population of over 2,000 to the motivation to expand the banking sector by issuing new licences and a host of other goals and initiatives, the agenda has taken centre stage, culminating in the Nachiket Mor committee’s report submitted to the RBI a few months ago. It might have been expected that the core recommendations of the report would have received priority attention from the RBI and the government with a view to initiating implementation wherever possible, while putting in place the supporting ecosystem for the more far-reaching ones.

It is somewhat surprising, then, that a road map for implementing the key recommendations of the Mor committee is yet to be outlined. Although hesitancy over this causing the delay has been denied, the fact that the last monetary policy announcement on April 1 did not specifically mention any plans to implement the recommendations lends some credence to the concern. Considering the importance that Governor Raghuram Rajan attaches to the agenda, one of the five pillars on which he is building his financial stability and development strategy, there were expectations of a big push based on the report. However, what seems to have come in the way are reservations expressed over their implementation. The new institutional model that is being proposed in the form of payment banks as a way to expand reach and access quickly apparently raises questions about appropriate prudential norms and, more importantly, the capacity to supervise and monitor them effectively. As is prone to happen in government, this process can continue endlessly, resulting in the whole initiative being stalled or, at best, implemented piecemeal, with no significant impact.