Globally economies are constantly evolving. India’s economy is also evolving. As the saying goes that change is the only constant, the question on everyone’s mind is what next after bringing a commercially viable but financially excluded person into formal financing channel?
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FUTURE OF FINANCIAL INCLUSION IN INDIA
Commercially Unviable Urban Financial Inclusion: This seems to be the logical extension of thought. Here the current status of the UK’s economy can serve as an eye-opener. The total population of financially excluded people in the UK is estimated to be 2.25 million. The unbelievable fact is that in several urban centers, financially excluded persons are about two million (20 lakhs) in comparison to just more than 2 lakhs financially excluded persons in rural parts of the UK!
Will it be in a similar position in India after ten years? Perhaps, yes because financial inclusion schemes introduced by the government and the regulator have a rural bias. And focusing on the inclusion of commercially unviable but financially excluded persons makes no business sense to the banks. Therefore this may become the next mission mode.
Last Mile Urban Inclusion: It is expected that because of the collective efforts of the various stakeholders including the government, the regulator, the banks, the intermediaries, technology providers coupled with financial awareness and education, formal financing channels in India will cross the level of 95% inclusion by 2020 in urban areas. And the financially excluded person will be in a single digit in percentage terms.
Reactivation Drive for Dormant Accounts: As per a public report released recently, more than 60 million no-frill accounts have been opened till now. Out of these, active no-frill accounts for just 2.5 million. The question is; how long banking industry can bear the burden of inactive accounts? Perhaps either the government or the regulator will spearhead a new mission in the form of reactivation drive for dormant accounts. This will be to shake up the sleeping account holders.
WHITE LABEL ATM’S IN INDIA
ATM variants: Currently the banking industry is feeling the cost crunch in the expansion of not only branches but also of it’s ATM network. The question is how to reduce the cost of setting up an ATM? Can ATM’s work without electricity through solar panels? Will it be feasible to install ATM’s inhabitants with less than 2000 population? We will need to find answers to these questions in the coming decades.
It is projected that irrespective of whether inclusion takes place or not, the ATM industry will evolve not only in technology but also in the ownership pattern. The Reserve Bank of India recently permitted 3 NBFC’s to start white label ATMs in the country.
CBS becoming CBS: Currently, all the banks have core banking solutions and the branches are connected to CBS. But this CBS ( core banking solution ) serves only a limited purpose. Many services extended by the banks to their customers are beyond their CBS like gold coin distribution, locker facility, etc.,
Perhaps a drive will be initiated where this CBS ( core banking solution) will become real CBS ( complete banking solution ). This new CBS will help the banks to achieve cross-selling by taking care of allied activities.
Conversion of ‘ no-frill account ‘ to regular saving bank account: As per the report, more than 60 million ‘ no-frill accounts’ have been opened by the banking system. But only 2.5 million are active and 57.5 million out of total accounts opened have become inactive. This very high rate of inactive ‘ no-frill account’ is alarming.
The reason for this could be that:
(i) Perhaps these were opened under societal / peer pressure.
(ii) Operating cost in terms of time is very high for account holders.
(iii) Account-holders have not got any value addition by opening a bank account.
(iv) There is no change in the quality of life of the account holder.
(v) The account holder does not have faith in technology being used or is uncomfortable with the interface
(vi) Account holders are migrants from their native village and have now migrated to a new workplace.
Perhaps after a few years, a new drive will be required to allow conversion of no-frill accounts into regular saving bank accounts.
Limited purpose branch: Currently bank branches deliver all sorts of services from the same premises. Corporate accounts, terms deposit accounts and saving bank accounts all are served from the same premises, e-stamping, sale of precious metal coins, sale of mutual funds, stock market transaction, sale of insurance products and many more activities happen from these branches. It seems that in the years to come, with more number of branches, some sort of segmentation will take place and some bank branches in the city will provide a limited number of services. Limited purpose branches will be opened in a big way, maybe only for account opening purpose and nurturing the account for an initial one year.
Insurance inclusion: Inclusion data of 2010 reveals that life insurance touches only 10% people in India whereas nonlife insurance touches even less than 1% nonlife insurance takes care of unplanned expenditure whereas life insurance takes care of either old age or of the financial needs of the left-outs in case of any eventuality to the earning members of the family.
Perhaps a few years down the line, the government and regulators will have to initiate a drive for insurance inclusion. Because micro-insurance is un-viable, insurance companies are not interested in coming up with tailor-made micro-insurance schemes, but with the support of the government, they might venture into this.
Pension inclusion: The joint family system works as a buffer for old age persons, after attaining old age people would expect members of their joint family to look after them but with nuclear families on the rise they will have no one to take care of them in their old age and hence will need to plan their savings and pensions beforehand. The government has made some new provisions to increase the adoption of pension by the salaried class by introducing the NPS lite scheme.
Electronic passbook: In urban areas, the account holder is used to printing passbook and bank statements at regular intervals, quarterly or monthly. Some of the banks have started electronic statements and emailers as an option for account holders. It seems that in the years to come, the physical passbook in the urban centers will get replaced by an electronic passbook in the form of a smart card or pen drive or some other electronic storage device.
Deregulation of banking license: Is it the right time to even dream of this? Can this ever happen in India even after 100 years? If one goes back 3 decades to the 1980’s one will find that many industries were under a licensing regime and then the late ’80s and 90 saw the License Raj crumbling. Who knows when the License Raj for banks will crumble?