“Focus on the northeast. This is relatively virgin territory as far as banking is concerned. Those banks which pursue financial inclusion in the north-east will be rewarded not only by business opportunities but by a fulfilling experience,” said Reserve Bank of India (RBI) Governor Dr. D. Subbarao in an interview to an Assamese newspaper recently.

The states governments of northeastern region (NER) and the banks should work in partnership to promote financial inclusion, spread banking facilities, and increase demand for credit including institutional credit, Dr. Subbarao said. He said that financial inclusion was a necessary pre-condition for inclusive growth and what the poor want is not doles, but opportunity to improve their incomes and thereby their quality of life. It helps the poor not only to raise their incomes but also to insulate their families against income shocks and meet emergencies such as loss of job, illness or death in the family.

Talking in depth about a host of issues affecting RBI’s goal of promoting financial inclusion in the NER, Governor Subbarao said that the NE presented a complex challenge because of difficult terrain, lower population densities, poor infrastructure, inadequate communication facilities and law and order disruptions but the central bank wants to ensure that financial inclusion in NER is at par with that in the rest of the country. The progress in financial inclusion has been slow, but it has certainly picked up pace over the last several months. Banks across the country, including in the NER, are more enthusiastic about financial inclusion than before, the RBI Governor said.

Excerpts from the interview:

RBI plans banking access to all villages in the country with population of over 2000 by March 2012 either by opening a ‘brick and mortar’ branch or through the business correspondent model. Across the country, about 74,000 villages have been identified. There are 3250 villages in the north-eastern region (NER) falling into this category of over 2000 population with as yet no banking facility. Of these, only about 1031 villages were covered by end September 2011.

Towards this end, we have a Special Dispensation Scheme for opening bank branches in NER. Under the Scheme, the Reserve Bank provides one-time capital cost and recurring costs for five years for supporting a bank branch. The State Government is required to provide the required premises, residential accommodation for the staff and security for the bank branch. The scheme is operated by calling for bids from banks for opening branches in agreed centres. Meghalaya was the first state to get off the block, but other NE states are now eager to take advantage of the scheme.

To promote the aforesaid objective, the RBI has liberalized branch licencing and domestic commercial banks are now free to open branches anywhere they like in towns and villages of upto 100,000 population. Banks are also required to ensure that at least a quarter of the branches they open are in villages with a maximum population of 10,000. To provide an incentive to banks, the Reserve Bank has also advised them that their performance in financial penetration will be a criterion in giving them authorization for branches in metros and other large urban areas, the RBI governor said.

Doling out his advices for the banks, Dr. Subbarao said that the first thing banks should remember is that financial inclusion is more than getting a bank account for each household. It is also necessary that the bank account is active – which means that the household is using that account for saving, for remittance and is also getting credit and where necessary micro insurance. Only that makes a financial inclusion ‘meaningful’. Second, look upon financial inclusion not as an obligation, but as an opportunity. There is enormous ‘banking potential’ at the bottom of the pyramid, and first mover banks will be able to exploit that potential.

Answering a question on agriculture credit in the NE, Subbarao said that agriculture is the life line of a majority of the people in the country
including in the North East. Agriculture is one of the key priority sectors for
lending by banks; under the priority sector lending sector, banks are required to ensure that at least 18% of their advances goes to agriculture.

Many steps have been taken in the NER to increase credit flow to agriculture. Since Assam is one of the states selected under the scheme of
‘Bringing Green Revolution in Eastern India’ implemented by the Government of India, the annual credit plan for agriculture for Assam has been revised upwards.

We want banks to sanction KCCs to all eligible farmers in the State. In Assam, block-wise weekly credit camps are being organised to bring more and more farmers under the KCC. The loan application format has been simplified and wherever land documents are not available, the Village Panchayat’s certification is considered sufficient for grant of a loan. The exercise is being replicated in other NER states as well.

Dr. Subbarao said Credit, however, is only one among several inputs needed for boosting agricultural production. Experience shows that the quality and reach of extension services is crucial. Clearly, there is need for greater effort at bringing extension services in NER at par with those in other States. Furthermore, the state governments have to ensure timely availability of fertilisers, procurement of food grains at the Minimum Support Price, storage and transportation facility, etc.

Even so, we are aware that millions of small farmers, many of them farming at subsistence levels, do not get access to credit for a variety of reasons. Simplified Know Your Customer guidelines, ‘no frill’ accounts, Kisan Credit Cards, General Credit Cards and overdraft facilities have all been designed keeping the rural borrower in mind.

The Reserve Bank also mandates that banks prepare Annual Credit Plans
whose roll out which we closely monitor through the State Level Bankers’
Committee (SLBC). The SLBC, comprising banks, the state government, central government agencies, the Reserve Bank, NABARD and SIDBI meets every quarter to review the progress of institutional credit flow in the State. Progress under the Annual Credit Plan is one of the key issues on the agenda of every SLBC meeting.

Where there is slippage, SLBC initiates prompt corrective action. Similar
committees function also at the District and the Block Levels. These meetings are also held at quarterly intervals and the Reserve Bank plays a pro-active role in these meetings.

 

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