Consultants tracking the banking sector have called the deadline set for some of the proposals ambitious, but expressed hope that suggestions such as setting up niche banks may indeed push forward financial inclusion.
The RBI committee under the chairmanship of Nachiket Mor, former chairman of the ICICI Foundation for inclusive growth, released its report on comprehensive financial services for small businesses and low-income households on Tuesday.
One of the many recommendations of the committee was to set up niche banks that exclusively cater to low-income households and small businesses.
These banks could be called Payments Banks and would require a start-up capital of r50 crore instead of r500 crore for a full-service bank. Such banks would not be allowed to take any credit risk and would accept deposit balances of only up to r50,000.
This proposal is a departure from the current model of universal banking supported by the RBI wherein a single bank caters to all customers.
While consultants believe the move would lead to bigger success for inclusion, there are risks when it comes to pricing and cross-subsidisation. The recommendation has also found dissent among bankers.
"We are now addressing the segmental needs of the economy through reforms in the banking structure. This is very welcome. However, issues around cost and risk- based pricing and a large order of cross-subsidisation need to be addressed," said Ashwin Parekh, a senior expert advisor for financial services at Ernst & Young.
This is different from the current idea of universal banking. I definitely think the proposed payment banks are better suited to achieve the objective of increasing penetration compared to the universal banks, said Shinjini Kumar, India head- banking and capital markets at Pricewaterhouse coopers.
The overall objective of financial inclusion is to provide access to a complete bouquet of financial services including credit, insurance and risk management products, which may be difficult to achieve through the PB framework, vis--vis, a BC/Branch model, which stands greater chances of achieving the vision, wrote Shikha Sharma, CEO of Axis Bank and SS Mundra, CMD of Bank of Baroda, in a note.
At present, the RBI has pushed existing banks to undertake small-ticket banking services by catering to low-income households and small businesses through various prudential guidelines.
Banks have been largely reluctant to undertake these, stating that such a business is economically unviable. Most banks do not service such small-ticket businesses beyond the regulatory targets set by the central bank.
This reluctance has slowed down financial inclusion considerably.
The Mor committee has recommended that every individual be given an universal electronic bank account as soon as an Aadhaar card is issued. The committee's proposed deadline of January 2016 for a bank account to every individual has been termed as ambitious by both consultants and bankers. In fact, the two banking members within the committee have also called the deadline ambitious.
Consultants feel the linkage to Aadhaar puts the aim of reaching every citizen at risk as the penetration of the ID has been slow in many geographies.