Kerala is the first to take piggy to unbanked pastures

Written by M Sarita Varma | Updated: Oct 17 2011, 09:26am hrs
On a dark rainy night, a shirtless fakir with long matted hair, burdened with a clutch of herbs, twigs and an improvised rag haversack, was shuffled out of a bank ATM in Thiruvanthapuram to get a frowning onceover from the night patrol policeman. Little did the cop realise that Chellan Peruman Mallasar was a tribal medicine man, camping on the shores of Vamanapuram river, near the Kallara hamlet.

On my 57th birthday, when many of my peers have retired, a banker client got me to open a bank account, Chellan, who claims expertise in tribal orthopedic healing, told FE. Although I had been earning pretty well, my family complains I have not saved much. I can travel far on work, since I now have this card too, he says, showing off his ATM card with pride.

Chellan is part of the successful rollout of Keralas financial inclusion plan by September 30, 2011. The little state, which tops the country in human development indices (HDI), has now emerged as Indias first total banking state. This means that every household in Kerala has at least one bank account and the facility required for need-based credit. The state is estimated to have some 6.5 million households and a population of 33 million spread over 14 districts.

Out of six lakh villages in India, only 30,000 have any kind of banking facilities. 100% financial inclusion would need a mix of brick-and-mortar branches and technology-based banking representation facilities. Following a review meeting in 2010, Prime Minister Manmohan Singh had called for banks to usher in inclusive growth by taking banking services to 73,000 rural habitations by March 2012. If country-wide project monitoring is any indication, this seems to be a rolling target.

The Kerala experience, covering 127 villages, is just a kickstart for the countrys inclusion plan, says S Raman, chairman and managing director, Canara Bank, which leads the project in the state. All the same, it is a very significant milestone, pointing to the enormous project implementation capabilities of the Indian banking sector, he says.

Although many banking magnates like Aditya Puri, MD, HDFC Bank, had recently protested that the financial inclusion agenda was an unmanageable burden for banks to carry off alone, the project was largely banking-driven in Kerala. The milestone of first total banking state came after four years of efforts co-ordinated by the SLBC (State-Level Bankers Committee), which, in turn, was convened by Canara Bank. SLBC is an outfit comprising the representatives of banks in the state and state government top brass. While SLBC was running the financial project, the state saw a change of guard from the LDF to UDF government and both political outfits were, by and large, too preoccupied to show much interest in the financial inclusion experiment.

It was a brick-by-brick effort, which took four years and all banks in the state generously threw in their weight, says Archana S Bhargava, ED, Canara Bank. From our side, Canara Bank alone has opened 1.3 lakh no-frill accounts in Kerala, she adds.

One has to admit that Kerala had a pretty good headstart not only in social indices like literacy, but in banking density too. While RBI has often expressed concern that over 40% Indians do not have access to banking credit, Kerala has been on top in banking penetration. To an extent, this has been because of its deep NRI pockets and remittance culture. For instance, Kumbanad, a tiny town in Pattanamtitta district, is arguably the countrys most affluent spot, thanks to youngsters sending home remittances from diverse parts of the globe like the Middle East, Malaysia, Singapore, Hong Kong, Great Britain, Germany, Canada, New Zealand, Australia and the US. By an estimate in 2009, bank deposits in Kumbanad spilled over R5,400 crore. For inclusion, banks had to venture into tribal settlements in Idukky and Wayanad and coastal areas in Alappuzha.

It is a bit perplexing that the Congress-led UDF government in the state is not sufficiently thrilled by the states new socio-economic feat. Chief minister Oommen Chandy did not fail to make appropriate congratulatory noises at an SLBC function announcing the 100% banking inclusion, but added pointedly that the enthusiasm of bankers would also kick up more infrastructure credit, which would have a multiplier effect. In Kerala, what has worried planners, irrespective of political colours, is the shyness of banking credit. From 71.5 in 2008, the banking credit-deposit ratio in the state had fallen to 67.6 in 2011.

For Indias banking community, Keralas total-banking-state model affords the opportunity of review lessons. Any financial inclusion plan often has at least three gradationsOne, core exclusionthose who operate their financial affairs completely outside the banking system. Two, limited access those who may have a bank account, but have poor financial habits and little advice. And three, distortionthose who are included, but are victims of inappropriate products. It is, as yet, hard to say if the first 100% banking state has achieved the third stage.

At the same time, the inclusion-mela has been able to capture within its ambit many artisans, with low-yielding portable skills like cobbling and mending, so that they can achieve geographical mobility and move on to economic mobility. For those like the tribal-healing fakir Chellan, the Indian banking piggys cross-country race for financial inclusion is nothing less than a miracle. This newfound confidence alone is enough to keep the total banking race going full-throttle.