Banking on good governance

Financial inclusion makes good business sense for banks which have exemplified good governance. ‘As many as 1,46,000 no-frills, or zero-balance, accounts were opened in the Wardha branch of Bank of India in the past two years,’ says Mohan Mashankar, lead district manager. It earned them deposits of Rs 13 to Rs 14 crore. The additional business has come as an unexpected windfall. ‘Once people have access to a bank account, it is a great incentive to save surplus money for future use,’ he adds.

Banks have started showing interest in lending credits to self-help groups (SHGs). Andhra Pradesh has built a strong link between banks and women’s SHGs. Of the eight million rural SHGs in India, about one million are in Andhra Pradesh. Since 2000, banks have disbursed about Rs 60,000 crore to SHGs as loans. In 2013-2014 alone, more than Rs 12,000 crore was given to SHGs. ‘Of the total loans given by banks to SHGs in the country, at least 50 per cent is in Andhra Pradesh,’ says V V Rakhunatha Reddy, director, Society For Elimination of Rural Poverty under the department of rural development. ‘This was possible because of the strong rapport between government and banks,’ says C Doraswami, general manager and convenor of state-level bankers’ committee in Andhra Bank.

Basix, a Hyderabad-based non-profit engaged in micro-financing, lends credits to SHGs and other rural entrepreneurs. ‘We have nearly 99 per cent recovery rate,’ says Anoop Kaul, who works in the non-profit, and is former general manager, State Bank of India. This shows that with proper 

management, rural banking can be a profitable business, he says.

‘Banks should now focus on forming SHGs comprising low income disadvantaged groups so that they are able to take their services to the rural masses,’ says Gopal Naik, professor, IIM Bengaluru.

R L Naik, who was then manager of Central Bank of India’s Etawah branch in Uttar Pradesh, says the bank earned more than Rs 15 crore under FIP. ‘It happened because of proper management and close monitoring of banking correspondents,’ he adds.

Anil Kumar Kale, branch manager at Bank of India’s branch at Bhidi village in Nagpur district, amid excessive workload, banking correspondents come as a helping hand. ‘A lot of the regular work that was being done at the branches is now being handled by them through their hand-held biometric machines. A large number of beneficiaries of old-age pensions are being serviced exclusively by banking correspondents,’ he says.

B C Kulkarni, manager of Deoli branch in Nagpur which covers nine villages, says the branch has opened around 3,000 additional accounts. ‘Each of these accounts have at least one transaction per month in government’s subsidies,’ he says. ‘However, some of the agricultural loan work, disbursement as well as recovery, is now being handled by banking correspondents at the village-level itself. The end result is that our workload at the branch level has not increased by more than 10-15 per cent,’ he adds.

To encourage banking correspondents to work sincerely and to curb their high attrition rate, it is essential to give them good incentives, says B A Prabhakar, former chairperson and managing director of Andhra Bank. ‘They should be given responsibilities like recovery of bad loans and motivating people to do more banking transactions,’ he says. ‘Besides, banks should open centres and appoint officers who can coordinate with the correspondents and review their performance,’ he adds.

‘Since there is so much work pressure, every bank should have a dedicated staff to implement FIP in the right spirit,’ says a manager with regional rural bank in Sagar who did not wish to be named. This apart, there is an urgent need to counsel people in rural areas about the benefits of mainstream financial system, he adds.

K C Chakrabarty, deputy governor, Reserve Bank of India, says governance deficit is the prime reason for the slow progress of FIP. To make the mega programme work it is imperative to improve management and accountability and make the system transparent, he says.