People's Democracy

Financial Inclusion: Meeting The Challenge – II

Rana Mitra

IN the background of the 2004 electoral verdict at the centre, a committee on financial inclusion was constituted by the government of India in June 2006 with Dr C Rangarajan as the chairman. In congruity with this new approach, Indian Banks’ Association (IBA) had thought it fit to choose the theme of the Annual Bankers’ Conference 2006 held at Hyderabad in November 2006 as “Inclusive Growth – A New Challenge”. Wealth of data is now available on approach of different countries especially as far as financial inclusion or access to basic bank account is concerned. For example, in France, relevant sections under law on financial exclusion – operationalised from July 1998 on the back of Banking Act, 1984 – simplified the process to exercise the right to an account. In Canada, the relevant legislation enacted in June 2001, requires all banks to provide accounts without minimum opening balances to all Canadians. Though in USA, the much-touted Community Reinvestment Act (CRA), which requires banks to help meet the credit needs in all areas of its communities, was considerably weakened as part of modernisation scheme and consolidation and merger of banks to develop monopoly. Small banks under $250 million will be subject to CRA examinations only every four to five years. The regulators are proposing to lift this ceiling to $1 billion or more in assets. This means only 428 banks out of 7263 banks will be subject to complete examinations.

In India too, when the government is talking of financial inclusion, no serious effort is initiated to correct the distortions that have already crept in redefining and diluting the concept of priority sector lending. The RBI’s decision to stop fund support to NABARD for short as well as long term agricultural credit is likely to be disastrous for the scheme of providing credit to farmers at 7 per cent or 4 per cent interest rates as proposed by the National Commission on Farmers (NCF). The progressive branch licensing policy of RBI, under which a bank was forced to open three branches in the semi-urban and rural areas for opening one branch in the metropolitan area, was given a quiet burial in the neo-liberal set up. No effort is made to bring back this important tool in the hands of RBI to force banks to open more branches in the rural area and thus to reduce the per branch population that showed an alarming increase in the post liberalisation phase.

SOME SUGGESTIVE MEASURES

The RBI has been expressing concerns for quite sometime that in view of the credit growth overtaking the deposit growth of banks in recent months, a serious mismatch in mobilisation and deployment of resources may arise for banks in the near future. With financial deepening in the country suffering from grave weaknesses (the ratio of bank assets to GDP in India was around 80 per cent in 2005-06 compared to 98 per cent in Korea, 101 per cent in Indonesia, 166 per cent in Malaysia, 313 per cent in Germany, 311 per cent in UK etc.), RBI, NABARD and NCF are coming out with many a concrete and suggestive steps to inject doses of financial deepening into the system. Some of these are:

• Introduction of no-frills accounts with low or nil minimum stipulated balances as well as charges to expand the outreach of such accounts. About 5 lakh such accounts have been opened by different banks (2/3rd by Public Sector and 1/3rd by Private Sector banks) till March 31, 2006. The RBI policy statement for 2006-07 has asked State Level Bankers’ Committee (SLBC) in all states/UTs to identify at least one district in their area for achieving 100 per cent financial inclusion, by providing no-frills account and a General Purpose Credit Card (GCC) akin to Kisan Credit Card.

• A simplified mechanism for one time settlement of loans with principal amount up to Rs 25,000 which have become doubtful and loss assets as on September 30, 2005, was suggested for adoption. In case of loans granted under government-sponsored schemes, banks were advised to frame separate guidelines following a state-specific approach to be evolved by the SLBC. Banks were advised that borrowers with loans settled under the one time settlement scheme would be eligible for fresh loans from the banks.

• 590.93 lakh Kisan Credit Cards (KCC) were issued by the banking system since inception of the scheme, wherein Cooperative Banks accounted for largest share (51 per cent), followed by the Commercial Banks (37 per cent) and RRBs (12 per cent). NABARD advised Cooperative Banks and RRBs to continue their endeavour to identify and bring into the KCC fold, other farmers, including defaulters, oral lessees, tenant farmers etc. Banks were advised to extend both term and consumption loans along with crop loans only through KCC and renew KCCs so as to ensure quality in operations.

• The doubling of agricultural credit scheme launched by government of India in June 2004 is showing results. During the year ended March 31, 2006, a total amount of Rs 1,57,479.57 crore, exceeding the target by 12 per cent, were disbursed. During the current year, an expected amount of Rs 2,00,000 crore is likely to be disbursed as against the target of Rs 1,75,000 crore, exceeding the target by 19 per cent. 

• Micro finance initiative started by NABARD from 1992 gained momentum in recent years. During 2005-06, 6,20,109 Self Help Groups (SHGs) have been linked to banks with the cumulative position reaching 22,38,565. As on March 31, 2006, this programme has enabled an estimated 329.80 lakh poor households in the country to gain access to micro-finance facilities. NABARD disbursed an amount of Rs 1068 crore in 2005-06 taking the cumulative refinance to Rs 4159 crore. SHG –Bank linkage programe promoted by Cooperative banks and RRBs in several states, especially in West Bengal, is promoted as a model by NABARD. However, one has to be very cautious about the attempts being made by the vested interest groups to substitute the need for expansion of formal banking structure to the hitherto unbanked areas with SHGs and NGOs, where complaints of high interest rates charged from ultimate borrowers and examples of coercion are not too insignificant. 

• Joint Liability Groups (JLGs) comprising of small/marginal farmers, tenant farmers and oral lessees now can access formal credit from banks without any collateral in accordance with a scheme launched by NABARD from 2004-05. As on March 31, 2006, 850 JLGs have been provided with credit support of Rs 12.40 crore. 

(Ref. NABARD Annual Report, 2005-06).

Now, the question that we are faced with is whether the organised trade union movement in the banking sector has any role to play at all in bringing the left over sections of Indian mass within the ambit of formal banking structure, seizing whatever limited opportunities are offered by the above schemes of financial inclusion. We have to bear in mind that in a scenario of centralisation of capital exhibited, in part, through merger and acquisition of banks or forming of strategic business alliances standing on a platform of doctrine of exclusion, serious contradiction between the goals of financial inclusion and capitalist accumulation is bound to emerge, reflecting, in essence, a form of contradiction between labour and capital in capitalist economy. In this backdrop of sharpening contradiction, the organised trade union movement have to take side decisively for the mass, finding common cause with the peasantry, youth, student organisations. The trade unions have to lead this battle to bring in more people into the fold of institutional banking coverage. We are reminded of the historic teachings by Comrade Lenin when he said, “….for the successful conduct of trade union activities it is not enough to understand their functions correctly, it is not enough to organise them properly. In addition, special tact is required, ability to approach the masses in a special way in each individual case for the purpose of raising these masses to a higher cultural, economic and political stage….”. (“On Trade Unions”, V I Lenin, Progress Publishers, 1978, p.471). So, under the circumstances, the task of the trade unions will be essentially dialectical in nature. On one hand, they have to contribute in sharpening the contradiction between the financially and socially excluded mass and the representatives of finance capital by launching movements including strikes. On the other hand, they have to work for fulfilling the aspirations of the masses for genuine financial and social inclusion. Under the given concrete situation, this can be construed as the trade union’s ability to approach the masses in a special way to fulfill the purpose of pushing the mass on a higher economic and political plane. By this, the trade unions can swell their ranks of allies too to face up to the challenges thrown open by the policy of neo-liberal globalisation of finance capital. 

(Concluded)