People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 17

April 29, 2007

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.




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:


(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.