Careful thought needed on who will bear the burden
One of the reasons for the central bank coming out with guidelines on payments banks— that it hopes leading telecom companies will apply for—was that the process of financial inclusion wasn’t really taking off in its current form. Despite years of being directed to open no-frills accounts, public sector banks weren’t really doing a great job since, at the end of the day, there was no incentive for the banks to open and then service these accounts. So, it comes as a surprise that the government plans to have another go at this. While finance minister Arun Jaitley had announced, in the Budget, that a financial inclusion mission would be launched on Independence Day and would include two bank accounts in each household, the add-ons being mentioned are even more worrying. Each bank account, it appears, is to have an in-built overdraft facility of R5,000, and an accident cover of R1 lakh.
While a credit-guarantee fund is to be created to take care of defaults in these bank accounts, it is not clear how this is to be funded—Nabard will provide the initial R1,000 crore to create the fund, but this too needs to be funded, and how is the balance to be funded? Given how banks were badly hit by the last farm-loan waiver, and are waiting with trepidation to see how things pan out in Andhra Pradesh where the chief minister is determined to waive agriculture loans, the last thing they need is another big scheme that could land them in trouble; more so, since it is clear that dealing with such small customers who may not even have any visible collateral is not really something banks are really equipped to deal with. What makes the planned financial inclusion move all the more curious is that the government has publicly stated it plans to work on giving more autonomy to banks. It would be interesting to know how bank boards feel about opening so many new accounts and with the kind of overdraft facilities being talked about.