Page 33 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes Achar, masala, jelly, jam, papad, herbal medicines, handicrafts, handloom items and
different kinds of eatables etc. The RBI has further asked banks to open zero balance
savings bank account with ATM cum debit card facility so that all kinds of wages, subsidy
and bank credit could be routed through bank accounts.
The Union government had allocated ` 50 crore in 2011-12 budget for banks to meet the
expenditure towards opening zero balance accounts. As per the RBI report, banks have
covered 74,199 unbanked villages by March 2012 out of the target of 74,414 villages.

Now the RBI is out to cover all unbanked villages across the country. Both public and
private sector banks have set self targets of opening rural brick and mortar branches to
cover unbanked villages. The number of brick and mortar branches has increased from
21,475 in March 2010 to 1,11,948 by March 2012. The number of no frills accounts has
increased to 99 million by March 2012.

Over the decades, 31 state cooperative banks with their 371 DCCBs and nearly one lakh
cooperative society outlets have been recapitalised and rescued from bad financial state
from time to time in order to meet the unbanked population. Besides, many micro finance
institutions have rolled their money to reach the unbanked population in the last decade.
In spite of a series of efforts, financial inclusion has not yielded the desired result because
it is more a metabolic growth than a time bound programme which needs proper
environment to take its root. In fact, the purpose of financial inclusion is to activate the
micro credit cycle which ultimately helps borrowers to earn surplus after meeting their
consumption need.
Banks, extension departments, people’s representatives, NGOs and civil society have the
joint responsibility to create credit absorption capacity among people. The rise in the
price of sugar has made sugarcane replace pulses and other crops in Kolhapur district.
Initially, the farmers got surplus income. But their joy turned in to frustration when the
thirsty canes needed more water and the cost of inputs increased. The surplus eroded
when farmers had to buy food grains at a higher cost from the market.

Clay models made by the artisans of Cuttack have high demand in different studios and in
puja pendals across the country. In the absence of marketing facilities, credit flow can only
become a bad loan. In pilgrim centre of Puri, people have the indigenous skill to make
mouth watering sweet items from milk and ghee. If those items are not marketed, bank
credit will become a burden on the producers. Pure cow ghee has huge demand all over
the world for its medicinal, nutritional and religious value. Today one can find tonnes of
adulterated cow ghee packs even in big malls. Agro processed food items have suffered
huge credibility loss because there is nobody to authenticate quality. Credibility loss
always affects bulk of the business.
Unless the producers at the bottom of the pyramid are left with surplus they cannot help
consumer driven economy. For instance, in 2005, the cost of a flat in a prime area in Pune
was ` 2,000 per sq feet. In 2012, the cost rose to ` 12,000 per sq feet after 100 per cent FDI in
realty sector was allowed. Consumers are left with little surplus after meeting the basic
necessities of life. Aadhaar card based cash transfer may aggravate the agriculture labour
shortage in the country and make food costlier. There is need for scientific approach to
address poverty through financial inclusion.
Questions
1. What innovations are done by banks over the past few years?

2. When will the bank credit become burden on the producers of several products?
3. How does loss of credibility affect the business?
Source: http://www.deccanherald.com/content/302794/financial-inclusion-huge-challenge.html

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