October 15th, 2011
Email this page

RBI wrestles with balancing inflation and financial inclusion

Financial Analysis / Doolnews Special Corespondent

RBI policiesMumbai: Financial Inclusion is the key criterion for the Reserve Bank of India but next only to the troubling inflation. The central bank has been hinting one more rate hike, just as, the inflation data released on Friday re-assures it. The WPI has exceeded 9 % for a 10th straight month in September and stands at 9.72, down by 6 basis point a month earlier.

Inflation above 9 level is a worrying factor and according to a recent working paper published by RBI, the inflation upwards to 5.5% will lead to a deceleration in growth. Thus, it leaves little or no room for the governor to support growth by easing the monetary policy. The governor has raised the benchmark rate 12 times since mid-March 2010 by a total of 350 basis points, nevertheless, the focus has always been beating the inflation.

On the other hand, it is necessary to look at the developments on the inclusive financial model the central bank is trying to establish. The central bank has been very active and vocal about pushing the banks to reach to the bottom of the pyramid.  In one of his paper, the deputy governor KC Chakrabarty deliberates the present credit delivery system of the banks and other related institutions to meet the credit requirements of marginal and sub-marginal farmers in the rural areas in a fuller measure.

He dispels the common criticisms of banks not doing enough to address the issue of financial inclusion, the deputy governor pointed
out,” banks have, upto June 2011, opened outlets in 1.07 lakh villages up from just 54,258 as on March 2010. Out of these, 22,870 villages have been covered through brick & mortar branches, 84,274 through Business Correspondent (BC) outlets and 460 through other modes like mobile vans, etc”.

‘The BC model at the initial stage may not be commercially viable due to high transaction costs for banks and customers, the appropriate use of technology can help in reducing this’, he said and added, ‘a good delivery model is also needed and, perhaps, even more so if there is a glitch and the customer grievances needs to be resolved expeditiously’.

The deputy governor said the banks have been asked to consider introduction of a General Purpose Credit Card (GCC) facility up to Rs.
25,000 at their rural and semi-urban branches. “Based on assessment of household cash flows, the limits are sanctioned without insistence on security or purpose. Interest rate on the facility is completely deregulated. As on June 2011, banks had provided credit aggregating Rs.2,356.25 crore in 10.70 lakh GCC accounts. Banks should, therefore, take extra care to ensure that the poor are not driven away from banking because the technology interface is unfriendly” added Chakrabarty.


Press ctrl+g to toggle between English and Malayalam.