Go v e r n a n c e f o r i n c l u s i o n : P a r t i c i p a t i o n a n d d i a l o g u e RBI policies for financial inclusion Commonwealth Governance Handbook 2014/15 88 lead to a sustainable FI model. NGOs have played a very important role in the promotion of SHGs and their linkage to banks. The National Bank for Agriculture and Rural Development has supported such grass-root institutions through grants. Many microfinance institutions in the country started as NGOs and morphed into micro-finance companies, and many have set up not-for-profit schemes to provide other non-financial services. Conclusion India has experimented with a variety of models for FI – given the vastness and the heterogeneity of the country, this is inevitable. The government, regulator, financial system and NGO sectors have all contributed to these achievements. The lessons learnt are plentiful, yet there remains a lot which can be improved upon. Endnotes 1 The State Bank of India was created in July 1955 following the nationalisation of the Imperial Bank of India. The plan to nationalise the Imperial Bank, and subsequently the major commercial banks, in 1969 became part of a wider effort to direct the funds of the banking system into certain neglected, but important, sectors of the economy. 2 The country also experimented with regional rural banks sponsored by local government, federal government and public sector banks. 3 Even today 72 per cent of the assets of the banking system are with public sector banks and these banks are expected to play a leading role in any state-sponsored programme. References IMF (International Monetary Fund), no date. Financial access survey database webpage IMF available at: http://data.imf.org/?sk=E5DCAB7E-A5CA-4892-A6EA- 598B5463A34C Accessed 25 November 2014. USHA THORAT recently retired as the director of the Centre for Advanced Financial Research and Learning (CAFRAL), an institution established by the Reserve Bank of India (RBI) for research and learning in banking and finance. She established CAFRAL’s identity as a unique platform for debate and discussion among industry, regulators and academics on policy and strategic issues, locally as well as globally. Prior to her role at CAFRAL, Thorat had a career of nearly four decades with the RBI, where she was deputy governor for five years. Her responsibilities included banking regulation; supervision of commercial banks, regional rural banks and co-operative banks; and currency management. At this time she also chaired the Deposit Insurance and Credit Guarantee Corporation, as well as representing the RBI on the Basel Committee on Banking Supervision (BCBS) and in national structures. In the Annual Policy of the RBI for 2004–05, the governor, Dr Reddy, observed: There has been expansion, greater competition and diversification of ownership of banks leading to both enhanced efficiency and systemic resilience in the banking sector. However, there are legitimate concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, in particular pensioners, selfemployed and those employed in unorganised sector. While commercial considerations are no doubt important, the banks have been bestowed with several privileges, especially of seeking public deposits on a highly leveraged basis, and consequently they should be obliged to provide banking services to all segments of the population, on equitable basis. This was the first time the concept of financial exclusion, or rather financial inclusion in the sense of having a right to access a bank account, was brought into banking policy in India. Since then the policy of FI has progressed in many directions: • Each bank is expected to provide a basic banking account to all persons without discrimination – such accounts can have limited facilities but will have very low minimum balance requirements and limited charges • In the first phase of financial inclusion, banks were advised to draw up a roadmap for providing banking services in every village with a population of more than 2,000 by March 2010 • As part of the second phase, a roadmap has been prepared for covering remaining unbanked villages in a time-bound manner • Know your customer norms were simplified for small value accounts, requiring a mere declaration and certification by a bank official • Banks are now allowed to use individuals or companies as agents or business correspondents for conduct of branchless banking, thereby reducing their cost of delivery of basic banking services • The RBI launched a financial literacy programme in 2006 since which time about 700 financial literacy centres have been opened
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