Financial Inclusion- News and Views - December 2014
The financial inclusion landscape in India is set for some novel and positive changes ahead. In November, the RBI released final guidelines for two new types of banks – Payments Banks and Small Finance Banks - and the Bharat Bill Payment System. The final guidelines reflect the consultative process of the RBI that has taken feedback from various stakeholders into consideration.
The Guidelines for Licensing of "Payments Banks" open up banking to existing non-bank Pre-paid Payment Instrument (PPI) issuers, NBFCs, corporate Business Correspondents, mobile telephone companies, super-market chains, real sector cooperatives and public sector entities. Payments Banks can accept deposits, with a maximum balance limit of Rs. 100,000 per customer, provide remittance services and issue ATM/ debit cards. They are not allowed to issue credit cards or undertake lending activities, although they can become Business Correspondents of another bank. Payments Banks can also distribute "non-risk sharing simple financial products like mutual fund units and insurance products".
The Final Guidelines for implementation of Bharat Bill Payment System (BBPS) bring into play the Bharat Bill Payment System, a tiered structure with the National Payments Corporation of India (NPCI) at the head as the authorized Bharat Bill Payment Central Unit. The BBPS aims at providing the convenience of 'anytime anywhere' bill payment to customers. Anytime bill payment is currently available to only those with access to net banking and is also restricted to a few utilities, this facility will now be available for every Indian for all utilities through a network of agents, including existing bank branches, under the BBPS.
These changes will bring more players into the Indian banking and payments landscape; all three entities are being introduced for a more cost-effective delivery of services to those who are currently outside the formal system. Meanwhile the Pradhan Mantri Jan-Dhan Yojana has been chalking up impressive account opening numbers, crossing 8.3 crores by end-November, and continuous monitoring and reviews are essential to ensure that the mission does lead to meaningful inclusion. As Sakshi Chadha of MicroSave writes in this blog post, How Many Accounts Does A Man Have To Open To Be Financially Included?, there are three key recommendations for long term sustainability of this programme: a) Make transactions and account activity a measure of financial inclusion success immediately, inclusion targets have to go beyond mere account opening statistics, b) Set up systems for credit assessment of the financially excluded customer base and c) Make all G2P payments electronically, direct into bank accounts, thus providing transaction volume to the rural agents that currently struggle to break even; this needs to be accompanied by appropriate remuneration for BC firms and the front-line agents, as well as appropriate communication to the beneficiaries about using financial services.
Section I: Policy – the latest from India's policymakers
The Indicus Centre for Financial Inclusion was launched in 2011 to distil and disseminate information on accelerating the poor’s access to high-quality financial services. The Centre is supported by the Bill & Melinda Gates Foundation. http://www.indicus.net/icfi