RBI panel calls for bank accounts for all adults by January 2016

Mumbai: Recommending sweeping changes in the banking structure, a Reserve Bank of India panel on Tuesday suggested setting up of specialised banks to cater to low income households to ensure that all citizens have bank accounts by 2016.

It also suggested that facility for withdrawal, payment and deposit should be set up within a 15-minutes walking distance anywhere in the country.

"By January 1, 2016 each resident, above the age of 18, would have an individual, full-service, safe, and secure electronic bank account," Mor said in a report by the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households.

The panel, headed ex-ICICI Bank executive director Nachiket Mor, was set up by Raghuram Rajan on the day of taking over as the RBI Governor, to suggest steps for promoting financial inclusion.

The panel advocated setting up of 'Payments Banks' to "provide payment services and deposit products to small businesses and low-income households" with a maximum balance of Rs 50,000 per customer.

These banks can be set up with minimum capital requirement of Rs 50 crore, one-tenth of the Rs 500 crore required for full-service bank.

Permission to banks for pricing farm loans below base rate should be withdrawn, the Mor report said.

It also suggested that Aadhaar card should be used automatically opening a bank account.

The RBI is currently sifting through the application of 25 companies to get into the banking fray for which one of the key eligibility criteria is their vision for financial inclusion.

The Mor panel report said there is a need for a relook at the farm sector credit activities and suggested abolition of interest subventions and loan waivers.

The government should rather distribute the benefits directly to farmers, it said, adding that the banks should do away with the system of lending below their respective base rates to the farm sector.

Among the slew of changes on the regulatory front, it has made a case for gradual abolition of the statutory liquidity ratio (SLR), or the percentage of deposits invested in government bonds; raising the priority sector lending limit to 50 per cent, from the current 40 per cent, and allowing non-deposit taking NBFCs to work as business correspondents.

The Mor panel has set January 1, 2016 as the deadline for targets including access to formal credit as well as investment and risk management products at reasonable charges.

Financial inclusion has dominated public discourse for the last few years. The exclusion of a large part of population from formal banking services leads them to the unregulated, informal sector.

The panel said that even after the work of the past three years, close to 90 per cent of small businesses have no links with formal financial institutions and 60 per cent of the rural and urban population does not even have a functional bank account.

The panel said there is a need for a lot of specialisation and suggested at least 10 different lines of dedicated banks including one for payments, one for wholesale business, one for infrastructure and an investment bank.

It said there is a need for specialised institutions like the National Bank for Agriculture and Rural Development (Nabard), Small Industries Development Bank (Sidbi) and National Housing Bank (NHB) to be market-makers and providers of risk-based credit enhancements rather than being the providers of direct finance, automatic refinance, or automatic credit guarantees for national banks.

For the benefit of customers, the report has called for setting up a unified financial redress agency (FRA), to be created by the Finance Ministry, as a common agency for customer grievance redress across all financial products and services.

That, in turn, should coordinate with the respective regulator, it added.