Home / Industry / Banking /  Mint Annual Banking Conclave: Impact of going cashless on financial inclusion

The government’s move to purge 86% of the total currency in circulation through the demonetisation exercise may not have yielded any conclusive result in its war against black money but it has pushed millions into a digital economy supported by the financial sector.

At a panel discussion at the 10th Mint Annual Banking Conclave held in Mumbai on 23 January, bankers came together to discuss the impact of going cashless on financial inclusion. “Cashless transactions and financial inclusion are contradictory. If you are talking of cashless transactions, it will lead to financial exclusion, not lead to financial inclusion. You cannot have cashless financial transactions anywhere in the world and if it happens poor will suffer. Even in developed markets, the poor do financial transactions through cash," said K.C. Chakrabarty, a former deputy governor of the Reserve Bank of India.

Chakrabarty, who had steered the financial inclusion drive at the central bank, says cash is the only payment mode that ensures 100% penetration at low cost.

Rajiv Lall, founder, managing director (MD) and chief executive officer (CEO) of IDFC Bank, however, believes that a technology-enabled payments service could be the answer to mass banking. Citing the example of Paytm, Lall said that payments are becoming an important service and the first point of contact with the customer in order to build a banking relationship. However, he was quick to add that cash still remains the most convenient way of doing transactions.

Jiji Mammen, CEO of Mudra Bank, also concurred that cashless economy is the need of the hour. “The segment which is at the bottom of the pyramid only deals in cash. Because of that we don’t have transactional history of the person. Banks find it difficult to provide loan to persons at the bottom of the pyramid because there is no data available about them. If you go into digital mode, of course it will take time, over a period of time everyone will come on board," he said.

But Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank, is of the view that the shift to digital will not happen overnight. “When I started 16 years ago, microcredit to offer loan, that time also it was not readily accepted and I was questioned why the loan is given in a simple way, bank is not giving in a simple way, what is your intention. Now when we are going with new things, they are also asking a lot of questions on that. Down the line, they will understand and this money will be safe in bank accounts. The maximum number of MFI (microfinance) customers are women but their children are open to digital transactions," said Ghosh.

At a time when most banks are testing different technologies independently or with the help of fintech companies to lure customers, mobile banking by way of smartphones is emerging as the most preferred mode of transaction. According to Samit Ghosh, MD and CEO of Ujjivan Financial Services Ltd, smartphones are the ultimate end of the cashless journey. For the time being Ghosh says he believes that the presence of bricks-and-mortar branches helps to build the trust among people. “We had done a research with our segment of customers, trust is very important in banking. To see a bricks and mortar, even if they don’t come there or even if they transact in handheld devices, is very important. Till a certain stage to build that trust, you have to have bricks and mortar," he added.

But majority of bankers agree that the proportion of cash will come down in the system, albeit gradually. “I expect 30-40% reduction in cash and the cash-to-GDP to fall from 10% to 6-7% by 2020," said V.S. Radhakrishnan, MD and CEO of Janalakshmi Financial Services Pvt. Ltd. Having said that, Radhakrishnan says he believes that smartphone banking is not going to pick up as long as digital costs remains high. It’s not digital transactions alone that will drive financial inclusion. According to Jaspal Bindra, executive chairman of Centrum Group, banks still consider financial inclusion as an obligation and not as an objective and there needs to be a change in mindset.


Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout