BackRBI to ask banks for plans on financial inclusion
RBI to ask banks for plans on financial inclusion
PremiumPlanning ahead: RBI governor D. Subbarao says the central bank will explore alternatives if banks don’t come forward. Abhijit Bhatlekar / Mint
Mumbai: Reserve Bank of India (RBI) governor D. Subbarao on Wednesday said the central bank would ask all banks to come up with specific board-approved plans for financial inclusion by March 2010, while criticizing microfinance institutions for their high rates of interest.
He added that if banks’ plans fail, the central bank will come up with other models. Plans for financial inclusion by banks will be rolled out over the next three years, Subbarao said at an event in Kolkata, according to a statement of the speech available on the RBI website. The RBI has refrained “from deliberately imposing a uniform model on the banks," because it wanted each bank “to build its own strategy in line with its business model and comparative advantage", he said, adding that this would "hopefully ensure better ownership."
He also said that banks should include financial inclusion in the performance evaluation of their field staff. This will be a “remedy" to the attitude of the top management of banks that “do not sufficiently emphasize, much less reward, efforts at financial inclusion," he said.
In the same speech, while he acknowledged the role of microfinance institutions in serving the unbanked population, Subbarao criticised the practice of lending at rates as high as 24-30%. .
“Compared to the informal sector, perhaps the rates are lower, but there are questions about whether these rates are affordable," Subbarao said, adding that ideally, “the rate of interest charged should not be out of alignment with the cost of funds, transaction costs, risk costs and a certain margin, and in any case, there is a need for transparency in its determination and fairness in its application."
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