Date:05/11/2006 URL: http://www.thehindubusinessline.com/2006/11/05/stories/2006110502500500.htm

Back Bankers asked to focus on small loans

Our Bureau

`Financial inclusion should be treated as a business investment'

Hyderabad , Nov. 4

To ensure stability on the liabilities side of business, bankers have been advised to focus on expanding retail deposits.

Delivering the valedictory address at BanCon 2006, the Reserve of Bank of India Governor, Dr Y. V. Reddy, said: "Banks should move to the masses as a natural process of financial inclusion". This included taking deposits from rural and semi urban regions in the country. He said: "Financial inclusion should be treated as a business investment."

Accordingly, he said that bankers should focus on small loans to the farm sector and small and medium enterprises and smaller liabilities. This was because most of the large corporates have "disintermediated" and have begun to directly access the financial markets.

Inclusive growth

Accordingly Dr Reddy said: "We believe that inclusive growth was the current compulsion of a sound public policy." There was a convergence in the business interest of the banking community in financial inclusion, he added.

He said that the financial inclusion was well in turn with the financial sector reforms now underway. He said that the Indian banking sector was on the verge of becoming compliant with Basel II standards, after the financial sector reforms were initiated.

Weak points

But he admitted that there were still some weaknesses to be addressed. These included, some undercapitalised commercial banks and problems in the cooperative banks. The RBI was already attempting to correct the former. For the latter however, the RBI was involving state governments and signing agreements for reforming the cooperative banking sector.

In taking to financial inclusion, Dr Reddy said, bankers should take state governments and local bodies into confidence. He said that without the participation of the state governments, financial inclusion was unlikely to be successful. Besides, he urged bankers to continuously learn from experience.

For introduction of mass banking, he advised bankers to leverage on technology. He said that the RBI was prepared to support banks in providing the infrastructure for the purpose. States like Andhra Pradesh, he said, had already approached the RBI for introduction of biometric methods for credit disbursal in the rural regions. The RBI he said, had sought a detailed report on the project.

However he had a word of caution to bankers. "Banks should continuously evaluate the cost-benefit of financial products." Where instruments or products are not successful, bankers should not hesitate to withdraw them, he added. Besides, he added that bankers should continuously evaluate themselves for timely course corrections in the financial sector.