Mor Committee of RBI on Financial inclusion Recommends Universal Electronic Bank Account


A committee headed by Nachiket Mor, appointed by the Reserve Bank of India (RBI) recommended in January 2013 a Universal Electronic Bank Account (UEBA) for every Indian resident above 18 years of age by January 1, 2016. The account would provide citizens with access to credit and investment options.
By January 1, 2016 the number and distribution of electronic payment access points would be such that every single resident would be within a fifteen minute walking distance from a point anywhere in the country. Each such point would allow residents to deposit and withdraw cash to and from their bank accounts and transfer balances from one bank account to another, in a secure environment, for both very small and very large amounts, and pay reasonable charges for all of these services.
On UEBAs, the panel said every resident should be issued a UEBA automatically at the time of receiving their Aadhaar number by a “high quality, national, full-service bank”. An instruction to open the bank account should be initiated by Unique Identification Authority of India upon the issuance of an Aadhaar number to an individual over the age of 18. To open such an account the customers will not be charged an account opening fee but the banks will be free to charge for all transactions, including balance enquiry.
At least one of the deposit products accessible to every resident through the payment access points would offer a positive real rate of return over the consumer price index (CPI).
Payment Bank for Financial Inclusion
The RBI panel  recommended that a special category of banks, called payments banks, would be set up to widen the spread of payment services and deposit products to small businesses and low-income households in Asia’s third-largest economy, where about 40 per cent of the population still do not have access to formal financial services.
Such banks for financial inclusion would have a minimum entry capital requirement of Rs.50 crore, one-tenth of what a full-service bank requires, since they will have a near-zero risk of default. Payments banks would be required to comply with all RBI guidelines relevant for commercial banks.Existing banks should be permitted to create a payments bank as a subsidiary.
An expert panel under former RBI governor Bimal Jalan is currently evaluating the credentials of 25 aspirants, including the Aditya Birla Group, theBajaj Group and Anil Ambani’s Reliance Group. Besides, in a recent discussion paper on banking structure reforms in the country, the central bank had mooted the idea of differentiated banking licences for specific banking activities.
 Some experts say that existing institutions such as grameen banks can be used effectively to expand access to financial services to the poor.
Financial inclusion has been a key objective of both the apex bank and the Congress-led United Progressive Alliance government for several years.
RBI introduced a three-year financial inclusion programme in April 2010 that saw banks opening outlets in 200,000 villages. The banking regulator has asked banks to draw up a financial inclusion plan for 2013-2016 to broaden access.
According to the panel, by 1 January 2016, each low-income household and small business would have “convenient” access to providers that have the ability to offer them “suitable” investment and deposit products, and pay “reasonable” charges for their services.

Priority sector

In order to encourage banks to actively manage their exposures to various sectors, including priority sector, the panel has proposed to make it mandatory for banks to disclose their concentration levels to each segment in their financial statements. Under the priority sector lending, banks are required to lend 40 per cent of their loans to agriculture and economically weaker sections of the society.
The panel has also proposed to do away with the requirement of prior approvals from RBI to create dedicated subsidiaries for financial inclusion.
Even though banks are already permitted to set up specialized subsidiaries after getting specific approvals from RBI, no approvals have been granted potentially due to concerns around circumvention of branch licensing guidelines, the panel said.
Noting that banks may choose to focus their priority sector strategies on different customer segments and asset classes, the panel has recommended that RBI should provide specific guidance on differential provisioning norms at the level of each asset class.
Also, the panel has proposed that all loans given to landless labourers and small and marginal farmers be counted as a part of direct agriculture and not merely the wages component of a loan given to a farmer for financing her agricultural production.

Focus on NBFCs

To enable non-banking financial companies (NBFCs) to become more active in spreading financial inclusion, the  panel has recommended a partial convergence of norms for NBFC and banks with regard to bad loan norms.
Presently, if a loan is not repaid for 90 days, banks can qualify this as non-performing assets (NPAs), while for NBFCs, this period is 180 days. Also, if the account remains as an NPA for 12 months, banks have to classify this as a sub-standard asset, while for NBFCs, the period is 18 months. There is a case for convergence in norms on these areas for both types of institutions, provided risk-based approaches are followed, the panel said.
Besides, the panel has proposed to restore the permission of non-deposit taking NBFCs to act as business correspondents of a bank.
According to the panel, the apex bank must represent to the ministry of finance to restore the tax-free status of securitization deals conducted through pass-through vehicles for tax treatment, pointing out the role it would play in ensuring efficient risk transmission.
Also, banks must be permitted to purchase portfolio-level protection against all forms of rainfall and commodity price risks, through the use of financial futures and options bought either within India or globally.
Besides, universal reporting to credit bureaus should be mandated for all loans, both individual and small and medium enterprises, but in particular self-help group (SHG) loans, kisan credit cards, and general credit cards, the panel said. SHGs are groups of small women borrowers.


Monday, 13th Jan 2014, 11:40:12 PM

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