Safe ePayments: Financial Inclusion: The need for out-of-box thinking.

Financial Inclusion: The need for out-of-box thinking.

What is Financial Inclusion:

Financial Inclusion is the delivery of banking services at affordable costs to vast sections of disadvantaged and low income groups.

Dr. K.C.Chakrabarty, Deputy Governor, Reserve Bank of India, at the Seminar 20th SKOCH Summit 2009, Mumbai on July 17, 2009, has defined Financial Inclusion as

“The process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.”

Towards achieving FI, RBI has taken up numerous steps.

No-frills account, is seen as a major contributor by RBI, in its goal of FI.

The concept of ‘NO-FRILLS’ ACCOUNT, was first mooted by RBI in its Mid-term Review of Annual Policy Statement for the year 2005-06.

The first letter on this subject by RBI, is Lr.No. RBI/2005-06/204
DBOD.No.Leg.BC. 44/09.07.005/2005-06, November 11, 2005, addressed to All Scheduled Commercial Banks(Excluding RRBs).

Subsequently a similar letter was addressed to RRB’s and UCB’s also.

In RBI’s view, ‘NO-FRILLS’ ACCOUNT is

QUOTE

basic banking 'no-frills' account either with 'nil' or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. The nature and number of transactions in such accounts could be restricted, but made known to the customer in advance in a transparent manner. All banks are advised to give wide publicity to the facility of such a 'no-frills' account including on their web sites indicating the facilities and charges in a transparent manner.

UNQUOTE.

Wisely RBI has left it to the banks, to decide the minimum balances/fees/facilites to such ‘NO-FRILLS’ ACCOUNT .

However, it has advised Banks to report quarterly, the opening of such ‘NO-FRILLS’ ACCOUNT ’s

Common Points regarding ‘NO-FRILLS’ ACCOUNT ’s

However, while opening such accounts the customer should be made aware that if at any point of time, the balance in all his/her accounts with the bank (taken together) exceeds Rs.50,000/- or total credits in the accounts exceed Rs.1.00 lakh in a year, no further transaction will be permitted in the account until full KYC procedure in regard to verification of identity and address of the customer through the documents as specified are complied with.

IT Software is available to

n Throw Alerts when the Balance in all the accounts of the customer in the Bank exceed Rs.40000/-. The Software is customizable.

n Rejects any Credits(Transfer/Clearing/RTGS/NEFT), when the credits exceed Rs1lakh in a year.

The issue is of the cost of the Software.

Universal Observations about ‘NO-FRILLS’ ACCOUNT

01) The ‘NO-FRILLS’ ACCOUNT numbers are not impressive.

02) Also, in the ‘NO-FRILLS’ ACCOUNT opened so far, only a few accounts are active.

03) A decent Average Balance in the ‘NO-FRILLS’ ACCOUNT is due to balances in 20% of the ‘NO-FRILLS’ ACCOUNT. YES, the 80/20 funda, works here also.

Banks have been reluctant to encourage ‘NO-FRILLS’ ACCOUNT, due to the costs involved in Sourcing/Monitoring.

May be it is time, to offer Incentives to Banks to encourage them to open ‘NO-FRILLS’ ACCOUNT.

What could be the incentives and who has to offer them?

Well, the incentives have to be offered by Reserve Bank of