Reaching Out To The Unbanked - Shubhalakshmi Panse, CMD, Allahabad Bank

When new banks come in, at least 25 per cent of branches should be in rural areas. This is how the government or the RBI are seeking to ensure that the new banks take up their share for development of the new areas.

What would take the banking sector into the next orbit of growth? 

In the next five years, the action will shift into rural and semi-urban places because of the kind of initiatives that we are taking through financial inclusion. Much money is being poured into that arena and coupled with the DBT that is coming in, much of the money is going to come to these people. In five years, we are covering 6.5 lakh villages, and these people are never been in the ambit of banking.

We have also set up rural self employment trains institutes (RSETI) in the rural areas. We get together people from these areas, bring them into RSETIs and give them training. Typically, these training programmes ensure that they ready start their business. At the end of the programme, the Branch Manager comes and tells them how they set up their own small business, what kind of funding there is, etc. We also do credit linkage. Suppose there are 30 participants in an RSETI programme, and 15 of them start own business, they would start earning business and would in turn employ others. We have 23 RSETIs and through these continuous training programmes are going on. This is a silent revolution and would continue for the next five years. 

What are the challenges that the banks are facing?

As far as the challenges are concerned, the activities need to increase and we have to have more and more manpower there. When you put out people in remote areas, the challenge is to take care of their families and motivate them to go to places where there is no infrastructure. This will remain a big challenge on the HR front for the next four-five years.

How is the government supporting the cause? 

There is full support. In fact, when we had set up the RSETIs in the rural and semi-urban area, there is something called Financial Literacy Credit Counselling Centre (FLCC). The first challenge is that they are first-time customers who don’t understand what is a bank. So, we need to set up such centres and train them. Similarly, since we are giving them OD facilities, we need to train them on how to operate an OD facility. So, the challenge is there, but we have setup the FLCC to train them. 

The government is set to allow many private sector players into banking, but there is a debate on what works well – private sector banks or public sector banks...

Well, the answer would be both. If you look at private sector banks, they cater to a definite strata of society. Public sector banks have no such differentiation – they have customer segmentation, and cater with equal ease to the affluent parts of the society as also the rural areas. Given the scenario, it is clear that both have their own spaces.

The core theme for issuing banking licence to new players is to reach those people who are not connected with banks. Do you think private sector banks are going to come and do that?

That is the basic condition of getting new banking licences, when those are going to come, at least 25 per cent of branches should be in these areas. When new banks come in, at least 25 per cent of branches should be in rural areas. This is a big percentage of the unbanked areas that they have to cater to, otherwise the new players will not be given the licence. This is how the government or the RBI are seeking to ensure that the new banks take up their share for development of the new areas. 
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Are Indian banks adequately adhering to the potential risk management norms as of now? 

Yes, we have well-defined policies which have been now laid down. This initiative has started eight-nine years ago. If we take the challenges one by one, the biggest challenge is the credit risk. For credit risk, you require the last seven years of data. Most public sector banks went on to the Core Banking System (CBS) and become 100 per cent CBS-compliant only around 2010-11. It is only after this that they have started collating data. Until and unless I have five years of data, I really cannot take a call on credit risk analysis. This is the big challenge, market risk.

Then, there are operational risk issues. Operational risk is when the scenario keeps changing continuously. More the technology, more is the operational risk. If you look at the public sector banks, the average age of the employee is high, we are not at all IT savvy, so obviously the risk will be more.

Having said that, the younger generation that is coming in is IT savvy, but the risk is more in misuse because most of the fraud is done by internal people. Till now, that risk was lesser as the employees were not IT savvy. With the younger generation coming in, we need to immediately ensure that our internal risk assessment and mitigating steps should be such that we stem the whole thing in the beginning itself. 

We have weathered the winds of financial destabilisation well last time due to our conservative nature. Is this going to dilute when new players come in, especially with the aggression in the business that these player would bring in?

If you look in any of the western countries, banks going down is a very natural phenomenon. They too take it casually, because they feel that pluses and minuses do happen in business. In the US in 1984-85, there was a big oil price boom and bust and more than 10000 banks went down in the central part of the country. This is something that they took in their stride. 

We in India are not used to banks going bust and people losing money. If there is any kind of pressure in any bank, the RBI gets into it. The apex body has been hawk-like and ensures that mergers takes place and customers don’t suffer. 

In India, we don’t have a social security system. So, people keep investing in bank fixed deposits and this serves as their safety net. In foreign countries, not much investment happens in banks as there is social security.

Have customers become more informed and knowledgeable than they were before? 

Well, for many their entire livelihoods depend on their bank savings. That is why they are more worried and vigilant and will raise a hue and cry if anything goes wrong. 

Do you remember what happened with Suvarna Sahakari Bank? Following the kind of pressure that was created, the government had to ultimately step in and ensure that that bank was taken over by Indian Overseas Bank.

If you look at financial inclusion, the initiative that has been taken is huge. We are covering more than 6.5 lakh villages. In the first year, we have covered some 78000 villages and in the second year, we covered an additional 60000. In 2013-14, 2014-15 and 2015-16, we are including all the other villages.
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Going back to the social side, let’s talk about the initatives that are necessary to bring in more inclusion. 

If you look at financial inclusion, the initiative that has been taken is huge. We are covering more than 6.5 lakh villages. In the first year, we have covered some 78000 villages and in the second year, we covered an additional 60000. In 2013-14, 2014-15 and 2015-16, we are including all the other villages. There is a huge amount of work involved in going there, opening every person’s account, issuing cards and passbooks, and then going to their doorstep and inculcating a banking culture. That is huge task which we are taking care of. 

How is the bank taking care of the commercial angle? Surely, branches cannot be opened just because the government says so.

We are not opening branches, but are employing Banking Correpondents (BCs). A BC is typically someone from the local village who is entrusted with this job. He is given a handheld device that is connected our base branch. Using that, he opens accounts. The system works with the help of smartcards or biometrics, regardless of whether the person wants to open an account, deposit or withdraw money, etc. This is the first stage. 

The second stage is setting up an ultra small branch. An ultra small branch operates out of a space taken from village panchayats where the BC sits and there is a cash safe there. Our officer goes there daily with a laptop. The laptop is connected to the base branch through mobile connectivity. He may visit the branch once a week, and in some villages where the activity is huge, he may go there even daily. When the business is good, that base branch is converted into a full-fledged branch.

Isn’t there a risk involved in this? 

We have given this job of to the company. This particular company has executed a bank guarantee for the amount of cash that is going to be handled by BCs. Every day we give them a cash amount of Rs 25000. He does his job, uploads the data at the base branch and hands over rest of the cash. There is a bank guarantee, and for any problem that may come up, a bank guarantee can be invoked.

Don’t you think it’s time that the RBI and the government come together?

This will not happen because they have the different view of the economy. As for the Finance Minister, it is his duty to see that the economy grows and he will always pitch for growth. The duty of the central bank is to keep a check on the money flow. The RBI’s job involves taking prudent measures so that there is no runaway inflation. The final objective is the same – that the economy should be healthy – but they are coming to it from two different standpoints. They may be perceived as a being at logger- heads, but both of them are right in their own way.

As banks are in the middle, don’t they face pressure from both sides? 

We are a government-owned organisation, so we are onto it where growth is concerned. Banks are the vehicles which the government would utilise, which is the reason why they were nationalised. It is the duty of the central bank to ensure that in the race for growth we don’t cut corners and meet with an ‘accident’. Both a re in the same direction, both are ensuring the growth happens but one is ensue the growth happens while other is ensuring that the growth happens in the right way and nothing happens that would hurt the economy. Both are working with the same goal but with different perspectives.

Where do you see the Indian banking sector headed in the next five years?

I am a born optimist. I think that when the new government would come, they would be in for five years and would have their policies in place with a conducive policy atmosphere and a clearcut roadmap built in. This is a time when banks can grow from being good to great.

While most of the economies are ageing, the Indian economy is the youngest in the world and is one where lots of reform has been taken for skilling. It is likely that in the next three-four years, it is the Indian economy that is going to provide lots of skilled manpower to the outside world. This manpower going out and generating wealth will send it back here to their families. Thus, there would be a lot of money coming in. Within India, there is so much of growth happening. Infrastructure has been built up, not at the pace at we had thought of, but it is still being done. I feel after five years when we look back, I think we would wonder why we ever doubted the India growth story.