Nachiketa Mor Committee

The Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households (Chairperson: Dr.NachiketMor) submitted its final report on December 31, 2013.The Reserve Bank of India (RBI), on September 23, 2013, had appointed the Committee to propose measures for achieving financial inclusion and increased access to financial services.

The Committee proposed the following to be achieved by January 1, 2016

  • Provide each Indian resident above the age of 18 with an individual, full-service electronic bank account.
  • Set up widely distributed Electronic Payment Access Points offering deposit and withdrawal facilities at reasonable cost.
  • Provide each low-income household convenient access to formally regulated providers that can provide suitable: (a) credit products, (b) investment and deposit products, and (c) insurance and risk management products at a reasonable price
  • To provide every customer the legally protected right to be offered suitable financial services

The Major Recommendations of the Committee were

  • The Committee recommended that every resident receive a Universal Electronic Bank Account at the time of registering for an Aadhaar card.
  • The Committee proposed the setting up of Payments Banks whose primary purpose will be to provide payments services and deposit products to small businesses and low income households.These banks will be restricted to holding a maximum balance of Rs 50,000 per customer and will be required to have a minimum entry capital of Rs 50 crore.
  • It further proposed the setting up of Wholesale Banks which will lend to corporates and purchase securitised retail and small-business loans. These banks will only accept deposits larger than Rs 5 crore and will require minimum entry capital of Rs 50 crore.
  • Sufficient access to affordable formal credit: The Committee recommended a number of steps to be taken to help banks manage their credit exposures effectively, including allowing banks to purchase portfolio insurance.Universal reporting of information with credit bureaus should be mandatory for all loans, especially kisan credit cards and general credit cards.

Impact of Financial Inclusion

The launch of Pradhan Mantri Jan Dhan Yojana (PMJDY) in August 2014 has committed India to an ambitious agenda of financial inclusion in mission mode. As this initiative approaches the close of its third year, it is appropriate to assess its impact in outcome terms, identify key takeaways, and look at the way ahead.

Basic Savings Bank Deposit Account (BSBD)

  • BSBD accounts being the basic savings account product introduced specifically for unbanked persons, the growth in these accounts is a key parameter for assessing growth in financial inclusion.
  • Prior to the launch of PMJDY, since introduction of BSBD accounts in 2005 till July 2014, the number of such accounts had grown to25.54 crore. After the launch of PMJDY, the number of BSBD accounts rose rapidly to 51.50 crore by December 2016, of which26.20 crore were accounts opened under PMJDY, representing more than half of the total.

Gender Issue in Financial Inclusion

  • As of March 2014, women constituted about 28% of all savings accounts, with 33.69 crore accounts. As of March 2017, according to data from top 40 banks and RRBs, women’s share has risen to about 40%. This includes 14.49 crore accounts opened by women under PMJDY, out of a total of 43.65 crore women’s accounts. This represents a sizeable and rapid growth in financial inclusion of women.
  • Effective financial inclusion should be reflected not only in terms of access but in the use of financial services. In terms of deposit mobilisation, the average balance in accounts opened under PMJDY has registered steady growth, from $1,065 per account in March 2015 to $2,236 in March2017.

Status of Zero Balance Accounts

  • Zero balance accounts under PMJDY has declined consistently from nearly 58% in March 2015 to around 24% as of December 2016.
  • Aadhaar-enabled payments, the principal mode of transactions at Banking Correspondent (BC)outlets, have also witnessed a rapid growth, growing from 0.3 crore per month in August 2015 to 2.3 crore in August 2016 and 6.8 crore in May 2017.
  • As a result of expansion in and strengthening of inter-operability, the share of transactions performed by customers of one bank at the BC outlet of another bank (“off-us” transactions) has also risen, growing steadily from less than 1% of all transactions at BC outlets till April2016 to nearly 17% in May 2017.

What is Business Correspondent Model?

With the objective of ensuring greater financial inclusion and increasing the outreach of the banking sector, banks were permitted by RBI in 2006 to use the services of intermediaries in providing financial and banking services through the use of Business Facilitators (BFs) and Business Correspondents (BCs).

Business Correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM. BCs and the BC Agents (BCAs) represent the bank concerned and enable a bank to expand its outreach and offer limited range of banking services at low cost, particularly where setting up a brick and mortar branch is not viable. BCs as agents of the banks, thus, are an integral part of the business strategy for achieving greater financial inclusion.

Banks had been permitted to engage individuals/ entities as BC like retired bank employees, retired teachers, retired government employees, ex-servicemen, individual owners of kirana / medical / fair price shops, individual Public Call Office (PCO) operators, agents of Small Savings Schemes of Government of India/ Insurance Companies etc. Further, since September 2010, RBI had permitted banks to engage ‘for profit’ companies registered under the Indian Companies Act, 1956, excluding Non-Banking Financial Companies (NBFCs), as BCs in addition to the individuals/entities permitted earlier. According to the data maintained by RBI, as in December, 2012, there were over 1,52,000 BCs deployed by Banks. During 2012-13, over 18.38 crore transactions valued at Rs.16533 crore had been undertaken by BCs till December 2012.

Rural Accounts

  • While the number of rural accounts opened under PMJDY has grown from 8.0 crore in August 2015 to 14.8 crore in August 2016 and 17.2 crore in May 2017, the growth in transactions is at a rate much faster than the rate of growth of the rural account base.
  • Thus, use of accounts in terms of both deposits and transactions through BC outlets has registered impressive growth, which has positive consequences for the viability of and the continued growth of the BC network.

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