PM exhorts FM to constitute group to better banking

Bangalore, June 23: Prime Minister Manmohan Singh tonight exhorted the finance ministry to constitute a group to formulate policies to promote 'financial inclusion' by stimulating services for the poor with emphasis on micro and macro finances, and new delivery channels.

Expressing deep concern over the majority of population, especially in rural areas, still being unexposed to banking sector, the Prime Minister urged Finance Minister P Chidambaram to constitute a group comprising representatives from the Reserve Bank of India, National Bank For Agriculture and Rural Development and major commercial banks.

Participating in the valedictory function of the centenary celebrations of the Canara Bank here, the Prime Minister said a key requirement of greater 'financial inclusion' would be reduction of transaction costs. The RBI had taken various steps by issuing guidelines to banks, enabling the use of agencies such as post offices for achieving better banking outreach. He also advised the banks to give top priority to customer service, lower transaction costs and eliminate procedural inconveniences.

Dr Singh observed that agricultural credit had been a cause of considerable concern to the Government. Despite doubling agricultural credit in three years, there were vast uncovered gaps.

Many regions and many classes of farmers were completely outside the institutional credit delivery systems, he felt, adding that high interest rates and serious debt still affected millions of farmers and this could not be allowed to persist.

He lamented that a committee report, formulated 75 years ago on having an informal arrangement vis-a-vis banking and non-banking institutions such as money lenders, had not been implemented yet.

The banks could look into the report, he added.

Dr Singh said an important challenge facing the banking sector was to extend financial services to all sections of the society. Like others, the poor people also needed a range of financial services that were convenient, flexible and affordable, and not just loans, he added. Micro finance could emerge as a powerful tool to fight poverty, he noted.

He observed that public sector banks continued to have about 75 per cent share in the banking system and despite the rapid growth of new private sector banks, the share of the public sector banks would continue to remain high.

While the public sector banks had the potential with their spread and reach to enable financial inclusion, they also had to face difficult challenges in human resource development Dr Singh said.

These banks needed to invest significantly in skill enhancement at all levels for delivering new service modes in the face of greater competition, he said.

''Our banking systems need to equip itself to deal with emerging challenges,'' he added.

The Prime Minister said the presence of foreign banks in the country had been useful in bringing greater competition in certain segments of the market. He suggested to examine possibilities for the consolidation of PSU banks to give them both depth and reach and also devise effective global strategies for improving their international presence.

UNI