Rangarajan says tech vital in banking services

Hyderabad, July 2: The Chairman of the Economic Advisory Council to the Prime Minister, Dr C Rangarajan, today underscored the importance of technology in making banking services available to everyone.

Inaugurating the SUUTI Tech Options Limited, a joint venture between UTITSL and CoOOptions Technologies Limited, a pioneer in rural computing, the former RBI governor said technology had to be leveraged to create channels beyond branch network to reach the unbanked and extend them banking services similar to those dispensed by branches.

Technology had to enable the branch to go to the customer. The RBI had set up an Advisory Group for IT-enabled financial inclusion to facilitate development of information technology (IT) solutions for delivery of banking services.

The Advisory Group would prescribe certain minimum parameters and standards essential for setting up robust technology solutions. The essential ingredients of all the models under consideration include the issuance of a smart card to the client in the village on which all the transactions will be recorded, a hand-held terminal with the business correspondent at the village level and a Central Processor Unit (CPU) for linking the smart cards and BC terminals with the banks.

Mr Rangarajan said the financial system in the country had grown rapidly in the last three decades and more. The functional and geographical coverage was truly impressive. Data showed the poorer sections of the society were not able to access adequate financial services from the organised financial system.

There was an imperative need to modify the credit and financial services delivery system to acheve greater inclusion. This called for institutional changes of various types and innovative ideas to link bank branches with millions of farm households and others.

Dr Rangarajan said the banking sector had witnessed far-reaching changes in the post-liberalisation period. These changes were ushered in to make the sector both viable and efficient. Apart from policy changes of fundamental nature, technology also played a key role in transformation with the reforms (in the sector) in no way compromising with the goal of expanding credit to those involved in agriculture and other vulnerable groups.

In relation to agriculture, he said three important measures were initiated during the early nineties to boost the sector. Banks drew special agricultural plans with a view to enhancing the flow of credit to the sector, rural infrastructure development fund was created to accelerate completion of ongoing projects in the rural areas and the Self Help Group-bank linkage scheme was started, he elaborated.

The flow of credit to agriculture since 2003-04 had shown rapid increase though it had bypassed the poorest sections.

There was enough evidence to show the farmer households with less than one hectare of land received very little credit from the banking system.

The objective of financial inclusion was to extend the scope of activities of the organised financial system so as to include within its ambit people with low incomes.

Dr Rangarajan said the question was how to extend the scope of activities of the organised financial system. He stressed the need to strengthen the existing institutional framework rather than creating new ones.

The commercial banks had a large outreach and at present there were 33,478 commercial banks branches in rural and semi-urban centres in the country. The critical question was how to make these rural branches more effective in terms of delivering credit to the small and very small borrowers.

Listing various approaches, he said rural lending required a specific type of organisation ethos, culture and attitude and rural branches had to be farmer-friendly and must go beyond providing credit by extend a helping hand in terms of advice on a wide variety of matters relating to agriculture and the SGH-bank linkage.

UNI