At a time when the Micro Finance Institutions (MFIs) have drawn flak due to steep interest rates charged by them, the Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty has categorically stated that such institutions cannot play any role in financial inclusion.
"MFIs charging an interest rate of 30 per cent cannot bring about financial inclusion. The financial inclusion can only be brought about by the mainstream financial institutions and they have to come out with an appropriate business model to achieve this goal", Chakrabarty said, on the sidelines of a National Financial Conclave on 'Inclusive Growth: Role of Finance Sector' organised by the city-based KIIT School of Management.
"We have set a target for providing banking services to around 78,000 villages across the country with a population of over 2000 by March 2011. The banking access to the people can be either through a brick and mortar branch or through the Banking Correspondent model.
The banks can claim to achieve financial inclusion only when they provide services like savings, overdraft and remittances but the banks are yet to come out with a business model to achieve this goal," he added.
He also asserted that the private sector banks must participate in the Financial Inclusion Plan.
Asked if private sector banks are responding to the RBI stipulations on credit flow to priority sectors including agriculture, he said, "Every quarter, we are reviewing the performance of the banks and to an extent, the private sector banks are complying with the RBI directive but their credit flow to the priority sector needs to be scaled up."
On whether RBI was planning to regulate the MFIs, he stated, "It has not been decided whether we need to regulate the MFIs. The RBI has formed a sub-committee to look into the allegations made against such institutions."
Earlier addressing the delegates, Chakrabarty said, "We want social, political and economic inclusion but most importantly, inclusive growth cannot take place without financial inclusion.
About 60 per cent of the population does not have bank accounts and not even two per cent of the people in the country have access to capital markets. Out of six lakh villages, only 35,000 villages have bank branches."
Speaking on the occasion, K G Karmakar, managing director of National Bank for Agriculture and Rural Development (Nabard) said, "The real challenge for the banking sector is to cut costs and reduce processing time. There is a need to build a relationship with the poor people as the poor are also bankable."
