Indian banks write off Rs 15,000 crore bad debts annually
Indian banks write off Rs 15,000 crore bad debts annually
Recently the Parliamentary Standing Committee on Finance complained against the government policy on issuing license. The Committee earlier suggested for giving priority to financial inclusion and other social objectives while issuing addition bank license to the private banking sector. The Standing Committee is headed by the Bharatiya Janata Party leader Yashwant Sinha. It also suggested for evaluation on the basis of the Banking Correspondent Model (BCM) and rationale of levying charges on banking services through the model. The suggestions were given on the basis of Finance Minister Pranab Mukherjee’s announcement in the Budget 2010-11 on extending the geographical coverage of banks and improving access to banking services through issuance of new banking licences to private players and nonbanking finance companies (NBFCs). Despite the measures taken by the government and the RBI to extend the rural reach of banking, there are 375 under banked districts and 89 unbanked blocks in the country. The report prepared by the Committee was submitted to the Parliament in April 2010, where the panel supported the idea of financial inclusion to be included as normative feature while granting fresh license by the Reserve Bank of India (RBI). It suggested for mandating the private players to render specified banking services in rural and semi-urban areas. The government subsequently asked RBI to take action, for which the RBI issued a discussion paper and invited comments on it in September 2010. The paper was based on suggestions made for criteria on minimum capital requirements for banks and promoters’ contribution, minimum and maximum cap on promoter shareholding and other shareholders and foreign shareholding. It also speculated other issues such as allowing the industrial and business houses in promoting the banks and allowing the conversion of the nonbanking finance companies into banks. RBI in order to bring changes in present banking system in India is planning to issue bank licence to some players by March 2011. The decision will facilitate the entry of large corporate houses like Reliance, Tata and Birla in the commercial banking space, which is presently dominated by state-run State Bank of India and private lenders like ICICI Bank and HDFC Bank which are based on public shareholdings between the state, government and other stakeholders. Also for the millions of rural households in India, that was devoid of access to banks RBI suggested for the adoption of BCM which is a good alternative to reach the unbanked. This would give a doorstep service, delivered from a distance using technology, which would be a new window to the banking system. In March 2006, the RBI suggested for adoption of the BCM to reach the unbanked. Under this no-frills savings account, loans and remittance products were provisioned through BCM. This March, it asked all banks, public and private, to submit their ‘financial inclusion plans’ till 2013 — and meet them. Since they wouldn’t go out and set up branches, banks would have to do it largely through the BCM model. Unlike the branch model, in the BCM, the bank and the customer don’t talk to each other directly. A technology partner, with whom the BCMs are attached, is the go-between. The largest technology partner is Financial Information Network and Operations (FINO), which has 8,000 BCMs, who have so far serviced 17 million customers of 14 banks. However the other commercial banks have been hesitant in adoption the model due to low revenue generation potentials as these accounts exceed the cost of servicing them and the complexities in operation, a large part of which is outsourced — and hence, not directly under their control.
Recently the Parliamentary Standing Committee on Finance complained against the government policy on issuing license. The Committee earlier suggested for giving priority to financial inclusion and other social objectives while issuing addition bank license to the private banking sector. The Standing Committee is headed by the Bharatiya Janata Party leader Yashwant Sinha. It also suggested for evaluation on the basis of the Banking Correspondent Model (BCM) and rationale of levying charges on banking services through the model. The suggestions were given on the basis of Finance Minister Pranab Mukherjee’s announcement in the Budget 2010-11 on extending the geographical coverage of banks and improving access to banking services through issuance of new banking licences to private players and nonbanking finance companies (NBFCs). Despite the measures taken by the government and the RBI to extend the rural reach of banking, there are 375 under banked districts and 89 unbanked blocks in the country. The report prepared by the Committee was submitted to the Parliament in April 2010, where the panel supported the idea of financial inclusion to be included as normative feature while granting fresh license by the Reserve Bank of India (RBI). It suggested for mandating the private players to render specified banking services in rural and semi-urban areas. The government subsequently asked RBI to take action, for which the RBI issued a discussion paper and invited comments on it in September 2010. The paper was based on suggestions made for criteria on minimum capital requirements for banks and promoters’ contribution, minimum and maximum cap on promoter shareholding and other shareholders and foreign shareholding. It also speculated other issues such as allowing the industrial and business houses in promoting the banks and allowing the conversion of the nonbanking finance companies into banks. RBI in order to bring changes in present banking system in India is planning to issue bank licence to some players by March 2011. The decision will facilitate the entry of large corporate houses like Reliance, Tata and Birla in the commercial banking space, which is presently dominated by state-run State Bank of India and private lenders like ICICI Bank and HDFC Bank which are based on public shareholdings between the state, government and other stakeholders. Also for the millions of rural households in India, that was devoid of access to banks RBI suggested for the adoption of BCM which is a good alternative to reach the unbanked. This would give a doorstep service, delivered from a distance using technology, which would be a new window to the banking system. In March 2006, the RBI suggested for adoption of the BCM to reach the unbanked. Under this no-frills savings account, loans and remittance products were provisioned through BCM. This March, it asked all banks, public and private, to submit their ‘financial inclusion plans’ till 2013 — and meet them. Since they wouldn’t go out and set up branches, banks would have to do it largely through the BCM model. Unlike the branch model, in the BCM, the bank and the customer don’t talk to each other directly. A technology partner, with whom the BCMs are attached, is the go-between. The largest technology partner is Financial Information Network and Operations (FINO), which has 8,000 BCMs, who have so far serviced 17 million customers of 14 banks. However the other commercial banks have been hesitant in adoption the model due to low revenue generation potentials as these accounts exceed the cost of servicing them and the complexities in operation, a large part of which is outsourced — and hence, not directly under their control.
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