Press Reader, Published : 16th May 2017
The perspective that extension of banking services in rural areas is not easy is quickly dissipating. The nature of agri and other rural economic activities with their unique characteristics of dependence on natural resources, long production cycles, and vulnerability to vagaries of monsoon amidst small land holdings were often seen as hurdles to rural banking. In the last one decade, however, the face of rural economy has undergone a metamorphosis both from an economic and social perspective. Now, the rural clientele is no longer limited to farmers and the uneducated, but has come to include a generation which can use and adapt technology effectively. This evolution of the rural economy has dictated a change in the nature of supply of banking services, adopting a more inclusive approach combined with innovative digital solutions.
The efforts on the part of banks have seen a gradual yet discernible change. Over a span of 6 years between 2010 and 2016, the number of banking outlets in villages has increased 8 fold, basic savings bank deposit accounts by 6 folds and agriculture credit off-take by 2 fold. While banks have played a dominant role, as a banker, I cannot not acknowledge the regulatory support of the Reserve Bank of India and more recently of Government’s policy that have acted as a catalyst. Needless to add, the focus of the Government on opening Jan Dhan Accounts, thereafter creating the Jan Dhan – Aadhar – Mobile (JAM) trinity and more recently Demonetization, have induced a behavioral change in hitherto unbanked masses towards banking services.
India is now at the cusp of the great collision of the 3Ds of Disruptive forces – Demographics, (De)regulation and Digitization, and we as banks need to be ready to fully seize this “once in a centennial opportunity”
Early identification of Propellers of rural Digital Banking
Creating a winning business strategy: By Banks
From Bank’s perspective, the pervasion of digitalization offers low hanging fruits for banks as business opportunities. However, to reap full benefits of the evolving winds of change banks must adopt a 4P approach –
Strengthening Institutions
Achieving 100% financialization of the rural economy, will require furthering strengthening of institutional mechanisms
Conclusion
The fact that rural economy largely withstood the impact of demonetization is nothing but a reflection of the evolved face of rural economy. Financial inclusion, though has leapfrogged in the last few years, but remains incomplete. Ensuring access and equity in availability of financial services is a necessary building block for the sustainable growth of the country. Digitization has allowed this transformation to become quicker, easier and at lower costs. I believe we all would agree that the rural economy has never been more ready to embrace this change. It is must that Banks now must adopt the role of ‘change agents’ to become the spark plugs in this endeavor.
- Government has moved fast to lay foundation for cash alternatives such as debit/credit cards, mobile/internet banking and e-Wallets. Advent of Aadhar Merchant pay is aimed at 350 mn people who do not have phones. They just need a valid Aadhar ID and a bank account to make a merchant payment using his biometric identification.
- Cheaper mobile handsets and the spread of cheap data networks have enabled the mobile phone to become a virtual Bank in the hands of rural masses. Launch and large scale adoption of BHIM (Bharat Interface for Money) has boosted digital transactions to unprecedented levels. This trend is only going to increase as BHIM USSD 2.0 kicks in which allows 350 mn feature phone users to take advantage of United Payment Interface (UPI).
Central Government through NABARD is expected to support banks for deployment of two POS devices in villages with population of less than 10000. POS machines at primary cooperative societies /milk societies /agricultural input dealers are expected to benefit farmers of one lakh village covering a total population of nearly 750 mn.
The government under the project BharatNet aims at providing broadband connectivity to all gram panchayats of India. More than 61000 gram panchayats have been provided the facility. The number of users is still negligible in most of the gram panchayats. If the National Digital Literacy Mission is integrated with this project, the impact could be enormous.
Direct transfer of subsidies into the accounts of beneficiaries has drastically reduced the leakages and middlemen. The rural masses have more money in their hands, and are not dependent upon the mercy of the local influential to receive their dues. The transparency being brought along with the aspirational behaviour of rural consumer is leading to large adoption of digitization by all strata of rural society alike.
Product Strategy: Cost of delivery of financial products is significantly lower in the case of digital as compared to cash. For catering to the varied needs of small ticket size transactions, banks must identify how best to deploy technology to ensure flexible and continuous availability of financial services in rural areas
Processes: More efficient monitoring and tracking of underlying credit generation. This will enable a stronger will from organized financial sector to extend last mile funding, therefore facilitating shift of people from informal borrowing to formal sector.
People: Rural population has got the taste of cashless transactions in the demonetization drive – albeit forced. The experience of plastic money, internet availability in the smart phones at negligible costs, e-commerce boom in youth crowd needs to be ingrained, via efficient frontline staff
Protection: Adoption of appropriate risk practices to ensure that banks protect themselves against flow of any uncertainty in credit culture
Digitization of land records: Land is often the single most valuable source of wealth in rural areas. The digitization of land records, accompanied by a guarantee of certificates of final ownership by the state government, will ease the use of land as collateral against which funds can be borrowed. Even a formal recognition of share cropping agreements, as in the pattas registered by the state government, could ease access to credit for share croppers. Efforts on these lines have been initiated by the State Governments of Rajasthan and Andhra Pradesh respectively.
Financial Literacy Centres: The objective of these centers should be to provide not only free financial literacy but also credit counseling. This will help to make the rural households fully aware of the advantages of being connected with the formal financial sector and educate them thoroughly in respect of full details of various financial products and services being provided by banks including the procedure to avail them.
New Role of Government: So far, our approach to rural banking has been to expand credit, with Government also setting targets for agriculture lending. This approach needs to undergo a change. The focus needs to shift towards easing payments, encouraging savings, provision of insurance products among others in the rural economy. The inculcation of a habit of banking will automatically allow better credit allocation and repayment culture in turn.
-By Rana Kapoor, MD & CEO, YES BANK and Chairman, YES Institute
Source – https://www.pressreader.com/india/hindustan-times-jalandhar/20170516/282097751634035