Banking for the poor more viable than for the rich: KC Chakrabarty

MUMBAI: The Reserve Bank deputy governor KC Chakrabarty has opined that banking or commerce for the poor is always more viable than doing the same for the rich and said this is clear from the no-frills accounts that banks have opened under the financial inclusion programme.

Calling for a radical approach to banking, he said, it is an irony that the poor always end up paying more for the same product and services than the rich. And this is true of banking too, he added.

"My belief is that commerce or banking for the poor is always more viable than commerce or banking for the rich. That's why corporates get money at 7-8 percent and the poor MFI borrowers get at 60 per cent interest rate. It is viable provided you have the ability to do business with the poor," Chakrabarty who oversees banking supervision, rural credit, customer service and the financial inclusion programme, said in an exclusive interview.

Pointing out that the inclusion banking project has already proved this point right, Chakrabarty said, "in many places, the inclusion banking is already profitable. When they are able to do transactions properly, these accounts will give them profits, and many such accounts are already doing so."

"What we are saying is that don't subsidise the poor, but don't exploit them, because so long as the rich get a thing cheaper, they will not allow that item to reach the poor. And this has to change, at least in banking," he said.

Pegging the overall cost of financial inclusion project at around Rs 6,000 crore for the entire banking industry, he said, "my calculation is that the entire cost of this banking programme to cover all the targeted villages will not be more than Rs 6,000 crore."

Challenging banks to prove that inclusion banking is not profitable, he said, "Wherever a bank is able to provide three-four products together, it can make it profitable. When a bank uses proper technology and delivery model and devises saleable products, inclusion banking will easily be profitable."

What banks should do is to create a structured delivery model through which they are able to interact with the poor and do business with them, he said, adding, "pricing is left to the banks and it will be viable and sustainable. I am sure banks can and will lend to the poor at a much cheaper rate than MFIs."

On whether the apex bank is happy with the progress of the inclusion programme so far, he said, "We are never happy with anything nor are we depressed. It is not that nothing has happened on the inclusion front. Many things have happened, but we have to scale up."

Source: EconomicTimes