India has huge opportunity to leverage the potential of e/m-banking and build a cash-light economy. In addition to its cutting edge information technology industry and relatively dense population, the Government of India is clearly determined to achieve financial inclusion and is taking aggressive steps to see this happen. This paper assesses whether e/m-banking will reach sustainable scale in India.
The gradual regulatory evolution to support business correspondents (BCs) and banks in their outreach efforts continues - and the results are beginning to emerge. While the emphasis continues to be on numbers, the targets are such that large scale outreach will be achieved within a year. This, coupled with the government's resolve to move to cash based subsidy transfer and social security payments systems, will ensure transactions. Institutions such as UIDAI and NCPI will play expanded roles as systemic back-bones that support different players and bring about inter-operability.
The other exciting development is the move to encourage banks to have 25% of their branches in rural areas. These, presumably low cost branches, can become the hub for financial inclusion and support wider outreach of branchless banking outlets, while acting as nodes or hubs of the model. The antiquated post-office structure is also undergoing rapid transformation and all records will be computerised with plans to link post-offices within the next year.
Policy makers are pushing convergence of EBT and the Financial Inclusion Plan, along with opening up of competition amongst BCs within districts, which is much desirable, breaking the silo-ed monopolies that were beginning to form. Competition will help market-forces let the best player win, instead of the current practice of distribution of villages to BCs, akin to land-grab, ignoring merit and performance and putting customers at a disadvantage.
Financial inclusion is not a burden on banks. It is indeed a business opportunity to be tapped. However it requires non-traditional approaches and a paradigm shift in outlook. Multiple consumer businesses (telecom, FMCG, agri) recognised this opportunity early on and now have a well oiled-machinery in place to deliver the services and to harvest the gains. Many of the lessons learned can very well be applied by the banking sector. With government goading, the banks in India will soon recognise and respond to this.