After asking banks to come out with ‘no-frills' accounts for the underprivileged, the central bank has urged banks to provide these account holders with small-ticket credit as well.
No-frill accounts are accounts with no pre-conditions, so that the common man would not hesitate to have a bank account. These accounts were introduced as a part of the financial inclusion that started in 2004 in India.
The country's largest bank, SBI has decided to follow RBI's recommendation and offer credit products through its no-frills accounts. Chief General Manager of SBI, Shyamal Acharya said that the bank is taking such a move to mobilize more deposits in such accounts and augment the business in financial inclusion operations.
"We will ask the business correspondents to mobilize deposits in such accounts and to offer credit up to Rs 25,000. This would help the bank to increase the business viability of rural banking," added Acharya.
The banking major is planning to use the post office model to increase the awareness of its financial inclusion activities. It has tied up with 1,000 post offices for the purpose and plans to increase this figure to 5,000 by the end of this fiscal.
Presently SBI has 14 lakh no-frills accounts and is trying to open more such accounts. By March 2009, the bank wants to have 50 lakh no-frill accounts. The bank also plans to open 1,000 branches in the rural and semi urban areas in the current fiscal. Currently the lender has over 70% of the branches in rural centers and 30% of its business is coming from rural and semi-urban areas.
According to Reserve Bank of India deputy governor Usha Thorat, although banks have made progress in opening ‘no-frills' accounts most of them are lying inactive.
Ms Thorat said, "Credit products are required to further the cause of financial inclusion. We are speaking to banks for this, having laid a good foundation; they now need to take it forward. What they need to realise is that these accounts offer a huge opportunity; it's not like poor people don't repay their loans."
RBI has been stressing on financial inclusion - bringing the vast underprivileged and under-banked population under the formal banking fold - for a couple of years now. It had mandated that banks open accounts with zero minimum balance and relaxed KYC (Know your Customer) norms in rural and under-banked areas in its annual policy statement for 2005-06.
According to Ms Thorat, the number of no-frills accounts has increased dramatically from 5 lakh in March 2006 to 15 million in March 2008. Public sector banks have opened almost 13 million ‘no-frill' accounts so far, while private banks and foreign banks have opened around 1.8 million and 33,000 such accounts respectively.