PSB Chairmen now have a financial incentive to open more no-frills savings account and bring the underprivileged into the banking fold. This year, the government has added financial inclusion to the various parameters used to judge the performance of a state-owned bank.
Until now, the parameters for judging a bank’s performance were largely related to the health of the bank and of the economy. These included net profits, growth in advances and growth of low-cost deposits, decline in bad loan and so on. In a letter to all PSU banks last week, the finance ministry said banks will have to state the number of villages they will cover and the number of no-frill accounts they would open in this fiscal.
Performance of regional rural banks is yet another new parameter included in this fiscal to judge PSU banks. In the past, the government had largely used moral suasion to push for financial inclusion.
The finance ministry has told banks to submit draft business plans by May 10 and a final statement of intent (SoI) has to be submitted to the government, following an approval from their board members. Bank chairmen receive a bonus, which is a proportion to their achievement of target set in the statement of intent. The bonus payment could go up to Rs 10 lakh for a chairman and executive director who has achieved all targets.
Financial inclusion as defined by the central bank is providing or ensuring banking services at affordable costs to the weaker sections of society or to the unbanked segment who do not have any access to the formal banking system. In bigger cities, every household may have more than one bank account but thousands of villages in India do not even have a bank branch.
In India, it is estimated that around 60% of the population do not have access to formal banking facility. Of the six lakh villages, only 30,000 villages have bank branches. Earlier in February, the central bank had asked all PSU banks to submit a detailed three-year plan on financial inclusion by the end of March.
Last week, RBI deputy governor KC Chakrabarty also held meeting with CMDs of many large banks to understand their strategy as each bank would follow its own model. Although RBI has not asked foreign and private banks to provide any three-year plan, Mr Chakrabarty recently held a meeting with senior officials from large private banks to access their plans of financial inclusion.
PSU banks account for nearly 70% of the market share in terms of credit and deposits and have a wide network of branches and therefore, initiatives by PSU banks could impact RBI’s drive on financial inclusion.
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