Lending based on a subsidy model is unsustainable for banks and will not aid financial inclusion, according to the Reserve Bank of India Deputy Governor, Dr Subir Gokarn.
Lender needs to lend at a cost which is lower than the return generated to make it viable. A commercially unviable credit delivery system will not aid financial inclusion, he added.
Financial inclusion
Speaking on the need for financial inclusion, Dr Gokarn said that access to credit was just one aspect. There was a need to offer other financial products and improve access to financial markets, a point stressed upon by ICICI Bank and State Bank of India as well.
Outlets
“The mere presence of banking outlets does not mean financial inclusion has taken place,” said Dr Gokarn.
Ms Chanda Kochhar, Managing Director and Chief Executive Officer, ICICI Bank, said financial inclusion tends to be measured by whether micro-credit is reaching people.
But financial inclusion can be truly achieved if people are able to deposit that small amount of money. Products such as affordable insurance and micro-insurance need to be made available to the public, she said.
Lender must know how the money is utilised, and how much revenue is expected.
The loan should lead to a significant increase in the borrower earnings so that he can repay the loan, Dr Gokarn said.
Role of identity
He also stressed the role of ‘identity' to help borrowers move within national boundaries without worrying about identity proofs to meet the most basic KYC guidelines. The roll out of the unique identification system will make a huge contribution to financial inclusion, he said.
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