Headless Hunch : Views on India Onward – Driving Social Inclusion through Cooperative Banking

A wonderful initiative by IBM India to discuss the ideas of progress for India, India Onward. Posting my views on the topic of ‘Driving Social Inclusion through Cooperative Banking’ as initiated by Robert Parker (Link to Website)

Until recently, banking services in India were nothing short of an ordeal. An average consumer would take half a day off from work to manage simple banking transactions, like creating a demand draft or sending an outstation cheque. Today, with internet banking, ATMs and mobile banking facilities, such a situation would be considered unthinkable. The banking sector in India has grown exponentially in the past decade, but has the growth been inclusive?

According to available data only 40 percent of Indians currently have access to basic banking facilities. There is a staggering disparity across geographies, socio-economic categories and the pervasive urban-rural divide. Such exclusion is a result of a combination of factors such as physical inaccessibility, cost of access, lack of awareness and a trust deficit.

Cooperative banks, in general, are better equipped than commercial banks to address these issues, with their widespread reach, lower operating costs, flexibility, and deep-rooted connections with the local communities, which, in turn, inspire trust. With over 95000 rural and 1,600 urban cooperative banks registered in India, these organizations can play a pivotal role in the “real last mile financial inclusion”.

However, the cooperative banking sector in India, particularly in the rural areas, is plagued by poor financial health, high non-performing asset (NPAs) and inadequate infrastructure.

Technology can play a significant role in addressing this issue. With an effective application modernization approach, cooperative banks can expand their reach even further, improve operational efficiency and address customer needs more effectively.
Towards this end, the government has set up two funds: the Financial Inclusion Fund and the Financial Inclusion Technology Fund, worth INR 1,000 crores which are being extended to banks through NABARD However, government initiatives have to be supported by technology service providers, who need to perceive inclusion as an opportunity. They need to create technology and business platforms that suit the need of these banks.

One of the initiatives from the technology vendors, aimed at addressing the needs of cash-strapped cooperative banks, for an example, was the new Application Service Provider (ASP) model. ASP is a cloud computing model which allows the cooperative banks to use the hardware maintained in a shared data centre owned by a third party vendor. The banks do not need to maintain an IT support staff, helping reduce operating costs significantly.

IBM, in collaboration with its Business Partners, has been helping cooperative banks to achieve their modernization goals. However, this is just the beginning. Cooperative banks, in collaboration with the government and technology service provider, will need to aggressively pursue application modernization initiatives to enable true ‘financial inclusion’ in the society.

Well the idea of empowerment of the cooperative banking through the technology is good but I think its too theoretical. Barring bigger (stronger) cooperatives , I think this would not help smaller RRBs or cooperative banks. Let me explain my logic behind the same.

Firstly, most of these cooperatives are chaired by local political/business big shots that had led these cooperatives to poor financial conditions. Though RBI has cleaned lot of dirt by way of regulations, these people don’t have strong desire to induce accountability and transparency in cooperative banking procedures.

Secondly, ASP model might be best available solution for technology of these cooperative, however, I see serious lack of supporting Infrastructure in many parts of country. For e.g., in Rural India, rolling of 3G services would still take lot of time and thus the idea of social inclusion via ASP model would be at very slow pace.

Third, existing alternate solutions like, gprs based business correspondent device and platform, aadhaar based authentication mechanisms enabling PSU & private banks to expand its reach will probably get more push, both financially from government as well as socially from individuals, due to sheer lost of trust in cooperatives due to scams.

Lastly, enabling cooperative banks & RRBs with advance technologies would make them vulnerable to the risk of merger & acquisition(read takeovers) by the bigger banks, more by the new private banks which would get license to operate soon. This would be last thing the current administrator of cooperative will want to happen.

On personal front I believe financial inclusion will lead to social inclusion, but I hardly see it coming from cooperatives or RRBs. I see it coming from independent entrepreneurs, working as extended arm of bigger banks or from the mergers of small cooperatives & RRBs into new private banks.


Headless Hunch : Views on India Onward – Managing electricity theft menace

A wonderful initiative by IBM India to discuss the ideas of progress for India, India Onward. Posting my views on the topic of ‘Managing electricity theft menace’ as initiated by Jeby Cheiran (Link to Website)

India has world’s fifth largest installed capacity for power generation, but more than 300 million people in the country still do not have any access to electricity. One significant contributing factor to this insufficiency is the staggering network loss, exceeding 30 percent. Such a huge loss in transmission and distribution (T&D) further raises the demand and places increasing pressure on the installed capacity.

Though it is difficult to quantify the proportion of electricity theft in T&D losses, it is undoubtedly a major contributor. As a consequence, utility organizations have been running huge losses, resulting in increased power tariff for the end user.

Power theft results in a situation where all the stakeholders, including those responsible for the pilferage in the first place, get affected. While stronger vigilance and better technology can address the issue to an extent, I believe there is a greater need for awareness among people and having greater focus on building the overall infrastructure. While, citizens must have access to such an essential element of modern day life, they should not expect it for free either. What do you think?

By Jeby Cheiran
The author is Strategy Leader of IBM India/South Asia

Very well said in your last line. We, the people should not expect such essentials for free or even at discounted rates as ultimately its going to hit the pockets of someone like us only. I think not only T&D loss but the entire sector needs major reforms post its first phase of reforms initiated by segregating the generation, transmission & distribution companies.

Though I agree with all the above, I think technology is not the only solution to this problem, we need a mindset change and strong willpower both of government & people to overcome this. Today, how many times we as people have reported power theft incidents? Forget reporting, I can bet more than 80% people would also not know how to report such incidents. We need technology and digital metering up to last mile to box-in the origins of power thefts. Also, we need stricter punishments for those who get caught in scenarios of power theft.

For implementing technologies solutions, we need to think out of box to bring accountability. One of the genius enlightened me with a wonderful example in this area. For industries (major consumer of electricity), consumption of electricity can be directly proportional to output of the goods/services they manufacture/offer. These goods/services quantum which they manufacture is always reported in their excise/service tax filings. Can’t we use analytic engines on the past data available to derive this equation and monitor on monthly/quarterly basis, the electricity consumption. We can right? We just need appropriate linkages between data available with two different government agencies.

Another aspect to the mounting theft are power tariff. People generally steal things which are dearer. Political parties are sabotaging the power balance for petty political gains. Just because the agriculture forms backbone of your country doesn’t mean it should be cheap power to gain popular votes. We need strict action by State ERCs to ensure that every power is not provided below cost price. But unfortunately, State ERC boards are appointed at will & mercy of these political parties and thus they are mostly helpless to these proposals.

Lastly, we need to use technology for generating complex billing structures for rewarding those who,
– use electricity in off-peak hours
– use sanctioned loads
– use rated instruments
and punish the violators.

Yes, I agree, the road ahead is challenging in country like India, where people lacks responsibility towards society, but with strong will power of few, use to innovative thinking and applying right set of technologies, we can definitely take a step closer to achieve balanced electricity consumption.

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