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.