PJ Nayak, MD and country head, Morgan Stanley, has called for a bigger role for non-banking institutions in fostering financial inclusion, saying it would result in a more diverse financial ecosystem. Nayak believes that projecting banks as the central thrust of financial inclusion may not really work.
Speaking at a panel discussion on ‘New bank licences: A framework for reforms and competition in the sector’ at the FE Best Banks Awards, Nayak observed that “just like a commercial bank can’t work like a moneylender, similarly, a commercial bank would find it very difficult to work like an NBFC specialising in truck financing. I would say that the counterfactual tells you that Shriram Transport Finance is an extremely good example of financial inclusion. So, we should, at the very least, be saying that financial inclusion requires a broader set of financial corporates to actually participate in the process and it’s not even clear to me that the apex of this has to be the commercial banking system.”
According to N Sivaraman, president and wholetime director, L&T Finance Holdings, with the compulsion to open 25 per cent of branches in unbanked areas, the only business model that would work would be one that fostered financial inclusion. However, Sivaraman pointed out that banks also needed to find a way of enabling the local commerce to use banking facilities without using actual cash. “Actually, cash has been a bane in the rural areas because it increases the operating cost and the risks associated with that. If somehow we could work to make the cash disappear form the system and enable all commerce through bank transfers and an electronic system, that will make life simpler for all of us,” he said.
Nandan Nilekani, chairman, UIDAI said the advantage that new banks would bring, because they will be greenfield ventures, with no legacy issues, would be a discontinued business model and potential game changers. “The entire value proposition of financial services today can be electronic, whether it’s opening an account, verifying identities, sending money back and forth or credit checks; and so, the way a bank is designed would be radically different. The banks which get that right will be the ones who will succeed,” Nilekani observed. He said that if the number of digital transactions could be increased (account-to-account transfer) then it would definitely reduce the cash in the system.
Shikha Sharma, MD and CEO, Axis Bank,