The world over, it is recognized that for economic growth to be sustained, the marginaliz

ed must be brought into the mainstream. It is also recognized that for alt39 Inclusionalt39 to be successful, there must be alt39 Financial Inclusionalt39. With large tracts of poverty in India, it is the mainstream which is marginalized and as such the task is indeed daunting. alt39 Financial Literacyalt39 is of paramount importance as without it, financial inclusion would fail. While with concerted efforts financial inclusion can be attained in a few years, financial literacy, in the normal course, would take two generations and as such financial literacy is even more important than financial inclusion.

Financial inclusion cannot be attained in a vacuum and there are a number of concomitants or preconditions which have to be met to ensure successful financial inclusion.

Some of the key concomitants are: ( i) There should be real activity in the area where there is a thrust for financial inclusion.

( ii) Social sector facilities like health, education and family welfare have to be upgraded. ( iii) There must be adequate attention to the economic infrastructure such as accessibility to roads and communications, water, electricity, housing and other basic amenities.( iv) Macroeconomic policies have to be sensitized to ensuring distributive justice. In the absence of these concomitants, financial inclusion would degenerate into consumption loans which do not generate income and as such financial inclusion would fail. The eminent economist, the late Dr. D. T. Lakdawalla, twenty years ago, said that it is not as if when there are national calamities, succour should not be provided to the victims.

The correct response to such a situation is fiscal grants and not bank loans.

In 1991, the then Finance Minister, Dr.

Manmohan Singh said that banks should not become part of the grants economy.

The interest rate structure in India is distorted in that capital, which is scarce, is artificially priced low. The Indian polity has a bias in favour of low interest rates. Since the income of the average depositor is much lower than that of the average borrower, there is a strong bias against small savers.

The target for March 2012 is that banking facilities should be provided to habitations having a population in excess of 2,000. It is estimated that in pursuance of this target, 5 crore accounts would need to be opened by March 2012. Since brick and mortar branches cannot be opened in all 73,000 habitations, a system of Business Correspondents ( BCs) has been instituted to reach out to these habitations. The banks have to undertake due diligence while appointing BCs. BCs would be the face of the bank and if they are found wanting the banks would be subject to a reputation risk.

In the initial phase, since 2005, banks were required to open No Frills Accounts ( Savings Bank Deposits) with minimal Know Your Customer ( KYC) requirements and millions of accounts have been opened. It is unfortunate that most of these accounts are dormant. In the recent thrust, the objective is not to merely provide No Frills Accounts but to provide facilities for recurring deposits, fixed deposits, remittances, overdraft facilities, kisan credit cards and collection of cheques.

A thought that needs consideration is whether it would be better to have less ambitious numerical targets with greater emphasis on quality of service.

On May 3, 2011, the Reserve Bank of India ( RBI) raised the Savings Bank Deposit Interest Ra

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