RBI seeks banking services in all villages by March 2012

Bangalore, March 22: The Reserve Bank of India (RBI) Monday asked banks to draw a roadmap to provide financial services to all villages with a population of over 2,000 by March 2012.

"The lead bank in each district has been asked to draw a roadmap by this month (March 2010) for ensuring that all villages with a population of over 2,000 will have access to financial services through a banking outlet, not necessarily a bank branch, by March 2012," RBI Governor D. Subbarao said here.

As part of the central bank's strategy on financial inclusion, which Finance Minister Pranab Mukherjee called for in his inaugural address, Subbarao said there would be an intermediate target to be achieved by March 2011. Mukherjee urged the bankers to change their "mindset to reach out to the the unreached and under-reached segments of our population".

Banks would have to harness technology and innovate low-cost business models to accomplish the target in as many of the 600,000 villages across the country, he said.

"All domestic public and private sector commercial banks have agreed to come up with their specific, board approved financial inclusion plans (FIPs) by March 2010 to be rolled out over the next three years. These plans will have both qualitative and quantitative milestones," Subbarao told delegates participating in a workshop on financial literacy.

He also called for a survey and evaluation of the programmes at the grassroot level to draw up the best practices.

"We need to study the link between financial literacy and financial inclusion and improved financial outcomes so as to understand which models have been effective," Subbarao said in his remarks at the workshop, inaugurated by Finance Minister Pranab Mukherjee.

Noting that financial literacy programmes required trained instructors, the RBI governor said they (instructors or counsellors) must be available to clients at the time of making important financial decisions.

"In this context, it will be useful to study successful experiments from NGOs (non-governmental organisations) such as SEWA (self-employed women's association), which started a financial counselling training service for poor self-employed women, including a training for trainers," he pointed out.

The RBI has asked the banks to include criteria on financial literacy and financial inclusion in the performance evaluation of their filed staff.

Stressing that technology had the potential to enhance the development of financial literacy, both as a delivery channel and as a learning process, Subbarao said technology could bridge distances for those living in rural and remote communities.

"We must explore the use of technology in the training of trainers," he added.