The Reserve Bank of India and industry leaders within India are continuing to look at ways to increase financial inclusion. Though most see it as an unprofitable activity, particularly in the short-term, many see growth potential once a greater number of people are enrolled in specific financial services. The State Bank of India, for instance, is working with telecom provider Airtel to help consumers open bank accounts through Airtel’s kiosks.
By Megha Bahree
The Reserve Bank of India may want all banks to focus on financial inclusion-service the poor at the bottom of the pyramid-but is it a viable business?
“It’s not really profitable to have people in financial inclusion,” admitted Neeraj Swaroop, regional chief executive India and South Asia, Standard Chartered Bank.
“A lot of the accounts are dormant and not activated because there’s no credit as those people are really poor,” he added. “You can’t have financial inclusion go ahead without economic inclusion and if those people don’t have access to roads, electricity, [a steady stream of income].”
Mr. Swaroop uttered a rarely spoken truth as he spoke on a panel at Mint’s Annual Banking Conclave in Mumbai Tuesday. (The WSJ has a content sharing partnership with Mint and the two announced at the conclave a new collaboration on mergers and acquisitions coverage called Deals India)??
Making a clever pitch to K.C. Chakrabarty, deputy governor RBI, to ease up regulation to allow foreign banks into India, Stuart Fraser, chairman of policy for the City of London, said while it wasn’t profitable to bank the poor, it can be “an obligation that banks coming into India will have to take on if they want to enjoy the benefits of long term growth.”
O.P. Bhatt, chairman of the State Bank of India, the country’s largest bank, agreed that financial inclusion wasn’t profitable. But he said that as the volume of transactions at a particular outlet increased, losses would reduce.
“The question is how quickly can you enroll more people,” he said. “This could be an investment for the future especially if rural India is [expected to grow] faster than urban India. You may not see profits for the first three to four years, and you lose or invest rupees 10-50 crore [100 million to 500 million rupees, about two million to 10 million dollars] whatever your balance sheet can bear, whatever your board approves, and profits will come in the future.”
SBI is working on a deal with cellphone service provider Airtel to open bank accounts through its kiosks.
Chanda Kochhar, the chief executive of India’s largest private bank ICICI, agreed with Mr. Bhatt.
“We are adding one million accounts a month with a view to say this is where the next growth of India will come from, [profits] could be three years from now, this could be the next set of customers,” she said.
ICICI is offering accounts in rural India where customers should eventually be able to do NREGA payments, remittances, crop insurance, and get microloans. “When you do five products with one customer, your business model is more viable,” she said.”
Standard Chartered’s Mr. Swaroop said the banking industry was working hard to make it profitable to bank the poor.
“We are all experimenting with business models to drive costs down and technology will be at the heart of it,” he said. “It will happen someday.”