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Ernst & Young: Making fin inclusion must for new players is problematic
March, 10th 2011

Leading industry expert Ernst & Young (E&Y) today said if the financial inclusion project is to be materialised and sustained, it must be pushed directly by the government, as in the present model it is not only unviable but will also deter prospective new bank licence applicants.

"The Reserve Bank is inviting trouble by insisting on a financial inclusion plan as a mandatory criterion for getting new bank licences," E&Y National Leader (Global Financial Services Ashvin Parekh told PTI here.

"Since the current inclusion model is not a profitable model, this will not only deter prospective licence applicants from seeking licence, but will also create problems for the entire banking industry as banking is a highly inter-related business," he said.

It seems that the Reserve Bank is either not getting the right direction or not sure of its direction when it comes to the inclusion project, if the latest vibes are any indication, he said, adding, "I feel the regulator is on the back foot now."

He further said, "I don't think any private business house will be in a position to make such a huge investment needed for inclusion just because it is mandated."

Parekh, who did not join the RBI committee that wrote the draft paper on new bank licences, despite an invitation citing conflict of interest, further said, "if the Centre can give away Rs 6,000 crore by way of capital infusion to the weak public sector banks, why can't it start a mechanism to start the financial inclusion project."

"The government is in a much better position to start this project and then incentivise banks to carry on," he said.

Many of the existing banks do not have the financial wherewithal to take up a long-term projects, as the inclusion project will be a viable business proposal for banks only after a long period, he added.

 
 
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