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The Walk-Talk Gap On Financial Inclusion


This potential customer is 5th standard passed, poor, lives in Mumbai in her employer's house, has some family in a distant village, and is acutely aware of her need for financial security and independence. Demographic data shows that there are many like her in our big cities. Indeed, they are the consumer segment that Kishore Biyani, Chairman Future Group calls "India 2" i.e. people who help "India 1" make the money that they do; a consumer segment whose thinking has been influenced by being in close proximity and observing "India 1". This is a primary opinion leader segment even for the folks back in their village. We went to the nearest public sector bank branch. Somehow, we felt that compared to the others, public sector banks may be more willing to admit such customers, given that their owner, the government, is constantly espousing it. But obviously public sector banks have transformed too both in their self image and in their preferred customer mix. This one said the KYC formalities were non negotiable, and refused to open an account. KYC asks for proof of identity in the form of either election ID card, PAN card, Passport, Driving License, Defense ID card, Senior citizen card or ID card issued by the Government. Clearly, if the person in question had any of these, she would have been in a different place! Even we, her employers, domiciled in Mumbai for 30 years, have managed to include our names in the electoral rolls but have not managed to get an election card. Having failed to establish who she is, we failed even more miserably to establish her proof of residence, Ration card? People like her may have their names included with the family back home, but many of them have tenuous links with 'back home', and often asking your folks for this isn't as simple as it may sound to the powers-that-be . Family politics is often more complex than electoral or office politics! The other proofs were impossible too - electricity / phone bills (they come in her employer's name, not hers), Income Tax / Wealth tax order, any documentation or communication issued by any Government or Local Body or any other documentary evidence in support of residential address. The bank manager would have none of the practical, simple solutions like a letter from her employer

On investigation, we discovered the "no frills" account that RBI has permitted banks to open, subject to certain deposit and transaction norms, with very sensible, truncated KYC requirements including introduction by an existing account holder who has been subject to the full KYC procedure. On going back to this bank, we were told no such RBI circular existed. Clearly, banks use KYC norms as a shield to exclude low value customers. This story has been repeated by so many people that it clearly isn't one odd ball in one branch but a systemic failure, including even with the flagship, largest public sector bank. Ironically, NBFCs who are very keen to have this segment of customers, are discouraged because of their own share of regulatory grief - that's another story. Eventually this customer opened a no frills "Azaadi" account at Axis Bank, where her employers bank. It isn't the best location for her - but she has to take what she gets.

First we need to ask: can "no frills" accounts be profitable, or are we asking banks to do social service? Hemant Kaul, the head of the retail business at Axis Bank says they can be, provided the way transactions are done, and hence what they cost are carefully and innovatively designed. The use of ATMs and the limit on how many transactions of each kind are free, and what kind of services are provided, can and does provide customers good quality basic services, and the "azaadi" of easy opening and low balances. In fact ATMs make more sense for this target group that visiting branches - we know that the poor embrace technology readily because ATMs are uncaringly democratic, while bank tellers can give poorer service if you are a low value customer. Many of these customers already have cell phones - in fact the number of cell phones is shockingly more than the number of bank accounts in the country.

Secondly, the RBI which micro monitors so many details of bank performance, and mandates so many micro issues on customer care, can and must do better on this - how about mandating prominently displayed posters advertising no frills account in every bank branch? Potential customers will demand the rest and force banks to deliver. For example, one of them handed me a paper cutting from Yashobhoomi, which explains all this. He has been handing it to his friends to show it to banks who have denied them an account. Further, monitoring how many "no frills" accounts are opened at the aggregate bank level is not good enough. Some banks show numbers from few select geographic locations. This isn't good enough - they have to be monitored by branch, especially in big urban locations. Finally, banks need to innovate for the high volume low margin customers, in order to profitably serve them. Indian Bank has joint accounts between city dwellers and their rural relatives, and ATMs at both locations, used by both parties. At our rate of income growth, many of today's "no frills" customers will be tomorrow's mainstream customers. And their earning and spending history will have been established. So it makes good business sense for banks to invest in poor customers.