Financial Inclusion: - The Need of the Nation

India, a developing country is a land of inequities. Vast disparities exist between the income and wealth levels of the haves and the have-nots of the country. With a rapidly increasing population, it is Financial Inclusion that represents a bridge that can connect different strata of society and ensure that all citizens of the Country enjoy the basic minimum means of living.

So what exactly is Financial Inclusion?

Financial Inclusion, according to ex-RBI Governor, Dr. C. Rangarajan, (Chairman Committee on Financial Inclusion) is defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at affordable cost.

Need for Financial Inclusion:

Financial inclusion broadens the resource base of the financial system by developing the resource base of the financial system and by developing a culture of savings among the large segment of the rural population and plays its own role in the process of economic development. Further, by bringing the low income groups within the access of formal banking credit, financial inclusion protects their limited wealth and other resources in exigent circumstances. It also mitigates the exploitation of vulnerable sections by usurious money lenders by facilitating easy access to formal credit.

Subsequent to the Rangarajan Committee Report, several policy initiatives have been taken by Ministry of Finance, Government of India in conjunction with the Reserve Bank of India for helping achieve the objective of financial inclusion. Some of the measure taken recently are described as below

PMJDY: Pradhan Mantri Jan Dhan Yojna: 

By far the most ambitious, PMJDY is a national Mission on Financial Inclusion is an integrated approach to bring about comprehensive financial inclusion of all households in the country. The plan envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension facility. In addition, the beneficiaries would get RuPay Debit card having inbuilt accident insurance cover of Rs. 1 lakh. The plan also envisages channeling all Government benefits (from Centre / State / Local Body) to the beneficiaries accounts and pushing the Direct Benefits Transfer (DBT) scheme of the Union Government. The technological issues like poor connectivity, on-line transactions will be addressed.

Financial Literacy Centres:

Financial Literacy Centers are the building blocks that initiate basic financial literacy activities at the ground level. Such Financial Literacy Centers are set up in a lead Bank Office or a Rural branch and comprises of Rural Literacy Counselors / Directors who regularly conduct in-house and outdoor financial literacy camps on a regular basis targeting the various segments which include Farmers, Self Help Groups, Micro and Small Entrepreneurs, Senior Citizens, School Children, and others. Adequate publicity is given to such camps with efforts to involve as many stake holders as possible at the district/panchayat and village level to ensure the success of the Camps. Such financial literacy camps enable the regional/rural people understand the benefits of modern financial services and products offered by Banks and enables them to avoid the traps of private and unorganized financial middlemen/money lenders.

Relaxed and Simplified KYC Norms:

For simplified account opening, the RBI allowed relaxation of opening of accounts with balances not exceeding Rs. 50,000/- . Such account holders were allowed to open accounts without introduction, simply with the help of Adhar Card as proof of Identity and Address.

Simplified Branch Authorization Policy:

For dealing with the problem of uneven branch network, Schedule Commercial Banks have been empowered to freely open branches in areas with a population of less than 1 lacs.

Compulsory Requirement of Opening Branches in Unbanked Villages:

Banks have also been directed to open branches in Tier 5 & Tier 6 areas which mainly comprise villages that do not have any Bank Branches.

Banks to submit Financial Inclusion Plan: 

Banks are now directed to submit their own three-year financial inclusion plans that cover the above mentioned areas for ensuring greater outreach of financial services in unreached and unbanked areas.

Mudra Yojna: 

The Mudra Yojna is a refinance scheme by the Mudra Bank for the development and refinancing of small units. In financial year 2016-17 39.7 lac loans totally worth Rs. 1.75 lac crore have been disbursed to small entrepreneurs under the Pradhan Mantri Mudra Yojna. The scheme comprises loans in three categories which include Shishu Loans upto Rs. 50,000/-, Kishore Loans from Rs. 50,000/- upto Rs. 5,00,000/- and Tarun Loans from Rs. 5,00,000/- upto Rs. 7,00,000/-

Training & Skills Development:

An important aspect of the Financial inclusion is the empowering of the masses particularly the employable youth to develop the right skills in order to take up vocations and trades, and also to set up micro and small businesses as opposed to entering the job market.
As can be seen various measures are now being undertaken largely by Scheduled Commercial Banks / Non Banking Financial Institutions under the ageis of RBI and Ministry of Finance to ensure that last mile access to finance is provided through Banking to the unbanked. Clearly a lot needs to be done, yet a beginning has been made and the government is making large strides to ensure financial inclusion for everyone a reality.

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Non–Performing Assets: A Serious Challenge to the Economy:

Non Performing Assets pose a serious problem for the health of the financial sector in our Country. At the outset let us understand the definition of NPA. In simple terms NPAs refers to loans given by Banks and Financial Institutions that remain unpaid either on account of the outstanding principal and/or interest thereon. 

According to the Reserve Bank of India (RBI) “an asset, including a leased asset, becomes non performing when it ceases to generate income for the Bank”. Thus, a ‘non performing-asset’ (NPA) was defined as a credit facility in respect of which the interest and/or instalment of principal has remained past due for a specified period of time.

The technical classification of an NPA was revised from time to time and from the year 31st March, 2004 onwards, the 90 days due norm was laid down whereby an NPA would be a loan / advance where:

1. interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan,
2. the account remains ‘out of order’ for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC),
3. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
4. interest and/or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and
5. any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Let us now look at some of the causes for Non Performing Assets. Major reasons progressively increase levels of NPA are:

1. Ineffective Recovery Methods: The legal process of the law in our country is known to be long and winding.  Even measures such as creation of Debt Recovery Tribunals for the expeditious recovery of loans have proved to be quite ineffective.

2. Willful Defaults: Willful Defaulters, clearly the single biggest headache of the Banking System, are those having the means to repay but who manage to evade the recovery mechanism through various clever means. 

3. Defective Lending Process: Safety, Liquidity and Profitability are the cardinal principles of lending. Often times Bankers disregard these basic tenets of Banking and lend to borrowers of sub standard quality and doubtful intent or capacity to repay. An adequate credit appraisal system must be followed to ensure loans are only given to those willing and capable to repay.

 4. Economic Reasons: The general economic downturn in the world economy has also had an impact particularly on industries which are export driven with demand growth particularly in the developed world falling in recent times.

 5. Lack of technological Upgradation and Competition from Imports: Indian Manufacturing Industries have particularly faced competition from large scale imports particularly from China. Since Chinese products produced at a very large scale have been able to edge out Indian made products in many market segments leading to closure of businesses and consequent NPAs.

Over the past quarter of a century successive union governments have grappled with this problem through a variety of legislative and executive measures. These include:

1. Debt Recovery Tribunals (DRT Act 1993): The earliest measure taken to address this challenge was the constitution of Debt Recovery Tribunals under the Recovery of Doubtful Debts to Banks and Financial Institutions Act 1993 (DRT Act). The DRTs were supposed to resolve application of the Bank for recovery of loan amounts within a period of six months.  
2. Credit Information Bureau (2001): The establishment of the Creation of Credit Information Bureau of India Ltd. (CIBIL) as a common platform for sharing credit information of borrowers to prevent erring defaulters from tapping alternative sources of funds after loan defaults.
3. Compromise Settlements (OTS): Under the guidelines of RBI issued from time to time, Banks were given the authority to negotiate one time settlement under an OTS scheme where Banks took a hair cut both on the interest and partly upon the principal which was repaid in lumpsum.
4. SARFAESI Act (2002): The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was passed in order to permit Banks and financial institutions to recover NPAs without the intervention of the Courts. Using the provisions of this Act, Banks were empowered to take over secured assets and either sells such assets through auction sale or control the management of such assets until the same are sold as a going concern.
5. Asset Reconstructions Companies (ARCs): ARCs are specially created entities registered under the provisions of the SARFEASI Act with the RBI, for unlocking value to Banks and Financial institutions who wanted to take stressed assets off their balance sheets. ARCs take over the stressed Assets through Special Purpose Vehicles (SPVs) and help the Banks make recovery on doubtful or loss assets which are transferred at deep discounts.
6. Corporate Debt Restructuring (2005): Corporate Debt Restructuring (CDR) Mechanism is a voluntary non-statutory system based on Debtor-Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA) and the principle of approvals by super-majority of 75% creditors (by value) which makes it binding on the remaining 25% to fall in line with the majority decision.
7. Strategic Debt Restructuring (2015): Under this scheme Banks having outstanding loans repayable by Corporate Borrowers are given the right to convert (wholly or partly) such loans into equity shares in borrowing company. This minimizes the cash outflow in the stressed asset while giving the Bank a right to participate in the management and exit after the business stabilizes and recovers.
8. Insolvency and Bankruptcy Code (2016): Seeking to consolidate the existing framework by creating a single law for insolvency and Bankruptcy, the I&BC Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process, has been set for Corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree.
9. Amendment to Sec. 35A of Banking Regulation Act, 1935 (2017): Most recently, the promulgation of the Banking Regulation (Amendment) Ordinance, 2017 has witnessed the insertion of two new Sections (viz. 35AA and 35AB) after Section 35A of the Banking Regulation Act, 1949 which enable the Union Government to authorize the Reserve Bank of India (RBI) to direct banking companies to resolve specific stressed assets by initiating insolvency resolution process, where required. The RBI has also been empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution.

As experience shows, the above stated measures have only been met with varying degrees of success. Clearly, a careful and caliberated approach, with the active involvement of all stake holders is required to deal with this challenging problem. We do seem to have a government that is serious about this issue. Interesting times lie ahead.

The above article has been written by Mr. Amit Kakri on invitation. As requested by some readers, we will now have articles written by experts on subjects like MANAGEMENT, ECONOMY, FINANCE, CDOMPLIANCE, HUMAN RESOURCES, BUSINESS HUMOR etc. Further suggestions are invited.

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Why Apathy to these Two Critical Skills?

Education is necessary, but skills are essential. Unfortunately, our education system per se is such that it hardly helps an individual develop skills. Much less the skills, I think, are most important for living life happily and successfully.  I am talking about two skills in particular –

        i.     Skill of managing self.

      ii.      Skill of managing relationships.

A child is born with some tendencies which may have a lot to do with his/her parentage. What is his father’s attitude to life, what is that of his mother, and more importantly how is their relationship with each other. While these factors continue to have their influence on the growth of the child, various other influences start playing an important role during the growing years. The teacher, the class mates, friends, relatives, and neighbors – all influence the child. It is hard to say how much these help in developing either of the two skills which I have mentioned above – skill with self, and skill with other people.

So what should be done?  What are the best steps that can be taken by all concerned for developing both these skills – skill with self & skill with people?

The education system, as it is today, can hardly help. Teachers are bound by the curriculum and the parents may not be able to find the time from their busy schedule in the modern competitive life.  But the ever growing media today can play a very important role provided parents are able to guide and regulate the exposure and use of the media by the child.

The significance of Internet must not be undermined. All the knowledge required is available on the net. But one may say that a skill cannot be delivered by the information/knowledge on the net. Yes it is true to a large extent. Yet, you tube presentations and other interactive programs make it possible to learn a lot from the net. In times to come, I am sure; the growth of the social media with websites focusing on special subjects will bring about a revolution in the concept of education and training. The need is that the parents, teachers and mentors motivate learners to be focused and stick to what they need to do. They should not be distracted.

Developing skill with yourself, to me, means your ability to listen and talk to your own self. It also means to understand your heart, identify what you really like. Thereafter, one needs to concentrate one’s energies towards these. You must leverage your talent and your fondness.   

Developing skill with people, simple means to understand basic human psychology. Your interaction with them should never ignore the following fundamental principles;

1)      That each person is interested in himself/herself more than you.

2)      That I, me, mine put people off.

3)      That making people talk makes them feel important.

4)      That when you win an argument you lose a friend.

5)      That listening attentively to others will impress them. They like you most when you do that.

6)      That you need to skillfully convince people. If you say something that is obviously to your advantage, people will be skeptical. So do it differently. Say how an important third person appreciated your products/efforts/services. This will help build confidence in the minds of people about you.

Thanks for reading.

Four Secrets of Happy Living!

Life has many facets: habits, aspirations, goals, significance etc. It is rare that there has been an artist who was also a good householder and a progressive human being. When I say a good householder, I mean one who facilitates the family in all respects. He not only provides for them materially but also emotionally. This is so, typical for a family man. But when we talk of an individual who doesn’t have a family, they too will have to find out their goals; what they want to do in life by controlling or changing their habits. In these circumstances it is difficult to imagine an artist who is totally devoted to his/her passion for art putting similar emphasis/importance on all the other aspects of life, as said above.

Therefore I think we must understand and practice the ‘Secrets of Happy Living’.

1.      The first secret, according to me, would be ‘Self Awareness’. An individual needs to be conscious of his own body, state of mind including thoughts, actions, ideas, feeling and interaction with others. Besides, self awareness has to be a continuous process. It’s only then that you can mould your thoughts, actions and relationship with others. Without doubt, this requires a constant review. The process teaches you how to go about finding solutions to the problems.

2.      The second secret is setting priorities. It is not only fixing the priorities but also scheduling them according to their relative importance. We must remember that when we schedule a task and provide a time slot, it is not necessary that time allocated will always be found sufficient. Time management is another important aspect to be reviewed from time to time. The discipline that you require for constant follow up requires a logical approach. It should have nothing to do with the moods of the person. When a particular task is not finished as per schedule you need to provide the next slot and abide by it. This protocol alone can bring about the desired results.

3.      The third secret is necessary to develop a keen sense of focus. To my mind doing only one thing at a time is the best approach. As far as possible there should be no interruption. Equally important is your total mind and soul into what you are doing. One has to start living in the present, moment to moment. Deliberate effort may be required for some time but then it becomes your habit and you start navigating you life as if you are flying an airplane.

4.      Lastly, the fourth secret is your speech. It is critically important. Because we have to interact with colleagues, family members and the society at large, we must choose our words and use them effectively. Any wrong choice or casual approach towards this very important aspect of human personality can be disastrous. Speech must always be clear; words should be chosen with discretion and spoken effectively. Speech helps to maintain and improve our relations in any environment.

To conclude I would like to say that a successful life in modern times requires us to know and practice these and any other secret that works for us.

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