NEW DELHI: Premier Narendra Modi has put a pledge to give bank accounts to all Indians on a war footing, but experts say taking banking to rural areas where many people have no identity papers will be a huge challenge.
In developed nations, bank branches are everywhere. But banking services in India leave out nearly half the 1.2 billion population, putting poor people at the mercy of moneylenders who charge usurious interest for emergency loans for sickness or routine purchases such as buying seeds.
Just 145 million of India’s 247 million households have access to a bank account, census figures show. According to the World Bank, 73 percent of farmers have no formal source of credit. While the drive for universal banking access dates back decades, India is still far from its goal. Now Modi is taking a personal stake in the quest.
“We want to integrate the poorest of the poor with bank accounts,” Modi said in his August 15 speech, remarking that while there has been a telecommunications revolution in India, there has been no similar banking revolution.
“There are millions of families who have mobile phones but no bank accounts. We have to change this scenario,” said Modi, who aims to provide bank accounts to 75 million more households by 2018, and to have two account-holders per household.
“India is at a crossroads with a unique opportunity to re-invent its approach to financial inclusion,” said Vijay Advani, executive vice-president of Franklin Templeton Investments.
Modi is pushing to transform India into a modern economy where money goes from account to account rather than pocket to pocket. Under his scheme, each account-holder would also get a debit card and a Rs100,000 ($1,600) sickness insurance policy.
But there are many hurdles to achieving Modi’s goal, among them a lack of identity documents. Would-be bank customers have to produce a host of documents from birth certificates to residence proofs that many poor Indians do not possess.
“I’d like my own bank account but I have to use a friend’s account to save — I don’t have the papers,” said Pushpa Kumari, who runs an at-home Delhi manicure service. “For the common man, the opening of a bank account is a Herculean task,” said N S N Reddy, chief manager of the state-run Andhra Bank.
Central Bank Governor Raghuram Rajan has said the scheme will set the poor on the road to “economic independence”, supplying insurance and providing credit to entrepreneurs.