New beginnings!
The year comes to an end with a change of guard at the Reserve Bank of India as Governor Sanjay Malhotra takes over from Shaktikanta Das who helmed RBI for six years. In his final press conference, Governor Das outlined the major tasks ahead for the RBI, including financial inclusion. He highlighted UPI's role in increasing usage of banking services and looked forward to a nationwide rollout of Unified Lending Interface to provide access to credit to the bottom of the pyramid. Financial inclusion also featured as a top priority in the first press conference by the new Governor Sanjay Malhotra. “… I do believe that one of the most important roles of the central bank is to spread financial inclusion. … For this, we need to collaborate with all stakeholders, especially the financial sector regulators … and the central government and the state governments so that the benefits of formal financial inclusion reaches everyone.” We at Indicus are especially glad that the former Secretary of the Department of Financial Services has identified a coordinated approach to universal financial inclusion.
While we are at it, another long overdue issue is that of strengthening the viability of the business correspondent network, which accounts for 96 percent of rural banking outlets. There is a serious problem in BC compensation as we have repeatedly called out - if we do not compensate the service providers well enough, services will either be unavailable or of poor quality. And this will impact both growth and inclusion. Recently the BCFI has called for a rise in commissions paid out on AePS transactions to compensate for the increased costs at the banking outlets. Earlier this year, BCRC had also asked for setting up an annual pricing review committee for all services at the BC nodes. Another approach to improving BC viability is to allow more diversified services, for instance, BCRC has asked IRDA to allow weather-indexed insurance products at BC outlets to help address the climate challenge.
Frauds are another area that need resolution. Frauds on the AePS chain account for 11 percent of all online frauds. An excellent report by MicroSave analyses the reasons behind these and has put forth detailed recommendations for each stakeholder – regulators, banks, corporate BCs, grassroot organisations and customers. And like Governor Sanjay Malhotra, they also call for a coordinated approach.
On the payments front, UPI continues to grow in popularity, with adoption gaining traction in smaller towns and rural India, as reported by Paynearby’s analysis. The numbers are extraordinary, with insurance policy purchases up by 127 percent, new customer adoption by 96%, credit products by 297% this year. Interestingly, despite the zero MDR on UPI, a record 20 third-party UPI applications were approved this year. On the credit front, RBI reports that the ULI platform has seen disbursal of over 600,000 loans amounting to Rs 27,000 crore. Taking the ULI initiative forward, Reserve Bank Innovation Hub is looking to bring data-rich aggregators on board, like GooglePay, ONDC etc.
Unsecured loans continue to be a concern for the RBI, and the latest to come on the radar are vehicle loans from fintech companies. In fact, as Ritu Singh has called out, 2024 has been a year of “heightened regulatory scrutiny” as RBI has come down hard on non-compliance and there are industry voices calling for caution against excessive regulation stifling innovation. While RBI has to straddle that line, a collaborative approach and more engagement with industry will make for a smoother year ahead.
Meanwhile, in a strong move to curb illegal digital lenders, the government has tabled the Draft Banning of Unregulated Lending Activities (BULA) Bill in Parliament with stringent provisions, including imprisonment and heavy fines. There are of course ambiguities in the draft that need resolution, read Hindu Business Line edit for some of the issues.
We highlight three reports this month that together provide a comprehensive overview of financial inclusion in India - a) the Inclusive Finance India Report 2024, edited by Ramesh Srivatsava Arunachalam, released at the Global Inclusive Finance Summit, has thirteen chapters, delving deep into sectoral themes like Microfinance, debt distress, climate finance etc.; b) A report by MicroSave authored by Anjali Lalchandani, Rajarshi Dutta Barua, and Rukmini Srinivasan that examines India’ informal enterprises, with thorough analysis, data, insights and recommendations; and c) Monica Jasuja, Soham Jagtap and Ayush Tripathi’s extensive White Paper dives into the state of financial inclusion for women and women entrepreneurs, identifies challenges and gives actionable recommendations to overcome these barriers.
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation.
The RBI has set up a committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector.
Ajitesh Kumar and Nancy Singh, NABARD, have a comprehensive report out on the impact of Bank Linkage Programme on Self-Help Groups.
RBI has extended the facility of pre-sanctioned credit lines through the UPI to Small Finance Banks.
Raghu Mohan, Business Standard, report on the moves underway to enhance the scope of TReDS platform.
Nikhita Jindal, Surbhi Sood and Vineet Anand, MicroSave, have a report out that examines financial fraud vulnerabilities among low- to moderate-income (LMI) individuals in Bangladesh, India, and Kenya. The report proposes regulatory reforms, awareness campaigns, and technology-driven solutions to improve fraud prevention, grievance redressal, and consumer protection frameworks.
Bankers have requested the RBI to extend the timeline for adhering to new guidelines that prohibit overlapping lending activities between banks and their group entities. In their feedback submitted through the Indian Banks’ Association (IBA), banks have sought an extension beyond the proposed two-year timeframe.
PayNearby and Grameen Foundation have investigated evidence from the field on gender gap in the Business Correspondent industry.
Puneet Khanduja and Anirooddha Mukherjee, MicroSave, explain how Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) is impacting elderly care in India.
Priyadarshini Ganesan, Dvara Research, looks for answers on an average farming household in India, including their assets, incomes, income sources, debt, savings, investments, and future aspirations through NABARD’s All-India Rural Financial Inclusion Survey (NAFIS) 2021-22.
Paisabazaar has reported insights from analysis of the business loan applications made on Paisabazaar’s platform since January 2024. Over 70% of small firms seeking loans are doing so to meet immediate financial needs.
A report on the microfinance sector by Motilal Oswal reveals regional imbalances and overleveraging as serious issues to overcome.
We wish our readers a very happy and productive 2025!
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