Signs of Stress in Financial Inclusion
Rural household finances are in the news, and not in a good way. NABARD released results from its second bimonthly rural economic conditions and sentiments survey reporting a moderation in income and financial savings, compared to its earlier round in September. While the share of income for consumption increased over the two rounds, that on loan repayment rose from 13.4% to 13.7%. Once again, data on borrowings and capital investment suggests that loans have may be used for increasing consumption. Also read a study by Dvara Research that shows how household balance sheets have changed since the pandemic, one of the most striking observations is that for the lowest income quintile, 28% of microfinance borrower households had two or more loans in December 2021, compared to 72% in December 2023. Further for this segment, since January 2023, savings have dropped, and formal borrowing has increased. In short, the poorest are being hit the most.
Even as the RBI has been working against “push loans” to prevent over-indebtedness, there are other compelling reasons for rural households showing signs of stress and Tamal Bandopadhyay has a comprehensive piece on these issues – low agricultural growth, rural wage contraction, high rural inflation, inadequate employment opportunities etc. Easy credit is but a panacea for households and bring significant risks to the system. The RBI has been doing its bit from the supply side, which is bearing results e.g. MFIs have reportedly reduced rates, but the onus lies on the government to address the basket of underlying challenges that are leading to rural distress.
The fact is that the financial system is showing signs of stress, even as the RBI’s checks on high growth of unsecured personal loans are taking effect and Ujval Nanavati has a deep dive into the storm that is brewing in the banking system that no one wants to talk about. Raghu Mohan has two data rich pieces out on the rising delinquencies in the microfinance business and the impact of this on retail credit. There has also been discussion on whether unsecured loans have been moving into the stock market – read Tamal Bandopadhyay and also Sohini Mitter on this. KV Kamath noted that, while there is no systematic risk in the banking system, RBI’s caution is “entirely warranted”.
RBI caution is however running up against the government, who is reportedly asking for a rethink on two proposed moves mandating banks to set aside more funds for infrastructure projects and to hold more liquid assets against online deposits. Also, NBFC supply chain finance is on the radar of the RBI, with some measures to ensure clarity in terms, risk management etc. Dinesh Unnikrishnan writes on whether the RBI is turning too conservative, in the face of low deposit growth, a slowing economy and rural distress. These are indeed challenging times for the regulator.
For this month, we highlight two pieces that look at women and finance – a) An insightful segmentation of women entrepreneurs by Supriya Sharma, a must read for all finance providers and b) a thoughtful post by Antonique Konig that looks at how financial inclusion policy can help financial service providers serve the target segment of young women.
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.
RBI Governor Shri Shaktikanta Das spoke on “Sailing Through Turbulence: India’s Tryst with Financial Stability”.
RBI Deputy Governor, Shri Swaminathan J, spoke on bridging the credit gap for MSMEs.
Govindraj Ethiraj, The Core, speaks with Nandan Nilekani, the former CEO of Infosys about the evolution of digital public infrastructure in India and financial inclusion.
Dr CS Mohapatra and Depannita Ghosh, IEPF, write on the importance of financial literacy for women, and the lessons India can learn from other countries like Rwanda, Australia and Japan.
Mahima Dixit and Arshi Aadil, MicroSave Consulting (MSC), write on how to fight fraud against government program beneficiaries in India.
Rohan Lakhaiyar and Vivek Iyer, Grant Thornton Bharat, look at the role of the SRO in fintech.
Neil Borate, Mint, writes on the critical gaps in data sharing in the account aggregator framework.
Gopika Gopakumar, Mint, looks at the reluctance of Indian banks to have honest conversations with the regulator.
Shayan Ghosh and Devina Sengupta, Mint, bring out the unlikely impact of the regulatory push on KYC on using services of third-party employees.
Manish Suvarna, Moneycontrol, interviews NPCI CEO Dilip Asbe.
Sophie Sirtaine and Garance Wattez-Richard write a blog for CGAP, on the transformative power of insurance to raise resilience of those who face daily risks with limited resources.
Dharmender Jhamb, Grant Thornton Bharat, looks at whether Unified Lending Interface (ULI) can address the real-time micro-lending challenge of India.
Hindu Business Line reports that the NPCI is yet to decide on imposing the 30% UPI market share cap by 2024 end.
Anand J, Moneycontrol, looks at the interoperability issues plaguing AePS transactions.