Mr. M. Geevarghese Vaidyan, CGM, SBI
Mr. Seshadri Sen, J.P. Morgan
Mr. Mukul Jaiswal, MD, Cashpor Micro Credit Ltd.
Mr. Rajeev Arora, Director, FINO PayTech
Moderator - Ms. Bindu Ananth, IFMR Trust
Bindu Ananth (IFMR Trust) – Just as a reminder to give perspective, the committee felt the size of the banking sector in India is too small to satisfy the demand for financial services. The point of the report was to suggest ways to increase exposure without sacrificing credibility and we’ve taken the concept of mix model banking to see how that can help fulfill the financial inclusion agenda. I'm going to ask panel to give 2-3 minute reactions to the report.
Seshadree Sen (J.P. Morgan) – Report was one of the most thought through reports I've read in a long time. Firstly, for MFis themselves the report widens the areas which are hither to no-go areas for them. Payments and remittances, which are a huge opportunity in india, it opens up that opportunity for non-banks, it opens up various other revenue streams which is good for long term profitability and it derisks the model to some extent as well.
It also opens up the ablity of banks to work with MFIs. Just as an example if you're a small/new bank, and you decide to focus on a particular geography, the opportunity to partner with players in that geography tends to get enhanced versus satisfying an overall target
It brings everything under a banking ambit. This has a host of benefits. Right from showing investors you're a bank now instead of a finance institution. It allows these entities today which are monoline businesses to be unified under banking ambits which would, for those with clean pratices, make it easier for them to operate.
Bindu Ananth (IFMR Trust) – Thanks for your comments... I think there's some confusion as to what payments banks are. For all NBFCs there seems to be a glass ceiling as there's the question on the role of the state and if the RBI is its sole regulator. No way to answer that short of going and looking at the constitution. For example if you look at Cashpor, despite their collection and operational efficiency the ratings do not reflect this and that is because they're a non bank, regional etc.
M. Vaidyan (SBI) – The basic focus of the report is financial inclusion (FI), provision of affordable credit. I joined SBI in 1979 and right from then we get transferred every three years. On my journey I've managed to get experience in rural india, the US as well as Africa. In my personal experience, India has shown one of the most successful models of financial inclusion, these steps are regulated and pushed by RBI and NABARD and implemented by Banks. If you talk about opening bank accounts, the facility exists everywhere. If you talk about number of bank branches, that is also being scaled up. If you talk about having a bank branch, the system has already covered all the villages with a population above 2000.
The report has the very idealistic goal of achieving FI by January 2016. I think that’s a noble and good task. FI initiatives already taken by the GOI have played a very key role in that – the system is growing very very fast... In the process, reports like this will help quite a bit in achieving full FI.
Rajeev Arora (FINO PayTech) – Everyone should be on a common forum. I represent a BC and the few benefits of such a forum would be securitization, among others. We believe a multi-product approach to the market is the correct approach. Even today when you talk about financial access, we have to provide it at a price as we’ve seen in MF and this price gets determined eventually by the market and you have to look at access first and charges later.
Bindu Ananth (IFMR Trust) – Would cashpor consider becoming a payments bank?
Mukul Jaiswal (Cashpor Micro Credit)- Thanks. It was a very encouraging report from an MFI's basis. Let me talk about the appareciation we have for the Mor committee report. It realizes the role of multiple players and it talks about access instead of just FI. Emphasis is placed on affordable credit.
Second it talks about all other products, risk, savings, investments as well as inflation adjusted real rate of return which may be mobilized by BCs and then - I relate it to what cashpor has been doing. We have been trying to do this. We’re 15 ears old, have a 65- crore portfolio and we have been providing microcredit. This opening up of types of loans as mentioned by the committee is something I also appreciate.
Cashpor has been working as a BC for banks to provide very low denominanted account, a 1 rupee recurring deposit account , pension services. We feel very encouraged when the committee recognizes the role of the regional players. It says all MFIs can work as BC and integrating multiple products and this is very encouraging to all our MFIs.
M. Vaidyan (SBI) – The only question we have is that who will take this risk as posed by the report?
Bindu Ananth (IFMR Trust) - These are actually not new types of institutions. Who are payment banks? Tnese are people currently registered as PPIs (Prepaid Payments Issuers) who have been operating for 3 years and clamoring on retaining cash and others are some BCs who might look to operate as payments banks.
Who are the NBFCs who would diversify their products? Can we take them who are operating in the shadows, for example Mahindra who is worth 2500 crore. Relative to the demand, this is still a drop in the ocean. Making them payments banks would bolster their growth and give them the ability to grow.
Audience Member – I want you to elaborate on the suitability guidelines. Also what sort of investments will it take to ensure this growth?
Bindu Ananth (IFMR Trust) – To give a background, we think there's more to be done in terms of financial literacy to ensure people are more capable financially. Others like Australia have done this. It puts the onus on the provider to ensure that it is suitable to provide this product. There has to be some thought process around that. Any provider has to be able to answer who is the best person to give a particular product to. FI must guarantee a process was followed to ensure that whatever is in the best interest of the customer is followed. Today it is very easy for the provider to blame financial literacy. It requires a process to be put in place.
M. Vaidyan (SBI) – I was in South Africa for 4.5 years. I can relate to the real situation. South Africa has some 26 banks, but 4 banks share 92% of the balances. This is a place where some service costs are the highest in the world. For example I will never use the ATM of a different bank because the cost is so high. Meeting a bank agent is a charge, getting a statement is a charge. No major bank is doing small loans. And they also only give loans to those who are employed. The reality is far far diferent there. When I go to their banking meetings and tell them 40% of loans given by any Indian bank go to the priority sector, these people just can't believe it. Theres nothing like that there. The banking system there is for the rich. This is why said the Indian model is the most successful system of financial inclusion.
Bindu Ananth (IFMR Trust) – Sir our outcomes still continue to be very poor. If that were all true we would not be sitting here and looking at 40% priority sector lending.
Audience Member – Same thing is happening in the North East because all the loans are given to rich. PSL lending is all going to urban and not to the rural areas.
Seshadri Sen (J.P. Morgan) – We are at a time when technology has become very cheap and things like biometrics and mobile and all able to take the banking system one leap forward. Retail lending in India is primarily for urban employed people. Why? One is that data capture is much easier, credit bureaus came up more sufficiently after 2008.
This report actually allows us to go beyond that and bring all banks under this umbrella of information and credit, so they can then take a leap forward NOT from pressure under PSL but as a genuine push factor generated by a profit motive. So we need to leverage new technologies coming in.
Mukul Jaiswal (Cashpor) - One good suggestion I noted in the report was doing away with these multiple types of NBFCs and maintaining only two types and then making sure they adhere to certain reporting mechanisms etc. this would enable other NBFCs to start getting into microfinance.
Bindu Ananth (IFMR Trust) – Why is it that a bank making a gold loan is different from a NBFC making a gold loan? Don’t set it up so that there is an arbitrage opportunity between the different types of institutions. The proliferation of NBFC categories will be overwhelming and the committee felt that it creates a large room for arbitrage.