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ROLE OF FINANCIAL SERVICE SECTOR IN

ACHIEVING SUSTAINABLE GROWTH FOR INDIA AND BHARAT

BY: R K DUBEYEXECUTIVE DIRECTOR

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BHARAT AND INDIABHARAT AND INDIAGROWTH -

POLES APART

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BHARAT is that GRIM part of our nation which is

underdeveloped & residing in RURAL AREAS.

LACKING Basic facilities of FOOD, WATER, LIGHT

AND SHELTER.

COMBATING with chronic problems like POVERTY,

UNEMPLOYMENT, MALNUTRITION etc.

Lacking Basic rights of EDUCATION and HEALTH

facilities.

The major proportion of population is engaged in

AGRICULTURE & dependent heavily on MONSOON for

their BREAD & BUTTER.

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INDIA is that PLEASANT part of our nation which is

DEVELOPED & residing in URBAN AREAS

Which has an average GDP GROWTH above 8%.

This part residing in towns and cities with HIGHRISE

BUILDINGS, COMPUTERS, CARS AND MODERN

GADGETS.

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INDIA still lives in the villages with 68% households

living in RURAL INDIA versus 32% IN THE CITIES.

There is huge INCOME DISPARITY between INDIA

& BHARAT.

POVERTY (% OF PEOPLE BELOW POVERTY LINE)

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RATIO OF PER CAPITA INCOME BETWEEN THE TOP 15% & THE BOTTOM 15% OF THE POPULATION

Ratio of per capita income between the Top 15% and the

Bottom 15% of the population (Measure of income

disparity) has worsened over the period 2004-05 & 2009-10.

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BHARAT AND INDIABHARAT AND INDIABRIDGING THE GAP WHILE ACHIEVING

SUSTAINABLE GROWTH

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The Contribution of Financial, Insurance & Real

Estate Sectors to the GDP is likely to be 18% in the

FY2011-12.

Financial Service Sector primarily & dominantly

constitute of Banking Sector.

So the Role of Banking Sector and PSU Banks is

NOTEWORTHY.

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INCLUSIVE DEVELOPMENT can be viewed in terms of

progress in SOCIAL AND FINANCIAL INCLUSION.

A large part of the population, particularly segments like

landless agricultural laborers, marginal farmers, scheduled

castes (SCs), scheduled tribes(STs), and other backward

classes (OBCs), continue to suffer social and financial

exclusion.

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Creating Inclusive Business models

Involving the poor as employees, entrepreneurs, suppliers, distributors,

retailers, customers and source of innovation in financially viable ways.

Developing Human Capital

Improving the health, education, experience and skill of employees as

well as business partners.

Building Institutional Capacity

Strengthening in industry associations, market intermediaries,

universities, govt. civil society organization etc who may be able to

play their roles effectively with the financial system

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DIRECT ROLE

1.PRIORITY SECTOR LENDING including Agriculture, Micro & Small Enterprises. 2.FINANCIAL ASSISTANCE To Medium & Large Corporates.3.MICROFINANCE4.FINANCIAL INCLUSION

INDIRECT ROLE

1.Encouraging Consumerism through RETAIL LENDING.2.INFRASTRUCTURE FINANCING3.INFORMATION TECHNOLOGY4.Finance to NBFCs5.Creating EMPLOYMENT OPPORTUNITIES

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The thrust of Financial Inclusion started in April 2005 with Dr. Y

V

Reddy, the then RBI Governor, making a mention in Annual

Statement for 2005-06.

To achieve greater Financial inclusion, the banks were asked to

provide banking facilities by –

Opening of ‘NO FRILL’ OR ‘ZERO BALANCE’ ACCOUNTS

Appointing BUSINESS FACILITATORS OR BUSINESS

CORRESPONDENTS and

Now OPENING of ULTRA SMALL BRANCHES etc.

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The financial inclusion has also been used to provide

payments in SOCIAL SECURITY PENSIONS and NREGA

schemes.

SWABHIMAAN launched on 10th February 2011, is a step

to take banks to the doorstep of Rural India instead of

the latter having to go in search of banks.

73,000 identified habitations have been covered under

“Swabhimaan” campaign by 31st March, 2012.

In 2012-13, “Swabhimaan” campaign to be extended to

more habitations as announced in the Budget 2012-13.

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Banks have been giving Bulk loans to Micro Finance Institutions &

Small Borrowers.

Till recently, there were 1659 MFI availing total credit of Rs 14,000

crore from the bank in turn benefiting 30 million people across

India.

However in 2010-11, the sector ran into difficulty with reports of

unfair practices by MFI to recover Loan.

Banks also extending micro-finance program in the country

through SELF-HELP GROUP (SHG)-BANK LINKAGE

PROGRAMME.

Thus reaching POOREST OF POOR

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MSME (MICRO, SMALL and MEDIUM ENTERPRISE) sector

employs an estimated 59.7 million persons spread over 26.1 million

enterprises.

MSME sector accounts for about 45% of the manufacturing output

and around 40% of the total export of the country. 

MSMEs are nursery to INDUSTRIALISATION.

Understanding this need, banking sector have been extending its

arm to strengthen the BACKBONE of INDIAN ECONOMY

Around Rs 4.64 Lakh crore outstanding to MSE as on March

2011, out of which 81% of the credit is provided by public

Sector

banks.

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A target of 40 per cent of Adjusted Net Bank Credit (ANBC) has

been stipulated for lending to the priority sector by domestic

SCBs.

Within this, sub-targets of 18 per cent and 10 per cent of ANBC

have been stipulated for lending to agriculture and the weaker

sections respectively.

Over the period 2005-06 to 2010-11, there have been 3 times

increase in lending to the priority sector.

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Banks are having bouquet of retail lending products like Housing Loans, Vehicles

Loans, Consumer Loan, Mortgage Loans etc.

These products can now be focused on BHARAT to bring parity in retail finance

between the Urban and Rural.

BANKS have been financing the FMCG companies which are investing in rural areas.

Rural India, in turn, consumes products sold by these companies. This consumption

boom drives GDP growth.

There have been massive increase in consumption in Rural India than Urban India

between 2001 & 2011 as per census data:

 Increase in Homes using:

Between 2001 & 2011 (In %age)

Rural Urban

Two Wheelers 161 110LPG Cylinders for Cooking 144 99Banking Services 119 101Television 114 45

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The Eleventh Five Year Plan emphasized the need for

removing infrastructure bottlenecks for sustained

growth.

An investment of Rs 45 lakh crore (for about US$ 1

trillion) has been projected during the Twelfth five year

plan in infrastructure sectors through a mix of public and

private sectors.

Government has been taking various initiatives to create

conducive environment to attract large scale investment

into infrastructure.

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A greater thrust is given on financial sector in general

& banking sector in particular for infrastructure

financing.

Net bank credit to infrastructure finance have

increased five times over the period 2006-07 to

2010-11.

There have been continuous efforts to come up with

innovative way of financing infrastructure. Take out

financing is one of them.

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The IT initiatives have been taking on a

“ENABLER/PERFORMER/TRANSFORMER” role

in financial services companies and making a

positive contribution to innovation

Level of satisfaction with IT performance is

definitely driving Business Innovation and

Change

IT in financial services appears to be quite mature

in managing service delivery

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The IT function has track record of regularly

exceeding expectations

Higher emphasis on customer services is reflected by

outcome of Alternate Delivery Channels.

The financial sector is far more likely to use social

networking and micro-blogging sites to engage with

(Internal) stakeholders in the near future for

sustaining the growth of the business.

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India's GDP is set to quadruple over the next ten years and Indian

economy is likely to be a US$ 4.5 trillion. As economy grows at a

fast pace, the demand for credit will also rise and thus role of banks

to cater to the needs of growing economy will rise.

The proportion of working age population (15-59 years) is likely to

rise from around 58% in 2001 to over 64% by 2021.

This 'demographic dividend' provides India great opportunities, but

also poses a great challenge.

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The development of financial sector is critically dependent on

financial inclusion. Banks need to take various behavioral and

motivational attributes of potential consumers for financial inclusion

to succeed.

A major challenge in the times ahead would be to meet financing

requirements, particularly of the Infrastructure, Unorganized sector

and the Self-employed in the micro and small business sector.

The UIDAI's Aadhaar project for providing unique identity numbers

to residents, has huge potential to improve the delivery of social

sector schemes like rural employment guarantee.

THANK YOU