RBI panel for differentiated banks, abolition of SLR norm

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Nachiket Mor committee seeks elimination of farm loan waiver

RBI panel for differentiated banks, abolition of SLR norm
An RBI panel, headed by former ICICI Bank executive director Nachiket Mor, on Tuesday recommended sweeping changes in the banking structure and suggested setting up of specialised banks to cater to low-income households to ensure that each citizen has a bank account by 2016.

It also suggested that a facility for withdrawal, payment and deposit should be set up within 15-minute walking distance anywhere in the country.

“By January 1, 2016 each resident, above the age of 18, would have an individual, full-service, safe and secure electronic bank account,” the committee on comprehensive financial services for small businesses and low-income households said in its report.

The panel was set up by Raghuram Rajan on the day he took over as RBI governor to suggest steps for promoting financial inclusion.

The panel advocated setting up of ‘payments banks’ to provide payment services and deposit products to small businesses and low-income households with a maximum balance of Rs 50,000 per customer.

These banks can be set up with a minimum capital requirement of Rs 50 crore, one-10th of the Rs 500 crore required for a full-service bank.

Permission to banks for pricing farm loans below base rate should be withdrawn, the report said. It suggested that Aadhaar cards should be used for automatically opening bank accounts.

RBI is currently sifting through the applications of 25 companies to get into the banking fray for which one of the key eligibility criteria is their vision for financial inclusion.

The Mor panel report said there was a need to relook at farm sector credit activities and suggested abolition of interest subventions and loan waivers.

The government should rather distribute the benefits directly to farmers, it said, adding that banks should do away with the system of lending below their respective base rates to the farm sector.

Among a slew of changes suggested on the regulatory front, the panel has made a case for gradual abolition of the statutory liquidity ratio (SLR), or the percentage of deposits invested in government bonds; raising the priority sector lending limit to 50 per cent from 40 per cent at present and allowing non-deposit-taking NBFCs to work as business correspondents.

The Mor panel has set January 1, 2016 as the deadline for targets, including access to formal credit as well as investment and risk-management products at reasonable charges.

Financial inclusion has dominated public discourse over the past few years. The exclusion of a large part of population from formal banking services leads them to the unregulated, informal sector.

The panel said even after the work of the past three years, close to 90 per cent of small businesses have no links with formal financial institutions and 60 per cent of the rural and urban population does not even have a functional bank account.

The panel said there was a need for a lot of specialisation and suggested at least 10 different lines of dedicated banks, including one for payments, one for wholesale business, one for infrastructure and one investment bank.

It said there was a need for specialised institutions like the National Bank for Agriculture and Rural Development (Nabard), Small Industries Development Bank (Sidbi) and National Housing Bank (NHB) to be market-makers and providers of risk-based credit enhancements rather than being the providers of direct finance, automatic refinance or automatic credit guarantees for national banks.

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