Modi government woos India's unbanked population, to offer OD bonanza for financial inclusion

MUMBAI: Babus in the Modi government have hit upon a curious idea to woo the country’s unbanked population. Come August 15, those untouched by the high-street banks will be offered an overdraft (OD) facility of Rs 5,000 by the bank with which they open an account.

To encourage lenders, who fear default, the government has agreed to provide credit guarantee too. But there is a caveat for those availing of the OD: customers should be willing to take financial literacy lessons from lenders.

The government will set up a Rs 1,000-crore credit guarantee fund that would be ‘budget neutral’ on the exchequer and funded by NABARD. Successive governments have tried different ways to encourage delivery of financial services at affordable cost to the low-income segment of the society. Despite this, more than half of the country’s population does not have a bank account.

The OD offer is part of ‘Sampoorn Viteeyea Samveshan’ (SVS), which is a comprehensive scheme for financial inclusion to ensure that every earning citizen opens a bank account, a senior finance ministry official said.

SVS will mainly cover six broad areas — ensuring every district with 1,000-5,000 households has access to banking services within 5 km by March 2016; provide financial literacy; provide basic banking for all beneficiaries of government schemes by March 2016; an overdraft of Rs 5,000; micro insurance and pension scheme for the unorganised sector.

The project of financial inclusion will be on a private-public partnership basis, which will not only involve banks, insurance companies, business correspondents (BC), but also citizens within the locality.

The private participation would come from IT companies and corporates that run white label ATMs. This is to encourage competition that leads to better service, the official said. The rate of interest of these accounts is proposed to be 3% over the bank’s base rate. Of this, 1% would go to the credit guarantee fund and 1% to BC for maintenance of the account.