Comprehensive financial services to small businesses; a bold vision

It is easy to put the tag overambitious on the recommendations of the committee set up by the new RBI governor under the leadership of Nachiket Mor to provide comprehensive financial services to small businesses and small-income households. The target of January 1, 2016, for universal access might indeed prove elusive. But the report seeks to leverage universal coverage of the unique identity project and ubiquitous broadband, expected to be available by this deadline. A financial structure that builds on these transformative developments can indeed be a whole lot more ambitious and radical than anything based on the rudiments available now.

The problem with the report is likely to be its elaborately detailed recommendations rather than ambition. There is much to commend the ancient piece of advice to cross the river feeling the stones. The Mor report probably seeks to anticipate the location of the stones with more certainty than is warranted. The recommendation to create new types of banks is indeed welcome, but this makes the recommendation to straitjacket all nonbanking finance companies into two types all the more surprising. There is scope for great variety in NBFCs. The recommendation to decentralise regulation through consolidated state-level bodies is welcome but does not go far enough. Chit funds in the southern states are regulated at an even more disaggregated, district level.

The 50% priority sector lending recommended is an increase only in appearance, as it incorporates weights of several times the actuals for a variety of investment by banks in the wherewithals of letting the farmer financialise his produce. On the whole, the report should trigger an informed debate on creating a modern, inclusive financial system for India.