After 100 years of existence, a bank does not remain just a bank. Please tell us about the bank’s mission, vision and where you have reached so far.
Central Bank of India was a national bank born  purely out of the Swadeshi movement in 1911. At that time all banks were supported by English or European banks. Our founder, Sir Sorabji Pochkhanwala, a chartered accountant working with Chartered Bank set it up as the first Swadeshi bank. It made such an impact that rulers of many provinces asked Central Bank to set up banks in their areas including the Nizam of Hyderabad, Maharaja of Jamnagar and Maharaja of Travancore. In fact, in pre-independence days the bank had its own subsidiary supporting its export import business in London.

At that time when banking industry was going through a crisis, the Tata Industrial Bank was merged with Central Bank  on account of its sound fundamentals. It was the managing agent for the Union Bank of India  for over 23 years. The commitment of the promoters was such that once when our  bank was going through stress, Sir Pochkhanawala mortgaged his own properties. At the time of nationalisation of banks in 1969, Central Bank was the largest bank of the country and was impacting millions of lives. Such is the history of the bank that now for the financial inclusion mission, it is the lead bank for 48 districts, which is a big responsibility for any one bank to be entrusted with. We are state level bankers for Madhya Pradesh.

Today we have 4000 branches across the country complimented by approximately 1800 regional and rural branches of seven of our own regional rural banks. Though we are now the fifth largest of the country, we have the third largest network with the largest employee base. We are on a par with all peer banks in terms of technology, products and services. The bank has intrinsic strength to bounce back though on global footprint we have only one joint venture called Indo-Zambia Bank  and recently set up another representative office in Nairobi.

RBI put up financial inclusion as a stated policy in 2006. Keeping in mind the challenge of financial inclusion as it exists how does Central Bank of India see it as a concept and its role in the future because adopting  FI is also a way to grow…
As a concept, FI was always there. Nationalisation of banks in 1969 was itself financial inclusion. Launching of various government schemes thereafter, particularly Integrated Rural Development Programme, was another act of financial inclusion. Opening of regional rural banks in 1975 was also financial inclusion. So, financial inclusion is not a new concept. In 2006-07 when banking spread to nearly 33,000 villages (but there are 600,000 plus villages in India) and we were growing at an average 8-9% of GDP.

The RBI felt that if this growth was coming from 40% people in banking stream, we could leverage the balance 60% if they are brought into the banking stream. Being commercial entities, this is tremendous opportunity for banks. But how do you tap it? If a bank opens a branch, it has to be commercially viable.

Since a bricks and mortar branch cannot be commercially viable in villages beyond a particular level, the concept of business correspondent emerged. In the last three years, most of the banks have ensured the compliance part of financial inclusion, that is, yes, 72,000 villages with population of 2,000 and above and brought them into banking fold, we have identified shadow villages with less than 2,000 population and then used the honeycomb model to cover villages with less than 1,000 population.

Conceptually, all this is absolutely in place. Our technology partners are in place and BCs have already been identified. Going a step further, RBI has even allowed ‘for-profit’ companies to operate as BCs. So, the entire infrastructure and wherewithal is in place.

What is required to be driven, according to me, is the most important link in the whole game, and that is the business correspondent or agent. It is the BC who has to operate at the field level. The technology service provider makes his money the moment he brings technology to the banks but there are no assured returns for the BC. So, the challenge is not technology, the challenge is that having created the base, having appointed BCs, having enrolled millions of people, having issued millions of smart cards such as our won Swabhiman cards, whether banking is happening at all…and who will make it happen. That is the challenge.

You have embraced technology as a facilitator for financial inclusion. You have issued smart cards in a village in Velu Maharashtra, what has been your experience? I understand that overall conceptual infrastructure is in place but challenges remain at implementation at ground level….How does technology help you in this regard?
Technology has given you a route to do that…but as I said, the activity has to be driven by the BC agents. Now the challenge is that, during the acquisition of customers, we have hired some young persons as BC agents who perhaps thought it fit to engage themselves till they get a better option. My issue is that in a country with 600,000 villages where one BC agent cannot cover more than four to five villages, we are in position to provide jobs to more than 100,000 youngsters. Then why not develop this as a regular cadre?

If these 100,000 youngsters treat this as a livelihood initiative, then they will stick on, the commitment will be there. If the same BC agent is going to villages on a regular basis, the villagers will believe in the agent.

If the agent does this as one of the many activities (for his own sustenance) then he might disappear sooner or later. Let me tell you, many NREGS payments are being made through smart cards but what is the retention in the banks? It means, even if the villager is saving, he/she is not saving in the banks. So, the very purpose of financial inclusion is defeated.

To make this a viable and sustainable project, we really have to project the BC agent as a cadre, as a permanent representative of the bank, to gain the villagers’ trust. Currently, the job of BC is considered a stopgap by youngsters till they get regular employment. You cannot buy commitment and passion. That’s why BC agents have to be developed as a cadre and permanent representative of the bank.

This will bring in commitment for the job and create confidence in people. The base branch has to adopt BC agents as its extended arm and employ right persons who will be trusted and accepted  by the villagers. This way, a BC agent can earn up to Rs10,000 per month, Rs5,000 as retainer from the bank and Rs 5,000 per month @ Rs 5 per transaction for 1,000 transaction every month.

I have not been able to do it in my own bank because I am not sure that the agent is going to all the five villages all 30 days a month. That he is operating like the extension counters of the bank…that he is sitting with villagers and explaining to them that he can give them kisan credit card, he can give them general credit card, he can support them in their enterprises… there is so much activity in a village. I visited a tribal village in Chikaldhara (Amravati)…I was amazed to see the level banking activity there. So we need to focus to create a cadre of BC agents. Unfortunately BC agents who tie up with us fail on two accounts. One, they cannot nurture village on a long term basis on their own because they are not cash rich and two, the bank pays minimal amounts because he is not producing business. Today I have 12 lakh rural smart cards in circulation but only 25% are active.

Bankers have not been able to leverage the BC agents fully. We need to do this. For example, Rs 5,00,000 crore subsidy will be paid through smart cards. Even if the retention is just 10 per cent, Rs 50,000 crore will remain in the banking industry. Why are we not looking at it this way? But again to do all that, we need the right kind of BC agent who is accepted by the villagers. That means the base branch will have to train that person appropriately.

So you are saying the technology exists…technology is not the challenge…
I can tell you technology is certainly not the challenge, people are the challenge. Yes, if you want online banking, though technology is available, it is not helpful as connectivity is poor in rural areas. Whatever we may boast about tele-density, it is good only in urban areas. So you can’t do online banking, you have to go offline. But let me tell you, the present banking secretary is once again driving it passionately. He has some brilliant ideas, he wants that the base branch be given laptops so that BC agents can use them to give online inputs at least once a week.

But even for this, we might face connectivity issues. That is why concept of ultra small branches is emerging. At our bank, the concept of creating kiosks with Srei-Sahaj is doing very well. The government of India came up with the concept of common service centres, but unfortunately it did not take off because the government’s services were not ready. But the day all that is available, it is a beautiful service. I am very sure that financial inclusion as a concept is sustainable and viable and will stay but for that commitment has to be beyond compliance.

Considering that BC agents are most important cog in the financial inclusion wheel, how is the idea of cadre mentioned by you being received as it also helps in skill development of BC agents?
There is institutional support. IIBF is conducting certificate courses. But in a cadre, there have to be guaranteed returns for the bank via the BC agent model as each BC agent will cost '20,000 per month to the bank. State governments and banks have to work this out together. Though BC agents have met our acquisition requirements, a lot needs to be done when it comes to service delivery. A BC agent must have the mindset to work in a rural area which is a challenge.

You are saying customer acquisition is happening but retention is not?
No, retention means, they are not leaving us. What I’m saying is the benefits of banking are not being passed on to the customer. The first phase of providing the infrastructure is complete. Now the second phase is the challenge. Let us concentrate on this. Dr KC Chakrabarty (now deputy governor RBI) was my chairman (at PNB). He used to question me. Don’t tell me how many cards, tell me how may transactions.

Even today if you meet him, he will say “financial inclusion means transactions, it means how many people have availed overdraft, how many have been given kisan credit cards, how many people have been given general credit cards…you are all talking about micro insurance and micro mutual funds…all that is for later, get the basics first”. All those sophisticated services are possible.

But there are challenges…If the challenge of creating the right BC agent is taken up in the right way…which banks alone can’t do, state governments alone can’t do, it has to be a collective effort.

Has the financial inclusion fever spread far and wide in banks? Is it a passion now?
It certainly is a passion now because it is also good business. I keep monitoring the figures. Earlier, when I was at the PNB, we got Rs 500 crore deposits through no frills accounts. In my bank, it is more than Rs100 crore. So it is business. I review the progress on financial inclusion every fortnight. The other day we did a deposit mobilisation drive in Etawah (Uttar Pradesh) and raised about Rs 20 lakh.

My thrust is on all electronic benefit transfer payments like social security, NREGS  or subsidies that Nanadan Nilekeni is thinking of paying through smart cards. Retention of that itself will be big amount of money. Unfortunately today if you deposit Rs1,000 into a villager’s account, he will withdraw Rs990 because  he does not have confidence in BC agents, he is afraid and sceptical that his money is not safe. That takes me back to the cadre for BC agents.

In this context do you think an integrated, all-encompassing card will help?
Smart  cards provided to farmers have  provision for capturing the 12-digit UID number. The cards have various pockets and one pocket has been retained for UID. Central bank of India has already registered 50,000 UID numbers. 

Considering that financial literacy precedes financial inclusion, where does banking industry stand on that?
I totally agree with you, but it has to go concurrently. All banks have ensured that financial literacy centres are opened in their lead districts. Central Bank of India has opened 48 FMCs in its 48 lead districts. But this alone will not help as branch managers are tied up with operations of both savings and borrowings and do not get enough time for spreading financial literacy.

Madhya Pradesh SLBC has decided to include financial literacy at primary level itself. In fact, RBI team in Bhopal has created a skit to educate people on financial literacy. A BC agent can spread financial literacy. We  have recruited about 500 field officers for this.

How do you break the challenge of functional literacy as many people who have money are also not functionally literate?
It’s a matter of confidence. We have the examples of chit funds and micro finance activities before us. I will come back to BC agent. He is the pivot for growth. Creating infrastructure through technology is only monetary commitment while making it viable is altogether different. While bringing all lead district managers on the same platform, I conducted a two-day workshop for all LDMs of Madhya Pradesh at Bhopal.

After this the move was institutionalised in the country sending the message to all bankers across the country to hold such LDM workshops twice a year in all states addressed by the chairman of the bank. It is about engagement. We don’t train BC agents  in classrooms but on the field.

When ten bank chairmen sit together, how much time does financial inclusion get in their discussion?
Every chairman is engaged in it. There is a forum where all of us sit and the finance minister himself monitors financial inclusion. It takes almost an hour to attend to that particular agenda and everyone takes part in discussions. Dr KC Chakarbarty, deputy governor, RBI, and his team monitor it quarterly. DK Mittal, secretary, banking, too monitors it.

Tell us about instances while incubating financial inclusion when you developed doubts and then something happened to bolster your confidence.
Earlier while I was at PNB with Dr KC Chakrabarty, we had worked upon an idea of creating 10,000-25,000 kiosks (ultra small branches). Later when Kamath came in, we were not sure if these kiosks should be manned by our people or BC agents. We decided to pilot the project by opening 30 kiosks in three districts on April 13, 2010. These have been working wonderfully well. While we thought the limit of Rs5,000 was enough, people in Jind district of Haryana said it was not enough. But there are also cases where we spend huge amounts on infrastructure but there are no operations.

How do you balance financial inclusion with running a successful enterprise as your NPAs have to be low and capitalisation levels have to be good?
Financial inclusion is not done at the cost of basic business. For me, it is not a drag on my priorities. It is one more opportunity for business.

As of now, is rural delinquency a big issue with banks?
No. By any analysis, it is not. In percentage terms it might look percentage of loans given it might seem huge but in terms of volume it is not. I have a basic question about delinquency in agriculture. I am a farmer, I have taken a crop loan from you but my crop has failed. I become a NPA borrower. Do I not sow a crop next year? Do I not use fertilisers next year? Don’t I need good seeds next year? I do. But I won’t pay you back, why? One is genuine financial stress and two, I have been tutored that I don’t need to repay the banks because there will be a loan waiver. That is the problem.

But I tell farmers on filed visits, the first loan waiver happened in 1991 and the second in 2008. So, you will have to wait 17 years, in this time an entire generation of yours will pass without getting loans from banks. You see for a lender, if you repay loan of Rs10,000 this year, next year he will be willing to lend you Rs 12,000, and the following year Rs15,000. This is a perpetual loan, it is not a one-off loan.

Somebody will have to tell the farmer, see, you need to grow crops every year, so repay this year’s loan and take loan for the next crop. There is a gap. Some people are leading them astray. I have attended many recovery camps. My impression is that farmers and poor are honest people. It is we who make them dishonest.