MV Tanksale, CMD, Central Bank of India, tells Governance Now that today the villagers feel that it is not their own need but the government’s need that they should be given Aadhaar numbers, bank accounts and direct transfers. But things are changing and good things have happened in financial inclusion in the last one year, since we met him for our first ‘Bank India Bank’ special. Edited excerpts:

It’s been a year since we last spoke about financial inclusion. What are the positive developments? Have the challenges grown or have you been able to meet some of the challenges?
It is a positive scenario now. Last time when we spoke there were two big concerns. The first was about the delivery model based on the business correspondents (BCs). BCs are the crucial last-mile link and we needed to ensure that they see this work as livelihood and stay in it for a long time. The second was that we needed the new no-frills accounts to be active. We have made headway on both counts. People have understood that the banking activity has certain benefits. The total deposits available in our inclusion accounts is more than Rs.100 crore and more than 1,000 people have started availing overdrafts. At the end of March 2012, there were hardly 15-20 percent active cards, while today Central Bank has given out 60-70% inclusion cards. It is the beginning but banking culture is developing. And for this I give credit to the ‘ultra small branch’ model and fully support it.

Though RBI says that unless it (USB) is manned by a bank employee it cannot be called a branch, the government says within the 5 km radius some structure should be available so that between the base branch and that place, the customer should have some place to visit. Many state governments have started providing space in panchayat houses for the same. MPCON in Madhya Pradesh has not just given us space in panchayat bhavans all over but they have also ensured connectivity.

I personally opened five or six USBs in Maharashtra, Bihar, Karnataka, Madhya Pradesh and Andhra Pradesh. These places have a population of more than 2,000 and people there had to travel 5-10 km for a bank branch. To that extent their problem has been reduced and because there is a physical branch with a person operating it under the Central Bank of India banner, belief in the system has increased bringing in increased turnover. (Where there is no USB, the business correspondents visit the villages once or twice a week with a handheld device.) And it’s not just boys but girls are also working as BC agents because there is the facility and security of a place to sit and operate. In Raisen district (MP), a married woman, wife of the panchayat secretary, is working as a BC agent.

We have started engaging BC agents for recovery of small accounts and we give them commissions. For return of accounts the commission is handsome. For example, if the BCs help us recover Rs.10,000 they get Rs.100 as commission and if they recover Rs.1 lakh, they get Rs.1,000. This is huge money for them and good recovery for the bank. We also pay them for facilitating business, i.e., if they bring in new accounts or new credit facilities we pay them a commission. The base branch is given ownership of USB. We have 1,300 base branches controlling almost 4,000 USBs and things have been good wherever a base branch has taken care of the USB. In all the 48 districts where we are the lead bank for financial inclusion, we have a lead district manager as an additional tier to support the activity. All these lead district managers have been provided jeeps so that they are fully mobile. So how you direct the entire activity is very important.

Till last year we didn’t have any but now we have 400 executive officers working in the field. If 400 officers take care of 1,300 base branches to some extent it does help. We will be recruiting another 650 field officers and that will complement our financial and agriculture activities very well. All these efforts have worked very well and increased the percentage of active cards.

Is it the coming together of BC agents and ultra small branches?
The BC agent sits in USB and also moves around. I feel very strongly that there should two sets of BCs — one sitting in the USB and the other mobile. The question here is of viability. The BC must earn at least Rs.5,000 per month to stay back in that place. This can happen only if you can generate sufficient business. So charging Rs.5 as service charge per month per account for better services should be considered. Because even in villages they spend Rs.5 on cigarettes, beedis, pan, supari etc. so I don’t think it will be a big issue. But again you can only demand service charge if you are providing good services.
From the government’s perspective, financial literacy will have to be promoted much more extensively. In this regard I think direct benefit transfer (DBT) is a blessing in disguise even though there is initial confusion in its implementation as many things have to be put together. The challenge is how to achieve convergence on the desires of Aadhaar, agriculture ministry, department of financial services (DFS) and the practicality of bankers. But as long as the villager feels that it is being given to him as a subsidy and it is the government’s need to give him work, it will not work. The moment he feels ‘I need it’, it will start working. Initially it will be a challenge to get them into the banking habit because of the prevailing mentality that the moment money is credited into account they should withdraw it. Probably also because they need it. In my experience, smaller accounts go bad because typically when they earn something, the priority is to consume. You cannot expect a family to starve and pay instalments. So for small farmers we introduced a product called ‘Cent Tatkal’ which is a consumption loan. If you take care of their consumption needs, give them time to pay back the money to bank over a longer duration your regular paid facilities will get paid in good time.

Last time, you spoke about creating a cadre of business correspondents. Has there been any movement on this? Are others also talking about it?
Recently when we had a meeting with the new banking secretary the issue had come up. You see, the labour policy as it exists today calls for giving employment to BCs, which means you put them on a par with bankers. Then they come into the salary, provident fund and gratuity gamut. That’s just not viable. It defeats the very idea of BCs as a low-cost delivery model. That’s why banks cannot directly employ BC agents. My idea of building a cadre was about total ownership of the BCs by the banks so that they remain engaged for at least medium term if not the long term. Most of these people are 12th pass or graduates. There is a lot of recruitment happening in banks. If I’m on the interview board and someone comes to me and says that he is a BC agent he will be my first choice because he is experienced. That is how benefits will one day pass on to them. They must be told that they have this kind of an opportunity. I have a BC workforce of 4,000 and a good number of them are satisfied, particularly after we have started crediting salaries directly to their accounts. I have asked more BC companies to give us the mandate to credit BC salaries directly but somewhere the BC companies are still not geared to raising the bill on the bank at the end of month. Hopefully, it will get stabilised and synchronised soon. When I speak of a cadre I mean that we should stay focused on proper ownership of the BCs, engaging with them and ensuring proper compensation for them. If we can ensure these three things it will work, and we are already seeing that happening. Let me tell you that good things are happening. The challenge will be volumes because the expectation is that DBT money will be withdrawn on the first day itself. Ultimately it will depend on ingenuity of banks to make them financially literate and bankable customers.

Would be right to say that in terms of the delivery model you are about 30-40% there?
I would say 40-50% but there are logistic issues that need to be addressed: internet connectivity, cash management and more bank branches in the districts. My lead district, Amravati in Vidharbha, was the first to effect cash transfers under DBT and I take pride in this. While they initially wanted to address everything through Aadhaar, the government has rightly addressed it because there would have been a huge gap. For example, in a population of 18,00,000 not everyone has an Aadhaar card. Had Aadhaar enrolment been done simultaneously it would have been smooth. Even today 50 percent states do not have Aadhaar cards; only 18 states are doing Aadhaar. Central Bank and most other banks today have proper linkages with Aadhaar. We are constantly seeding our accounts with Aadhaar and are ready with the Aadhaar payment bridge. So it is all in place, in terms of Aadhaar linkages for payments and receipts and giving them RuPay cards which entitles them to use ATMs or swipe machines. I feel it may take another year or two to stabilise. According to me, ultra small branches will be a strong approach and gradually we should get into a model of a nucleus and operate around that.

What about involving other institutions, for example, India Posts, to solve last-mile connectivity issues which all banks are facing?
If you go back to RBI’s definition of BCs, they don’t say that you should have only an individual as a BC agent. You could have a kirana shop, a pharmacy or even a petrol pump outlet as a BC agent; so you could also appoint a post office as a BC agent. But then the post office will only serve as a stationary BC agent and serve only those who come to them. Then there is the issue of cannibalisation because they will want money to go into the accounts that exist with the post office. So those challenges will be there.

Is DBT the beginnings of a business model for financial inclusion?
Yes, DBT will make financial inclusion more viable. The subsidies it is expected to route are close to Rs.1,00,000 crore. If we are able to educate the population to save even 10% of it, it will be Rs.10,000 crore. Savings in the country have come down from 36% to 30%. If that goes up by mobilising rural savings or savings lying out of the system, it’s good for everybody. The hue and cry of last many months has been for improving financial savings. Physical savings do not help the country. Unless you have financial savings, your investments cannot go up. For investments, you cannot always depend on foreign capital which is disastrous. There has to be a proper balance. You need to encourage financial savings. I am sure it will work if it is done through this route.

Has financial inclusion then reached criticality?
We are close to the takeoff stage… there is no looking back... the government has to see that banks are adequately compensated. None of the banks has shown disinterest in financial inclusion for want of compensation. I have been in the system for last six years where even though the debate on how much to pay and what to pay is still raging, I have not seen anyone closing the activity. Viewing it as an investment, we all are incurring costs at this stage. But as a commercial organisation someday my investors will ask me, “Are you only incurring costs or have it started generating return on investment (RoI)?” RoI will happen, but that may be five years down the line. The way economy is developing in rural areas, I think we are getting there. Today’s USBs numbering around 76,000 (the industry figure) will get converted into urban branches.

You are actually laying down foundations for the future.
That is why I say five years down the line you must have a look at your RoI because it is huge money. I think every bank must have put in Rs.30-50 crore on acquisition of customers, BC agents, putting systems in place etc. All told the industry may have put in about Rs.3,000 crore. If the industry spends Rs.3,000 crore it should earn at least Rs.30 crore. That is not a big number and it will happen. Once the benefits start accruing, people won’t mind paying banks for the services. Today we are not creating that scenario. We are creating a picture that we are giving you the Aadhaar card, we are giving you subsidy, we are giving you a bank account. Today the villagers feel that it is not their own need but the government’s need that they should have an Aadhaar number or a credit card. The day it becomes their need things will change.

(This interview appeared in the March 1-15 issue of Governance Now magazine as part of a special series: Bank India Bank)