Right from the pilot project mode to a full-fledged business activity, financial inclusion has continuously evolved over the years. In an email interview with Governance Now, Punjab National Bank (PNB) CMD KR Kamath talks about bringing the bank’s FI customers at par with the normal customers, managing the problem of BC attrition, and the need to continuously embrace technological changes in order to remain ahead of the curve. Edited excerpts:

Financial inclusion is an evolutionary process. How has your approach towards this goal evolved over the years?

There have been four transitional phases in implementation of financial inclusion in our bank: launching 39 pilot projects through business correspondents (BCs) using hand-held terminals and smart cards; Swabhimaan campaign launched by the government in 2010-11; converting BC locations to ultra-small branches (USBs) and special ultra-small branches in 2011-12; and finally, covering all villages through the sub-service area (SSA) approach in 2012-13.

Last year, Usha Ananthasubramanian, then executive director of PNB, told us that the system was ready for take-off. Could you update a bit?

Yes, earlier FI transactions were in off-line mode through technical service providers (TSPs). Now we have procured our own on-line kiosk banking solution (KBS) wherein all transactions are taking place in real time on our core banking systems (CBS). With this new technology, FI customers can access all basic banking services (account opening, cash withdrawal, cash deposit, mini statement, balance enquiry, fund transfer) required by them at BC locations in real time. They can also transact at ATMs and merchant point-of-sale outlets. So our FI customers are at par with other CBS customers in terms of delivery of services.

PNB was among the first banks to use the BC/BF model immediately after the RBI gave the nod in 2006, and you have a large network of BCs. What are the problems you faced in managing them and have you been able to retain them?

In order to reach out to the people in the under-banked and unbanked areas, FI activities were initiated in our bank by launching 39 pilot projects at various locations. Under these pilot projects, our bank covered over 3,020 villages and opened over 8.80 lakh basic savings bank deposit accounts (BSBDAs) through BCs. Till March 2013, the bank was able to cover 8,356 villages through the BC model, open over 90 lakh BSBD accounts, and recorded over 106 lakh transactions in these accounts. Our bank has 9,337 SSAs of which 2,279 are covered by branches. However, we felt that the services provided by the BCs were not up to the mark, mainly because of their high attrition rate owing to poor and delayed payment of wages to the BCs by the TSPs. This has been a major impediment for this model.

Have transactions started happening in your FI accounts? Or do most of them continue to remain inactive?

All new accounts are opened only through online kiosk banking solution and transactions are happening in this mode. Earlier the accounts were opened in off-line mode and majority of accounts became inactive. We are in the process of completely shifting those accounts into the online mode. The government’s programme to route DBT and LPG subsidy to the bank accounts will really give a push for the transactions to happen in these accounts.

What about technological advancements of systems that you have made and how has that helped?

One major milestone in under FI is adoption of the kiosk banking solution (KBS), a web-based solution which can be accessed at BC locations by authorised users through computers mapped to the bank’s systems for this purpose. Customers can avail banking services both from branch and BC locations thus offering interoperability. Transactions initiated at online BC outlets are authenticated through central biometric authentication.

RBI governor Dr Raghuram Rajan has pitched in for further flexing of KYC norms. Is it doable? What are the risks involved?

The idea is to ensure that opening of account is made easier and every citizen of the country is enabled to have a basic bank account. Simpler KYC norms will facilitate mobilising rural savings to formal banking channels and hence every effort in this direction is welcome.

Does it make sense for banks to collaborate with telcos to benefit from mobile banking? Or should these entities be allowed to operate separately as the Nachiket Mor panel has argued?

We agree with the idea of collaborating with telcos.  Partnering with telcos, who are strong in providing network across the country, will certainly be very helpful in furthering the FI goal. However, allowing telcos to operate separately as payment banks needs a thorough review.

Dr K C Chakrabarty is of the view that PSBs are not very experimental in nature and hence, it will be the private players who will lead the way for FI. What do you think?

PSBs have come a long way in implementing FI in the country and have been fulfilling all the targets being set by the government. While they did take time to understand the business potential of FI, but in the second phase banks are now reaching out to distant and difficult areas. In fact, it is the PSBs which have played a big role in taking banks to rural areas since nationalisation.

From the Jan Mitra Rickshaw project to your adoption of the stick makers’ village in Bijnor, your financial inclusion schemes do overlap with social welfare and can be taken to be CSR. How do you draw the line of difference between CSR and serious business within your bank?

In a broader view, majority of our activities fall under CSR. When the bank lends, especially in the rural areas, it touches the lives of the people and improves their income level/standard of living.  These cannot be considered as CSR, however. The basic difference between FI and CSR is that when we undertake FI projects we do create a business for the bank along with social welfare. But when we conduct CSR activities, it is purely social welfare. We don’t get any return for the bank here. Hence, our FI and CSR activities don’t overlap.

(This interview first appeared in the magazine's March 16-31, 2014 print edition)