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This document provides the presidential address given by Shri M V Nair, Chairman & Managing Director of Union Bank of India at the First Research Conference on Financial Inclusion held at the Great Lakes Institute of Management. The address discusses the current state of financial inclusion in India, initiatives taken by banks like Union Bank to promote inclusion, and challenges that remain. Research is highlighted as important to furthering the agenda of financial inclusion.

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0% found this document useful (0 votes)
72 views12 pages

Cat - UploadNews - Greatlakesspeechfinal UBI

This document provides the presidential address given by Shri M V Nair, Chairman & Managing Director of Union Bank of India at the First Research Conference on Financial Inclusion held at the Great Lakes Institute of Management. The address discusses the current state of financial inclusion in India, initiatives taken by banks like Union Bank to promote inclusion, and challenges that remain. Research is highlighted as important to furthering the agenda of financial inclusion.

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Bhanufso Venn
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© Attribution Non-Commercial (BY-NC)
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You are on page 1/ 12

Union Bank Great Lakes Centre for Banking Excellence

Great Lakes Financial Inclusion Conference 2010

Presidential Address by
Shri M V Nair,
Chairman & Managing Director, Union Bank of India
Page 2 of 12 
 

Respected Dr.C.Rangarajan, Chairman, Economic Advisory Council to the Prime


Minister

Dr. Subir Gokarn, Deputy Governor, Reserve Bank of India

Dr. Bala V Balachandran, Founder and Dean, Great Lakes Institute of


Management, Chennai and J L Kellogg Distinguished Professor of Accounting and
Information Management (Emeritus in Service), Northwestern University, Illinois,
USA

Prof. S.Sriram, Executive Director, Great Lakes Institute of Management,


Chennai.

Dr. Rakesh Singh, Director, Durgadevi Saraf Institute of Management Studies and
former Chair Professor, Union Bank centre for Banking Excellence at Great Lakes
Institute of Management, Chennai

Dr. S.K.Shanthi, Chair Professor, Union Bank centre for banking Excellence at
Great Lakes Institute of Management, Chennai

Shri R.Bhaskaran, CEO, Indian Institute of Banking and Finance

Dignitaries, Students, Ladies and Gentlemen,

1. I am delighted to be here today at the beautiful eco-friendly campus of the


Great Lakes Institute of Management for delivering the Presidential Address
at the First Research Conference on Financial Inclusion held under the
aegis of the Union Bank Great Lakes Center for Excellence in Banking.

 
Page 3 of 12 
 

2. Established with an objective of creating a world class management


institution, I must say that the Great Lakes Institute of Management has in a
short span made a significant mark in terms of providing top quality MBAs,
state of the art corporate training and executive education. The challenge
for emerging India is to create leaders, entrepreneurs and professionals who
can creatively leverage knowledge, business processes, and intellectual
capital to shape its tomorrow. In this endeavour, the Institute also has
Centers of Excellence and Chair Professorship in diverse fields, dedicated to
applied research. Union Bank Great Lakes Center for Excellence in Banking is
one of them. We are proud to be associated with this great Institute. I thank
Dr Bala Balachandran for only inviting me to the conference but allowing me
to deliver this presidential address.

3. To give you a background, the idea of a Union Bank Chair at Great Lakes
Institute of Management was conceived when I met Dr Bala Balachandran at
the Kellogg School of Management, Chicago, USA in November, 2007 where I
was undergoing an advanced management programme on Global leadership.
In January 2009, the MoU between Union Bank of India and the Great Lakes
Institute of Management was formalized to set up the ‘Centre for Excellence
in Banking’ for conducting research and learning program initiatives in
Banking, Financial services Sector and Insurance. This would also provide an
opportunity to the students to involve themselves in research work and
internships in banking sphere. Today, I am proud that this Centre is hosting
its First Research Conference and that too on financial inclusion, a topic that
has been drawing continuous attention not only in India but also across the
globe.

4. We have amongst us a panel of eminent thought-leaders, speakers and


researchers in the area of financial inclusion; hence, my task of delivering
the Presidential address is a formidable one. The topic of financial inclusion
is gradually gaining significance in public policy as well an academic

 
Page 4 of 12 
 

discipline. I have divided my address in three parts. First, I will give a brief
about what banks are doing today in the financial inclusion space and the
initiatives that Union Bank of India has taken. Second, I will touch upon the
challenges that lie ahead and third, the relevance of research in furthering
the agenda of financial inclusion.

Financial Inclusion – Where we stand

5. “Half the World is unbanked”, the title of a 2009 report by Financial Access
Initiative rightly summarizes the extent of unmet demand globally. About
India, report estimates that 48 per cent of adults used formal or semi-formal
financial services. About the drivers of financial inclusion, the report says,
“… the levels of financial inclusion are not determined by socioeconomic or
demographic factors alone but countries can improve levels of financial
inclusion by creating effective regulatory and policy environments and
enabling the actions of individual financial services providers”. For example,
India is a country with relatively low per capita income and a large rural
population, but has greater use of financial services than many relatively
richer and urban countries. This is truly a reflection on policy initiatives
taken by the Government of India as well as the Reserve Bank over the last
many decades through rural cooperative structure in the 1950s, the social
banking in the 1960s and the expansion of bank branch networks in the 1970s
and 1980s.

6. These efforts have been intensified in the recent past. The government
constituted a Committee on Financial Inclusion (2008) under the
Chairmanship of Dr C Rangarajan, which provided the micro-level data on the
extent of exclusion in the country and suggested solutions for deepening of
financial inclusion. Also, the Committee on Financial Sector Reforms, chaired
by Prof. Raghuram Rajan advocated a national goal of ensuring access to 90
per cent of households to a deposit account and to a payments system and

 
Page 5 of 12 
 

that government transfers under various schemes be implemented through


this system. The government, reflecting its commitment for a “sustainable
and more inclusive growth” agenda, has implemented many
recommendations of these two committees. The vision document by the
Unique Identification Authority of India provides a comprehensive solution
through use of technology and UID authentication.

7. The commercial banks are leading the drive for financial inclusion in India
today. Financial inclusion is a much broader term, which can be construed as
the process of ensuring fair, timely and adequate access to financial services,
namely, saving, credit, payment and remittance facilities, and insurance
services at an affordable cost in a fair and transparent manner by the
mainstream institutional players. To begin with, the number of ‘no frills’
accounts opened by commercial banks as at end-March 2009 was 33 million
compared to less than half-a-million accounts at end-March 2006. The public
sector banks accounted for the majority (90 per cent) of these ‘no frills’
accounts. Though banks have been criticized for excessive focus on opening
such accounts and that many of these have turned dormant, studies show
that the low cost or free of cost account is internationally considered helpful
in expanding the access of banking services, particularly to the low-income
groups. Opening a no frill account, therefore, is by itself not financial
inclusion but an important first step.

8. Branch banking model has been the mainstay for deepening of banking
services, however, diverse geography of the country, widespread population
and operational and economic infeasibility of opening branches at every
location has resulted in adoption of Branchless Banking as the new model for
reaching the unbanked. Through authorised Business Correspondents &
Business Facilitators and leveraging technology, banks have implemented Bio-
Metric Smart Card Technology. Every customer is given a personalized Smart
Card that acts as a No-Frill SB Account. The card is activated when it is

 
Page 6 of 12 
 

inserted in the point-of-sale (POS) machine carried by the Business


Correspondents and validated by the fingerprint impression of the customer.
This takes care of the security of the account for the educationally
disadvantaged segment of customer.

9. Microfinance Institutions (MFIs) have shown how the poor can be profitably
financed for meeting their credit requirements through the Self Help Groups
(SHGs). Even though the size of loan outlay is small and risky but given the
high number of loans and the group lending mechanism, both the problems
can be easily tackled. Innovative ideas are emerging in the areas of
microfinance through dedicated research, about which I will talk a little
later. Many banks have collaborated with microfinance institutions that
provide financial services to relatively high-risk segments of the population.
As of March 2009, commercial banks’ outstanding loan to MFIs stood at
Rs.4,978 crore spread across 1,762 MFIs. Microfinance has provided access to
finance to an entire sector of people left behind by the formal financial
sector and has demonstrated how these low-income categories are indeed a
‘bankable’ proposition. However, the cost remains an issue.

Initiatives by Union Bank of India

10. Union Bank of India has around 2840 branches spread across 533 districts out
of the 631 districts of the country. Perhaps, Union Bank of India is amongst
few banks where financial inclusion plan has been integrated with the normal
business plan of the bank for preceding 5-6 years. We believe that providing
banking services to the poor is a viable business opportunity if cost of serving
the poor is reduced through a mix of innovative delivery models. To ensure a
focused approach, Bank has set up a separate Financial Inclusion Vertical
with a dedicated expert team

11. Union Bank of India is the frontrunner in the usage of biometric smart card.
Bank has established 2624 POS Touch Points across 34 districts covering 2.76

 
Page 7 of 12 
 

million customers. As a next step, Bank is working towards mobile-based pre-


paid card and mobile-based SB account. Bank has also launched customized
loan products based on the income cycle of the customer with weekly to
fortnightly repayment facility, micro-insurance in tie-up with LIC, requiring
annual premium of as low as Rs 200.

12. The Bank has used biometric smart card technology for disbursing payouts at
the doorstep of beneficiaries under social welfare schemes like Mahatma
Gandhi National Rural Employment Guarantee Scheme and Social Security
Payment.

13. Besides, let me share with you a few success stories of innovative projects
that Union Bank has undertaken in the recent past. First is our experiment
with the milk pourers of the National Dairy Development Board (NDDB)
Project. As it is said that ‘milk is a complete food’, the Bank decided to
provide a ‘complete end to end solution’ to the milk pourers for all their
payment and financial needs. The Bank adopted branchless banking model by
using biometric smart card technology for extending No-Frill SB account,
which facilitates fortnightly payment and savings option. The Pilot project
that started with just 1000 milk pourers in Nanded has now turned into a full
fledged project with about 1 lakh pourers across 6 locations (in Maharashtra,
Gujarat, Andhra Pradesh & Uttar Pradesh) through 491 Touch Points and with
a total disbursement of Rs. 340 crore. To move towards providing
comprehensive financial solution the Bank introduced two customized
medium-term loan products – Kamadhenu for purchase of milch cattle and
Kalpataru for other dairy related needs. Bank is now also contemplating to
launch Recurring Deposits. Convinced by the success of this model, Bank is
now expanding this project to 10 new locations.

14. Second success story of Union Bank relates to the Remittance Product for
urban poor. Financial exclusion is not only restricted to rural areas but the

 
Page 8 of 12 
 

same is evident in urban areas, too. The urban slum dwellers most of whom
are migrant labourers do not have access to banking financial services. An
especially designed remittance facility for the urban poor was introduced by
the Bank, wherein the facility to remit money to the family at distant villages
at an affordable charge in a safe and secure manner on T+1 day delivery
terms was provided at the door-step of the customer. At present, Bank is
covering two money-moving corridors, namely Mumbai- Eastern U.P. & Bihar
corridor and Delhi-Eastern U.P. & Bihar corridor. About 3 lakh customers are
enrolled and amount remitted is Rs. 112 crore involving 2.4 lakh transactions.
Having gained from the experience, Bank will shortly replicate this success
into other money-moving corridors like Surat-Ganjam (Orissa) corridor.

15. Third experiment is with financing the members of Primary Agricultural


Cooperative Societies (PACS) in the State of Andhra Pradesh through
CoOptions Technologies Ltd (COTL). The PACS are not in a position to meet
the demand of the farmer members for cultivation of crops and other
investment finance in agriculture. Consequently, the farmers are accessing
informal sources like moneylenders. CoOptions provides to the Bank a
solution which can track credit history of members of PACS and bank has an
option to fund those who have good credit history. A Pilot project was
initiated in February 2008 at Nizamabad District of Andhra Pradesh with
initial corpus of Rs. 2 crore. Later on, this was extended to Chittoor and East
Godavari districts with corpus of Rs. 20 crore for crop loans and Rs. 1 crore
for Vehicle loans called Kisan Chakra. We have now completed two crop
seasons during which Bank extended Rs. 11 crore of loan to 3000 farmers of
58 PACS. As its next stage, Bank is extending this to 650 PACS covering
around 1.25 lac farmers with a loan corpus of Rs.500 crore.

16. Union Bank of India has been implementing SHG model in rural areas and JLG
(Joint Liability Group) Model in urban areas. Bank has formed and credit-

 
Page 9 of 12 
 

linked over one lakh SHGs so far, about 80% of which are women
beneficiaries.

17. In the process of putting the Financial Inclusion in mission mode, we have
learnt that it is more important to create awareness about the
usage/benefits of financial services than mere providing access to these
services. Taking this learning in its stride, Union Bank of India has opened 201
Village Knowledge Centers, 13 Rural Self-employment & Training Centre and
5 Financial Literacy & Credit Counseling Centers across the various parts of
the country. These centres provide the basic financial education to the
educationally un-privileged customers so that they can make a more
informed decision with respect to asset allocation and does not fall prey to
the greedy hands of local moneylenders.

18. Regional Rural Bank’s must also be on Core Banking Solution (CBS), without
which it would not be possible to scale up the financial inclusion efforts. I am
happy to share with you that Union Bank was the first Bank to implement 100
per cent CBS in its two RRBs in November 2009.

19. Union Bank is shortly going to provide overdraft facility to all no-frills
account holders. The needs of the poor for lifecycle events such as medical
emergency, weddings etc. are pressing and need immediate fulfillment. Bank
will use its VKCs, FLCCs, R-SETIs and other mediums to spread awareness that
to meet their emergency credit needs, an overdraft facility exists and they
can avail should they require. This would bring them to the banks to transact
and enable the banks to sell other products apart from making the entire
exercise viable.

20. Union Bank of India has also drawn a medium term Financial Inclusion Plan
2010-2013 for systematic coverage of the unreached. Bank intends to cover
32000 villages in the next three years that forms nearly 5% of the estimated

 
Page 10 of 12 
 

number of villages in the country. During this period, Bank will add 6.2
million new customers, taking total customers to 10 million by 2013. The
business model that we are looking at has break-even period of 3 to 4 years.

Challenges Ahead

21. There are three main challenges to the task of financial inclusion – reach,
cost, and awareness. The foremost challenge is the issue of reach. Each of
the over 600,000 villages in the country cannot be covered through branch
banking. Thus, we need to go through the low-cost Business Correspondent
model and leverage technology to deliver financial services. Hence, the
challenge is to have right and low-cost Information and Communications
Technology (ICT). It is also important that the transactions through the hand-
held front end-devices should be seamlessly integrated with banks’ main
server. Union Bank is also working on this to migrate the data from hired
server to Bank’s own server. Financial Inclusion is a collective responsibility
and hence, IT sector in India should also come out with innovative and low-
cost model that can be used widely.

22. Banks may not push forward aggressively on financial inclusion space because
of the fear of the unknown and one of the unknowns is whether this business
can be cost-effective. This fear cannot be underrated. However, the cost can
be kept lower in medium term if banks are able to generate high volume
business with multiple offerings. Increasing urbanization and a resultant large
pool of migrant workers will create opportunities for banks for offering
deposit products to them as well as micro-credit and remittance products.
The UID will be a powerful for banks in establishing the identity of customers
to meet KYC norms. I believe, this is going to reduce cash and non-cash
transaction costs both to the banks and to the potential customers.

 
Page 11 of 12 
 

23. The lack of awareness is yet another constraint. Unless awareness is


developed, an access to services cannot be converted into usage. There will
be many examples where in a village bank branch exists but the poor take
loan from the moneylender and not from the bank. There may be socio-
economic background to this behavior, too. Hence, there is need for a
collective effort not only from the banks but also from also other
stakeholders to help improve the awareness amongst the unbanked or under-
banked. Banks have opened several awareness, counseling and training
centres for this purpose but the scale requirement is huge.

Research in Financial Inclusion & Microfinance

24. The financial inclusion is not new to the world. However, the challenges of
Millennium Development Goals and associated objectives have resulted in
countries pursuing inclusive growth agenda aggressively. Hence, financial
inclusion has emerged as an area of research in applied finance as well as
development studies, both in India and outside. In India, microfinance is one
of the focus areas of research in many business management schools
including IIMs and centres of development studies. However, no research is
useful if it does not reach the intended. Though I am not an academician, I
would like to give you a brief about one of the innovative ideas that I came
across recently. The is about a ‘Pregnancy Financing’ product and
significance of this, unlike typical academic papers, is its implementation on
pilot basis. This was conceptualized here in the city of Chennai at Centre for
Micro Finance, IFMR (Institute of Financial Management & Research).

25. This ‘Pregnancy Financing’ product allows poor pregnant women to meet
expenses related to child delivery and ante and post-natal care. ‘Pregnancy
Financing’ is centered on the premise of Behavioral Collateral; where a
particular behaviour is treated as collateral for providing financial service.
Some women belong to the marginalized section of the society and would be

 
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unable to form groups that can underwrite each individual’s commitment.


Women are encouraged to enroll in this product as early as possible during
their pregnancy. Women who take-up the product, save regularly over the
course of their pregnancy, with the amount of saving left open for the
borrower to decide. Two weeks prior to delivery, the savings accumulated by
the woman is given back to her along with the loan since the savings behavior
and not the amount of savings, works as collateral. The underlying principle
behind this idea is that if a poor woman can forgo some of her current
consumption for savings, then she can also forgo certain part of her
consumption in future periods for repaying the loan.

26. I am sure, there would be more such examples that may be implemented by
the banks at a larger level. The basic purpose is to encourage the researchers
in the area of financial inclusion and microfinance to conduct more such
studies, which do not only find place in academic journals but also become
the tool they are designed to achieve. The research should get connected
with the practice.

With this, I conclude my address and I wish this Research Conference all the
best and hope the deliberations here throw new light on various aspects of
financial inclusion.

Thank you very much.

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