Deepak Mohanty Committee on Medium-term Path on Financial Inclusion

This committee was appointed by RBI. 

The Committee recognized that substantial progress has been made in terms of access of financial products and services especially after the launch of the Jan Dhan Yojana.

GAPS in Financial Inclusion :--

However, the committee identified following gaps : 

1. Low usage of financial services 
2. Inadequate ‘last mile’ service delivery
3. Exclusion of women, small and marginal farmers 
4. Very low formal link for micro and small enterprises.

The committee also mentioned systemic issues of stability of the credit system, over-indebtedness and agrarian distress.

Against this background, the Committee recommended following measures:--

A. Sukanya Shiksha

To mitigate gender gap in financial inclusion, banks have to make special efforts to step up account opening for females. 

The Government may consider a deposit scheme for the girl child – Sukanya Shiksha - as a welfare measure.

The Sukanya Shiksha scheme will link education with banking habits. 

A nominal amount to be credited in the name of each girl child belonging to the lower income group who enrolls in middle school.

B. Linking Aadhar with Credit Accounts

To enhance the stability of the credit system and improve access to credit a unique biometric identifier such as Aadhaar should be linked to each individual credit account and the information shared with credit information companies.

This will help in identifying multiple accounts and will also help mitigate the overall indebtedness of individuals who are often lured into multiple borrowings without being aware of the consequences.

C. G2P payments

Bottom quartile of the population has low level of personal disposable income. On account of this, the committee is of the view that meaningful financial inclusion will not happen without Government-to-Person (G2P) social cash transfers.

D. Mobile Banking

Committee recommends a low-cost solution by utilisation of the mobile banking to improve ‘last mile’ service delivery and to translate financial access into enhanced convenience and usage.

E. Agriculture

To increase formal credit supply to all agrarian segments, the committee recommended digitisation of land records.

Digitisation of land records should be backed by an Aadhaar-linked mechanism for Credit Eligibility Certificates. 

Credit Eligibility Certificates will help facilitate credit flow to actual cultivators.

The agricultural interest subvention scheme has distorted the agricultural credit system. 

The committee recommended phasing out the agricultural interest subvention scheme.

An affordable technology-aided universal crop insurance scheme with a monetary ceiling of ₹2 lakh to end agrarian distress.

The government should replace the current agricultural input subsidies on fertilizers, power and irrigation by a direct income transfer scheme.

To encourage discipline in loan repayments, the panel recommended ‘Gold KCC’ (Kisan Credit Card). 

Gold KCC will be issued to borrowers with prompt repayment records. 

Gold KCC will give higher flexibility to borrowers in terms of borrowing and repayment.

F. Micro and small enterprises (MSEs)

Development of a system of unique identification for all MSME borrowers and sharing of such information with credit bureaus.

The panel also suggested establishing a system of professional credit intermediaries/advisors for MSMEs to help both the sector banks in credit assessment.

Committee recommended to encourage multiple guarantee agencies to provide credit guarantees in niche areas for micro and small enterprises (MSEs), and explore possibilities for counter guarantee and re-insurance.

G. Interest Free Banking

The panel recommended that the commercial banks be enabled to open specialised interest-free windows with simple products like demand deposits, agency and participation certificates on the liability side and cost-plus financing and deferred payment, deferred delivery contracts on the asset side.

In an interest-free banking structure, the bank accepting deposits will not engage in lending as a purely financial activity.

H. Reforms in Banking

A banking eco-system with multiple models should be encouraged with will foster partnerships amongst national full-service banks, regional banks of various types. 

NBFCs, semi-formal financial institutions, as well as the newly-licensed payments banks and small finance banks.

Banks’ business model to integrate Business Correspondents (BCs) with appropriate monitoring.

A geographical information system (GIS) to map all banking access points.

More ATMs in rural and semi-urban centres.

A multi-lingual mobile application for customers who use non-smart phones

All regulated entities should be required to put in place a technology-based platform for SMS acknowledgement and disposal of customer complaints.

I. Self Help Group (SHG)The panel recommended to step up the self help group (SHG)-bank linkage programme (SBLP) initiated by NABARD.

Corporates should be encouraged to nurture SHGs as part of their Corporate Social Responsibility (CSR) initiatives.

Provision of credit history of all SHG members by linking with individual Aadhaar numbers to check over-indebtedness.

J. Financial LietracyFinancial Literacy Centre (FLC) network to be strengthened to deliver basic financial literacy at the ground level.

K. OthersTo strengthen the Information Monitoring System for District Consultative Committees (DCC) and State Level Bankers Committee (SLBC) deliberations.

SLBCs to focus more on inter-institutional issues, livelihood models, social cash transfer, gender inclusion, Aadhaar seeding, universal account opening, and less on credit deposit ratio which is a by-product.