Oct 05, 2015, 10.42 PM | Source: CNBC-TV18
Jayant Sinha explains: Govt roadmap on financial inclusion
In an interaction with CNBC-TV18's Shereen Bhan, Minister of State for Finance Jayant Sinha outlined the various steps the government has taken to boost financial inclusion in the country, including the ambitious Jan Dhan Yojana Plan. He also explained what are the government's targets going forward.
In an interaction with CNBC-TV18's Shereen Bhan, Minister of State for Finance Jayant Sinha outlined the various steps the government has taken to boost financial inclusion in the country, including the ambitious Jan Dhan Yojana Plan. He also explained what are the government's targets going forward. While the interview was being conducted, news also came in about the US sealing a historic free trade agreement with 12 Pacific countries. The minister also outlined his views on the development, and the implications for India. Below is the transcript of the interview on CNBC-TV18. Q: How do you view the free trade agreement signed by the Pacific countries? A: All of the countries that have signed, it is a very important step forward in the United States. It has taken them a long time to be able to overcome the barriers. So, it is s very important step forward for the global economy. For India we have to think very carefully about these multilateral trading agreements. As you correctly point out it is not so much the WTO where multilateral trading set of arrangements is being created but much more these other arrangements that are being put together. As you know the chief economic advisor has been tasked right now to look into all of these different trading blocks and to see what should be India's position and how we should position ourselves relative to the trading blocks that are emerging. Q: Do you feel that this in a way will sideline India? I also ask you this in the context of what is happening with the India-EU FTA. Talks there have been derailed. There is hope now in the air after the Prime Minister has met Chancellor Angela Merkel today and you have spent a greater part of your day with her as well, is there a possibility that we are likely to see a revival as far as India-EU FTA talks are concerned? As we head into these agreements is the space for India going to shrink? A: There is space for India in these trading arrangements, there is tremendous goodwill for India and a real recognition that India is going to be one of the key contributors to global growth and for opportunity creation around the world. So, everybody would like India to be part of these trading arrangements. What we need to do on our end is to understand how we have to work through over time - the various trading arrangements that exists which ones we have to prioritise and how we participate in that. As I said earlier that is the task that the chief economic advisor [Arvind Subramanian] is engaged in right now. He is actually one of the world's most eminent trade economists. So, we are very much looking forward there to his report on this matter in terms of how we should engage with these different trading blocs. Q: How soon do you expect that report? A: I am not sure, I will have to check with him but it is something that is being done on an accelerated basis. Q: Let me now talk to you about the financial inclusion agenda and we spent a greater part of the evening talking about what the government has been able to achieve both in terms of the Jan Dhan programme and the number of unbanked individuals that you have been able to bring into the banking sector. I know you have put this machinery and the might of the state behind being able to achieve the kind of targets that you have set out for yourself. Over 18 crore bank accounts have already been opened, what is the target from hereon? I am sure the target is equally ambitious? A: Our target was to ensure that every single Indian family has access to a bank account. We have achieved that target, we have gone through and we have spoken through various different mechanisms to virtually all families that we can identify. I myself for instance much more on an anecdotal level whenever I have a public meeting, I always ask people if they have a bank account and virtually everybody says that they do have a bank account. So, in that sense we have achieved the goal of universal bank accounts that we had set ourselves to do which is extraordinary. Of course around the world this is being recognised as one of the most remarkable feats when it comes to financial inclusion. So, we are very happy to have achieved that goal. Where we need to go now is to really expand the nature of financial inclusion. There are multiple areas that we are working on. First, we want to make sure that when it comes to life insurance we are able to through Suraksha Bima which is just Rs 12 a year or the Jeevan Jyoti Bima which is Rs 330 a year. So, that every wage earner or every person that is generating wealth or generating income for the family is covered. So, insurance is the next step after that. Then the step that we go to beyond insurance is on payments. So, all central government payments are going to go through the Jan Dhan accounts. We have already done that with LPG with more than 12 crore people now receiving their LPG subsidies. Then we are going to go into NREGA and on to scholarships and all the various central government programmes. Q: Speaking of transformational change and your basing your entire model on what you call the JAM trinity i.e. the Jan Dhan, Aadhaar and mobile. Let me ask you specifically as far as Aadhaar is concerned. Is the government contemplating now reviving the constitutional bill as far as Aadhaar is concerned because this matter ends up in courts practically every other day on whether the Aadhaar can be made mandatory or not, the Supreme Court has said it cannot be made mandatory to avail of government services and so on and so forth. Where do things currently stand because you have clearly decided to adopt Aadhaar but constitutional validity, is it something that government is looking at? A: That is a very good question and all of us that are dealing with financial inclusion recognise that it is very important to have clarity on this matter and there are two ways of dealing with that. One is judicial. We have already filed with the Supreme Court and a number of government agencies including SEBI and Reserve Bank of India (RBI) and others are in the Supreme Court right now to clarify exactly how Aadhaar can be used and not used and so on. So, there is a judicial resolution of this matter that might be possible. We are also considering legislative resolution of these matters and there have been a lot of discussions on how exactly to get a legislative solution for the problem that we are facing right now for the use of Aadhaar. So, obviously we have pushed the executive side as far as we possibly could. Q: But legislative side? A: No, the legislative side is what we are going to try now. As I said from an executive perspective which is how the UPA was effectively doing it and how we tried to do it so far is to push it as far as we can but now we have got to make sure we get a judicial resolution if we can and if that is sufficient then that is good enough, and if that is not sufficient then we have to go to the legislative side as well. So, that is essentially how we are trying tackle the Aadhaar matter. Q: Reserve Bank of India (RBI) governor surprised most of us with a 50 basis point cut. We have already seen most banks transmit at least part of what was already passed on by RBI. Are you happy with the transmission that has already happened? A: We have to do more as far as transmission is concerned. Clearly the RBI having cut a 125 basis points we have not seen a sufficient transmission as we would have all liked to have seen. There are three or four factors that come into play here. One is that many of the banks will tell you that when RBI was raising they did not raise as much as the RBI did and so they don\\'t need to bring it down as much. So, that is one factor. The second factor which we all know about is the small savings rate. There has been a lot of discussion about how to align those better with the repo rate, with other rates that are in the marketplace, that is the second factor. Third factor as we all recognise is the reality of the balance sheets and profitability of the banks themselves. Particularly those banks that have low NIMs use this opportunity to some extent to repair their balance sheets, to strengthen their networth and so on. So, that is the third factor that has to be considered. Fourth factor which RBI has been talking about is this whole question of do you price on the margin or not. How is the base rate actually set. So, the methodology of setting the base rate which will then result in a more efficient transmission is also being considered. So, these are all the four factors that impact how monetary transmission happens and on all of those fronts we are working hard to ensure that markets work efficiently and quickly in this regard. Q: RBI governor said that one of the key impediments as far as monetary transmission was the small savings rate. The Finance Minister has also said that the government is in consultation with the RBI looking at reviewing the framework of small savings. Today we had your entire team at North Block talking about the possibility of that review and it seems like it is a politically sensitive issue or politically sensitive subject, so no timelines have been given as far as what we can expect in terms of the small savings rate review. It is very clear that certain schemes and certain constituencies will be exempt from whatever review the government does decide to do. What is the thinking, what is the possible timeline? A: My joke on this is that people have been looking for the rate cut in the wrong place. Maybe the rate cut should be on the other side. There are a lot of people that are dependent on income from the small saving schemes. It is a very important aspect of their lives. So, we have to make sure that we consider it in a way that is equitable, that is fair and that is inline with what people expectations are. So, we are working through that, let us see how that evolves. Q: You won't give us a sense of when we can expect that review? A: If I wanted to do it I wouldn’t be doing it on this programme. Q: You were the man and the brain behind the government's Indradhanush programme. Really as we look at this audience and bankers here who clearly want to their part as far as the financial inclusion agenda is concerned but banks as we know are stressed at this point in time and stressed because of loans that have been taken by corporate and those loans have now turned into NPAs. Do you believe that the current situation with the Indian banking sector and a lot of these issues while being resolved are yet to be addressed completely. Do you believe that they will be able to address the challenges and the opportunities of financial inclusion given the stresses nature of their balance sheets? A: Absolutely. You have to understand that the entire financial landscape is changing before our eyes and whether you look at what is happening with the technology disruption, mobile wallets, digital wallets, whether it is what is happening with payment banks now being licensed and being able to go out and offer banking products and services to customers and taking deposits or what we are doing with small banks where they will be able to become instead of just being MFIs, deposit taking institutions as well. The entire banking landscape itself is changing dramatically. So, we are enabling many new players, many different types of players to enter and provide financial services and that will ensure that there is a lot of competition for financial products and to be able to get to even the last person in the line and provide them access and convenience. So, we think that this new competitive landscape is going to force all banks whether it is private sector banks, whether it is payment banks or even the public sector banks to really raise their performance and their game and we back that up with the KPIs that we have developed for the banks. So, competition is really a spur to innovation and a spur to better performance and it really will ensure that our citizens, our consumers get the products and services that they deserve. So, even while we are doing that we are also strengthening the banks themselves and providing them with the capital so that they can heal and improve their balance sheets. So, obviously we are doing a lot of work on stalled projects and discom. We are trying to take the stress off those balance sheets at the same time while we are motivating them to go out and compete. Q: Since you talked about discoms, how soon are we likely to see the new debt recast plan? I understand that perhaps as early as this week we could perhaps see a decision by the cabinet on that front? A: We are working on it, you will know soon enough. Q: This is something that you told me when we last spoke and that was using the National Investment Infrastructure Fund or the NIIF to be able to deal with the issue of stressed assets. I know that the NIIF itself will be operational or will be launched in November, where do things currently stand on formulating the guidelines for the NIIF to actually alleviate the pain of stressed assets? A: We are making very good progress. We would like to launch not just one but multiple funds through the NIIF before the end of the year. The one on the very high priority funds that we would like to launch is the stressed assets fund because what is happening is as the banks themselves are going through the strategic debt restructuring and so on, they are ending up with equity in some cases, they are ending up with debt also that they may not want to hold. So we want to create enough capacity in the market to be able to take over the equity, take over the debt as required and again make it possible for the banks to be able to get those NPA off the books at a reasonable price with the restructuring and everything else. So, the NIIF is also a very important element of taking some of the stress off the banks.
