India's central bank says it would like to join hands with Rotary to serve the community; 'It's part of our Preamble': Deputy Governor

We would like to partner Rotary and other NGOs. Mrs. Usha Thorat,
Deputy Governor of the Reserve Bank of India, speaking at the last
meeting on .The RBI, the community and the common person.

The Deputy Governor of the Reserve Bank of India (RBI) surprised members at the last meeting by stating that it was time for the country.s central bank to join hands with Rotary and other like-minded non-government, non-profit organisations to better serve the community.

Mrs. Usha Thorat, Deputy Governor of the RBI, who was speaking on .The RBI, the community and the common person., seemed so impressed by the work being done by various dedicated individuals and organisations, that she asked them to help RBI meet some of its commitments.

.Today, voluntary, non-government, not-for-profit work is giving to society much more than what government organisations give. This is because of the nature of the motivations that are (guiding people who) are doing this work. You can be as professional as anyone, but where it.s coming from is really what is important.

.We have tried to look at development issues in this spirit. Development issues, such as health, education, livelihood or drinking water, are the most important things that a state government can deliver. This is not a central government issue.

.And if the three .pillars., the voluntary organisations, the state government and the banking system, can get together, there will be tremendous potential, a tremendous leveraging. We have seen many experiments, but these are not multiplying. I think that that will be possible only through association between government, banks and voluntary organisations.

Inflation control and maintaining price stability is the biggest .dharma. of
the Reserve Bank of India, Deputy Governor Usha Thorat admitted
at the last meeting; but she added that the RBI could not lose sight
of the fact that higher savings provided greater resources for
investments needed for growth

Mrs. Thorat said of the three .pillars ., community-based service organisations had the most important part to play; and Rotary could essay an even greater role because it was .in the know of who is doing what at the grassroots level; you have identified them; seen them work; assessed them; and recognised them..

But what did an allegedly elitist, aloof bank like the Reserve Bank of India, seen by most to be far-removed from the nitty-gritty of everyday life, have to do with an esoteric subject like community service?

A lot, according to Mrs. Thorat. For, the very preamble of the RBI Act referred to the setting up of the Reserve Bank of India to operate the country .s currency and credit system to its advantage. .Its advantage. meant to .its people.s advantage.; and .people. meant all persons in society . the rich, the famous, the disadvantaged and the poor.

Unlike central banks in other parts of the world, in India the central bank.s mandate was both price stability and growth. In this it was more like the US central bank which also did not have inflation control as its sole objective. But now more central banks, especially in the current state of financial turbulence, had to focus on financial stability. After all, a country.s financial system was more like its nervous system or blood circulation.

Anything that disturbed financial stability could be disadvantageous and harmful to the people. Thus, financial stability had been adopted as a third objective (apart from growth and price stability) by most central banks.

Mrs. Thorat said it was clear that inflation was hurting the common man the most. It had been in the news of late because it was on the rise; and the greatest service that RBI could do for the community was to ensure that inflation was under control.

Further, price stability was important because many senior citizens were seeing that inflation was corroding their savings; people who had saved all their lives were finding themselves distressed in their twilight years because of inflation.

Therefore, inflation control, or maintaining price stability, was the biggest dharma of the RBI. At the same time, it could not lose sight of the fact that higher savings could provide greater resources for investments that were needed for growth.

What else could Rotary and other NGOs do for the community in association with the RBI? Mrs. Thorat said there were many areas where the two could co-operate; and she took them up as she proceeded with her talk.

But first she spoke on the different areas that the RBI was focusing on.

The first was financial inclusion, which referred to the common man.s ability to access a bank account. It seemed to be a very simple thing, but it was not so simple.

Access to a bank account could be denied because of (a) requirements of minimum balances, (b) complicated procedures, (c) high charges, (d) KYC norms, or simply because (e) the bank branch could not be bothered to take on new accounts.

Interestingly, banks were increasingly seen to be chasing customers for big deposits and those who kept huge balances in their accounts. But they did not lure poor customers, thus denying them access to a bank account.

The RBI had asked every bank to launch a simple product, a .no-frills. account. Banks were obliged to provide to the citizens of the country an account in which the requirement for minimum balance was very, very low, or even non-existent, and to levy no charge on such accounts.

They could place restrictions on these .no-frills. accounts in terms of the number of transactions, or the collection of cheques; they could even direct that withdrawals be done only through ATMs . but they had to allow transactions that would benefit the account holders.

Mrs. Thorat pointed out that when the government made a payment (whether for the national rural employment guarantee scheme, or for flood or other relief), it paid by cheque. And when the government paid by cheque, it was necessary to have a bank account, otherwise the money would disappear; there had been many cases of .leakage..

A bank account facilitated the receipt of payments from government. It also meant a lot to the individuals. It gave them an .identity. and .empowered. them. Sufficient stress could not be laid on this aspect, especially in a country where 60% of the people did not have a bank account.

Organisations like Rotary could help in this area by facilitating the process of creating awareness. This was something that simply had to be done.

As for the KYC (know your customer) norms, the RBI had said that it was not necessary when the balance did not go above Rs. 50,000. But how many people had tried to get their maid or driver to open an account?

They could be immigrant labour with no identity, no ration card, no driving licence. In such cases, the RBI had said that an introduction would suffice (an introduction by a person on whom the bank had already done a KYC); these were very small value transactions, not exceeding Rs. 1 lakh. In such cases, it was not mandatory to follow the normal KYC norms.

Awareness about this fact could be created by Rotary and other NGOs. But what if a bank refused to follow this policy?

For that, Mrs. Thorat said, a redressal mechanism was in place. Under the ombudsman scheme, there were 15 ombudsmen in the country. Every single case involving violation of the RBI code or the code of commitment could be taken up with the ombudsman.

It was the experience of the RBI that no sooner was a case with a bank taken up with the ombudsman, than it was sorted out.

In the ultimate analysis, banking was a question of livelihood, empowerment and credit. That was the reason why RBI was working on financial inclusion.

India was probably the leading country in the world where self-help groups were helping provide access to banking to communities, to the disadvantaged and to the poor.

Thanking Usha. Vijay Meghani proposes the vote of thanks at the last meeting.
Seated next to him is Nelum Gidwani who introduced the guest speaker.
In the second photograph, President Dr. Rumi Jehangir presents a memento
to Mrs. Usha Thorat at the conclusion of her talk

Self-help groups worked through social capital. The only collateral they had was their group commitment. But this was a very powerful mechanism.

As for taking banking to the remotest (and the poorest) corners of the country, Mrs. Thorat said it had been observed in Andhra Pradesh that banks were so far away that sometimes the cost of travelling to the bank and back cost a month.s savings.

To get over this, the RBI had made attempts to facilitate the opening of bank accounts in distant branches through technology. IT was enabling banks to do remote business, to introduce branchless banking and thus take banking to remote areas.

The second area of RBI.s focus was financial literacy which was necessary for the establishment of an empowered society.

The RBI had adopted a national financial literacy programme targeting students, young professionals, women, senior citizens, urban unemployed, slum dwellers and so on, to communicate all that they needed to know to take charge of their own finances, of their own lives, of their financial planning.

.Rotary can help spread financial literacy. We would be very happy to associate with any organisation trying to further the cause of financial literacy. We have a lot of information freely available on our website.

.We are also looking at the media for a lot of interactive, educational films, radio plays on personal finances, .edutainment. programmes and so on.

.I believe Poland recently spent $10 million just on financial education; it (this expense) was seen by them as an investment and not expenditure. .

The third area of focus, Mrs. Thorat said, was credit counselling. This was crucial in view of the distress among farmers and others on account of over-indebtedness.

One of the banks had opened one counselling centre in Dadar and another in Vidarbha. Its experience in the two milieus (urban and rural) was totally different.

Interestingly, these counselling centres were at an arm.s length from the bank but the effort was laudable. Some committed officers of the bank who had retired, some of them former union leaders, had set up these centres for .walk-in. counselling. They also did group counselling.

Their attempt was to restructure the situation and to help the distressed borrower; it was almost like preventing an indebted person from going over the brink and helping him to arrive at some kind of settlement with his bankers so that he carried on with his life.

But things were very different in Vidarbha because there was a lot of lending by the informal sector there. Besides, the number of players that a counsellor had to negotiate with was higher.

The RBI had now told all lead banks (every district in the country had a lead bank) to set up a financial literacy and counselling centre in each district.

This centre could be manned by retired servicemen, retired bank and government employees, or anyone who the banker felt had a good sense of judgment and a desire to do social service.

Such efforts could easily multiply, but that was unlikely to happen without dedicated people volunteering their services for such activities.

The fourth area was consumer protection. Banking services were a nightmare for the common person. This could be seen from the kind of complaints received daily from individuals all over the country.

Over 40,000 complaints were received at the ombudsman.s office every year, but the figure had to be multiplied 50 times to get the actual number of complaints being made against the banking system.

Mrs. Thorat said it was very easy to sit and issue guidelines, to formulate policies and so on. But how would these be enforced at the grassroots level? There had to be a proper grievance redressal machinery.

.That.s our job. And where do you come in? In creating awareness; being people who are connected to society in such a significant way, I think awareness is the most important thing you can handle.

.Even though there is a machinery to take care of grievances, unless the grievance is addressed to the right person and in the right manner, very often it remains unaddressed..

Finally, Mrs. Thorat said, .RBI is for the common man.. The currency note was the most visible image of the RBI but there had been attempts at counterfeiting notes; this, too, was an area where it was necessary to create awareness.

All efforts were made to ensure that the security features of currency notes were perfect and that they were not easy to counterfeit. In fact, there was no report of counterfeiting of notes of the current series. But there had been some about the older series.

The RBI was now training shopkeepers, tellers, bus conductors, the staff manning counters and so on, in detecting counterfeit notes. It was also installing machines at all bank branches.

.But this again is an area where public awareness is extremely important. I request you to walk into the Reserve Bank.s museum on P.M. Road one of these days to see what the RBI.s currency management is all about,. Mrs. Thorat added.

Answering questions, she denied PDG Manibhai Doshi.s hint that the RBI was acting as an appendage of the US Federal Reserve Bank.

On the contrary, it was playing its vaunted role, which was that of keeping an eye over growth and employment, ensuring price stability and also putting in place a credit policy that would facilitate growth and investment.

Kamal Bulchandani had two questions. First, why were banks refusing to open accounts in the absence of PAN cards? He had overheard a young woman telling her mother on the .phone, .The bank is not allowing me to open an account in your name because you don.t have a PAN card.. This was something that the banks had to be taught rather than the common man.

Secondly, inflation was not only affecting both the rich and the poor, it was becoming a parasite on the country.s economic growth. Yet, the Finance Minister was neither reducing nor rationalising taxes. Instead, he was asking steel and cement manufacturers to reduce prices. .Why are taxes not being reduced?. he asked.

Mrs. Thorat said banks had to follow the guidelines issued to them. But unless the people were made aware of their rights, they could not demand them. This was the reason why it was necessary to launch a mass awareness drive, to make people aware of their rights.

Recently, clear guidelines were issued that it was not necessary to have an independent KYC for opening an account for a wife, a parent or other dependent; instead, the KYC on the first bank account could be utilised. Since people had faced a problem in this area, the problem was addressed.

.But unless the people know that there is a Reserve Bank circular which says that you don.t need a PAN card for opening an account for your parent, how will we enforce that guideline? We issue guidelines, but enforcing them is equally important..


As for reducing taxes instead of telling steel and cement companies to reduce prices, Mrs. Thorat said the current inflation was commodity price-driven; there were many reasons for this, but the fact was that the ability to contain inflation also depended upon the extent of overspending by the government.

.If the government has to cut taxes, it has to be able to reduce expenditure somewhere else so that overall, if the fiscal deficit goes down, then inflation can be targeted better. If you increase the fiscal deficit, it will put more pressure on inflation. And there is no headroom to manage inflation.

.So it has to be a working together, managing the fiscal deficit and also the various other factors that are responsible for it,. she concluded.

Mrs. Thorat was introduced by Nelum Gidwani. The vote of thanks was proposed by Vijay Meghani.