Nachiket Mor Committe Report on Financial Inclusion
India has a rich and diverse payments infrastructure in place already. A number of measures have been taken by RBI to ―activate‖ this infrastructure66 including the creation of:
1. The National Electronic Clearing Service (NECS) to ―facilitate centralised processing for repetitive and bulk payment instructions.
2. The National Electronic Funds Transfer (NEFT) payment system to facilitate (in a batch-mode with netting), ―one-to-one funds transfer‖ from an account in ―any bank branch‖ to an account in ―any other bank branch in the country.
3. The Real Time Gross Settlement (RTGS) System which is similar to NEFT but operates in real-time on a transaction to transaction basis and is ―primarily meant for large value transactions‖69.
4. The Immediate Mobile Payment Service (IMPS), ―an instant interbank channel agnostic electronic fund transfer service which includes mobile phones between customers of different banks.
5. White Label ATMs (WL-ATMs) by ―non-bank entities‖ recognising that, ―investments in ATMs have been leveraged for delivery of a wide variety to customers‖ and ―expanded the scope of banking to anytime, anywhere banking through interoperable platforms‖71. Although there has been nearly 23-25 per cent year-on-year growth in the number of ATMs (1,26,950 as of 30th August 201372), their deployment has been predominantly in Tier I & II centres. There is a need to expand the reach of ATMs in Tier III to VI centres (classification of centres as prescribed under the Census of India 2011). In spite of the banks’ pioneering efforts in this direction, much needs to be done.
6. A Payments system for the issuance and operations of Pre-paid Instruments that are issued by banks and non-banks on an ―Open System‖ and a ―Semi-Closed System‖ basis respectively.
7. A Mobile Banking system permitting banks to offer services to their customer over mobile phones.
However, despite all this effort and the number of initiatives that have been taken, there is still a vast gap in the availability of even basic payments and savings services for small businesses and low-income households both in rural and urban India. However, the large presence of Business Correspondents, advances in mobile telephony, rural and urban broad-band connectivity, and the large scale roll-out of Unique-ID (Aadhaar) numbers (more than 50 crore generated by the end of November 2013 with more than 3 crore generated in November alone)76 now offer an unprecedented opportunity to realise this vision and for India to leap-frog over several other far more developed countries in this area just as it has done in mobile telephony.
As evidenced by the July 2002 date of its ―Report of the Working Group on Electronic Money, India was one of the early movers amongst both developed and developing countries in formally exploring the potential of electronic money. However, driven by concerns relating to the loss of seigniorage income of the Reserve Bank of India (―…lesser private sector demand for central bank money and the consequent threat to the existence of the central bank‖78), and the lower perceived ―credibility of non-bank financial institutions in India, the Working Group recommended a model which restricted the full use electronic money only to scheduled commercial banks with very limited participation being permitted to non-banks.
In the last ten years since the report was published, this appears to have been the guiding regulatory philosophy in India, even if not entirely for just these two reasons.
A 2010 McKinsey study while assessing the costs and benefits of digitising government payments in India estimates that the Government would save more than Rs.1 lakh crore per annum if it were to digitise all payments to and from the government. Given the sheer size of the country (33 lakh sq. km., 120 crore population) and the absolute poverty of a majority of its citizens (more than 60 per cent with an income below USD 2 per day), a large proportion of them do not have the financial capacity to absorb the costs associated with the management of physical currency notes and traditional branches. This implies that while some progress can indeed be made using a cross-subsidisation route or the use of more efficient non-branch but cash-based channels such as ATMs and Business Correspondents, the financial inclusion and efficiency gains associated with the wide-spread, even ubiquitous use of electronic money are likely to be very high. For these reasons making access to formal electronic payments infrastructure universal is a key component of the overall vision of financial inclusion and the RBI vision document on payments82 correctly aims towards an economy that is eventually entirely cash-less. In this document, RBI lays out the over-arching vision to ―proactively encourage electronic payment systems for ushering in a less-cash society in India‖. In addition to the obvious benefits to individuals and businesses, moving away from cash-based transactions to electronic transactions also has important efficiency benefits for the Government.