ROLE OF FINANCIAL SERVICE SECTOR IN ACHIEVING SUSTAINABLE GROWTH FOR INDIA AND BHARAT

1. ROLE OF FINANCIAL SERVICE SECTOR IN ACHIEVING SUSTAINABLE GROWTH FOR INDIA AND BHARAT BY: R K DUBEY EXECUTIVE DIRECTOR

2. BHARAT AND INDIA GROWTH - POLES APART

3. BHARAT • BHARAT is that GRIM part of our nation which is • underdeveloped & residing in RURAL AREAS. • LACKING Basic facilities of FOOD, WATER, LIGHT • AND SHELTER. • COMBATING with chronic problems like POVERTY, • UNEMPLOYMENT, MALNUTRITION etc. • Lacking Basic rights of EDUCATION and HEALTH • facilities. • The major proportion of population is engaged in • AGRICULTURE & dependent heavily on MONSOON for • their BREAD & BUTTER.

4. INDIA • INDIA is that PLEASANT part of our nation which is • DEVELOPED & residing in URBAN AREAS • Which has an average GDP GROWTH above 8%. • This part residing in towns and cities with HIGHRISE • BUILDINGS, COMPUTERS, CARS AND MODERN • GADGETS.

5. BHARAT AND INDIA • INDIA still lives in the villages with 68% households • living in RURAL INDIA versus 32% IN THE CITIES. • There is huge INCOME DISPARITY between INDIA • & BHARAT. POVERTY (% OF PEOPLE BELOW POVERTY LINE)

6. BHARAT AND INDIA RATIO OF PER CAPITA INCOME BETWEEN THE TOP 15% & THE BOTTOM 15% OF THE POPULATION • Ratio of per capita income between the Top 15% and the • Bottom 15% of the population (Measure of income • disparity) has worsened over the period 2004-05 & 2009-10.

7. BHARAT AND INDIA BRIDGING THE GAP WHILE ACHIEVING SUSTAINABLE GROWTH

8. BHARAT AND INDIA • The Contribution of Financial, Insurance & Real • Estate Sectors to the GDP is likely to be 18% in the • FY2011-12. • Financial Service Sector primarily & dominantly • constitute of Banking Sector. • So the Role of Banking Sector and PSU Banks is • NOTEWORTHY.

9. INCLUSIVE GROWTH • INCLUSIVE DEVELOPMENT can be viewed in terms of • progress in SOCIAL AND FINANCIAL INCLUSION. • A large part of the population, particularly segments like • landless agricultural laborers, marginal farmers, scheduled • castes (SCs), scheduled tribes(STs), and other backward • classes (OBCs), continue to suffer social and financial • exclusion.

10. EMERGING TRENDS THAT WILL LEAD TO SUSTAINABLE GROWTH • Creating Inclusive Business models • Involving the poor as employees, entrepreneurs, suppliers, distributors, • retailers, customers and source of innovation in financially viable ways. • Developing Human Capital • Improving the health, education, experience and skill of employees as • well as business partners. • Building Institutional Capacity • Strengthening in industry associations, market intermediaries, • universities, govt. civil society organization etc who may be able to • play their roles effectively with the financial system

11. ROLE OF BANKING SECTOR • DIRECT ROLE • PRIORITY SECTOR LENDING including Agriculture, Micro & Small Enterprises. • FINANCIAL ASSISTANCE To Medium & Large Corporates. • MICROFINANCE • FINANCIAL INCLUSION • INDIRECT ROLE • Encouraging Consumerism through RETAIL LENDING. • INFRASTRUCTURE FINANCING • INFORMATION TECHNOLOGY • Finance to NBFCs • Creating EMPLOYMENT OPPORTUNITIES

12. FINANCIAL INCLUSION AND SWABHIMAAN • The thrust of Financial Inclusion started in April 2005 with Dr. Y V • Reddy, the then RBI Governor, making a mention in Annual • Statement for 2005-06. • To achieve greater Financial inclusion, the banks were asked to • provide banking facilities by – • Opening of ‘NO FRILL’ OR ‘ZERO BALANCE’ ACCOUNTS • Appointing BUSINESS FACILITATORS OR BUSINESS • CORRESPONDENTS and • Now OPENING of ULTRA SMALL BRANCHES etc.

13. FINANCIAL INCLUSION AND SWABHIMAAN • The financial inclusion has also been used to provide • payments in SOCIAL SECURITY PENSIONS and NREGA • schemes. • SWABHIMAAN launched on 10th February 2011, is a step • to take banks to the doorstep of Rural India instead of • the latter having to go in search of banks. • 73,000 identified habitations have been covered under • “Swabhimaan” campaign by 31st March, 2012. • In 2012-13, “Swabhimaan” campaign to be extended to • more habitations as announced in the Budget 2012-13.

14. MICROFINANCE • Banks have been giving Bulk loans to Micro Finance Institutions & • Small Borrowers. • Till recently, there were 1659 MFI availing total credit of Rs 14,000 • crore from the bank in turn benefiting 30 million people across • India. • However in 2010-11, the sector ran into difficulty with reports of • unfair practices by MFI to recover Loan. • Banks also extending micro-finance program in the country • through SELF-HELP GROUP (SHG)-BANK LINKAGE • PROGRAMME. • Thus reaching POOREST OF POOR

15. FINANCIAL ASSISTANCE TO MSMEs • MSME (MICRO, SMALL and MEDIUM ENTERPRISE) sector • employs an estimated 59.7 million persons spread over 26.1 million • enterprises. • MSME sector accounts for about 45% of the manufacturing output • and around 40% of the total export of the country.  • MSMEs are nursery to INDUSTRIALISATION. • Understanding this need, banking sector have been extending its • arm to strengthen the BACKBONE of INDIAN ECONOMY • Around Rs 4.64 Lakh crore outstanding to MSE as on March • 2011, out of which 81% of the credit is provided by public Sector • banks.

16. PRIORITY SECTOR LENDING • A target of 40 per cent of Adjusted Net Bank Credit (ANBC) has • been stipulated for lending to the priority sector by domestic • SCBs. • Within this, sub-targets of 18 per cent and 10 per cent of ANBC • have been stipulated for lending to agriculture and the weaker • sections respectively. • Over the period 2005-06 to 2010-11, there have been 3 times • increase in lending to the priority sector.

17. ENCOURAGING CONSUMPTION THROUGH RETAIL LENDING • Banks are having bouquet of retail lending products like Housing Loans, Vehicles • Loans, Consumer Loan, Mortgage Loans etc. • These products can now be focused on BHARAT to bring parity in retail finance • between the Urban and Rural. • BANKS have been financing the FMCG companies which are investing in rural areas. • Rural India, in turn, consumes products sold by these companies. This consumption • boom drives GDP growth. • There have been massive increase in consumption in Rural India than Urban India • between 2001 & 2011 as per census data:

18. INFRASTRUCTURE FINANCING • The Eleventh Five Year Plan emphasized the need for • removing infrastructure bottlenecks for sustained • growth. • An investment of Rs 45 lakh crore (for about US$ 1 • trillion) has been projected during the Twelfth five year • plan in infrastructure sectors through a mix of public and • private sectors. • Government has been taking various initiatives to create • conducive environment to attract large scale investment • into infrastructure.

19. INFRASTRUCTURE FINANCING • A greater thrust is given on financial sector in general • & banking sector in particular for infrastructure • financing. • Net bank credit to infrastructure finance have • increased five times over the period 2006-07 to • 2010-11. • There have been continuous efforts to come up with • innovative way of financing infrastructure. Take out • financing is one of them.

20. INFORNATION TECHNOLOGY • The IT initiatives have been taking on a • “ENABLER/PERFORMER/TRANSFORMER” role • in financial services companies and making a • positive contribution to innovation • Level of satisfaction with IT performance is • definitely driving Business Innovation and • Change • IT in financial services appears to be quite mature • in managing service delivery

21. INFORNATION TECHNOLOGY • The IT function has track record of regularly • exceeding expectations • Higher emphasis on customer services is reflected by • outcome of Alternate Delivery Channels. • The financial sector is far more likely to use social • networking and micro-blogging sites to engage with • (Internal) stakeholders in the near future for • sustaining the growth of the business.

22. CHALLENGES & OUTLOOK • India's GDP is set to quadruple over the next ten years and Indian • economy is likely to be a US$ 4.5 trillion. As economy grows at a • fast pace, the demand for credit will also rise and thus role of banks • to cater to the needs of growing economy will rise. • The proportion of working age population (15-59 years) is likely to • rise from around 58% in 2001 to over 64% by 2021. • This 'demographic dividend' provides India great opportunities, but • also poses a great challenge.

23. CHALLENGES & OUTLOOK • The development of financial sector is critically dependent on • financial inclusion. Banks need to take various behavioral and • motivational attributes of potential consumers for financial inclusion • to succeed. • A major challenge in the times ahead would be to meet financing • requirements, particularly of the Infrastructure, Unorganized sector • and the Self-employed in the micro and small business sector. • The UIDAI's Aadhaar project for providing unique identity numbers • to residents, has huge potential to improve the delivery of social • sector schemes like rural employment guarantee.

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