Mumbai, August 11: RBI Governor Raghuram Rajan today said the financial inclusion drive, likely to be announced by Prime Minister Narendra Modi on August 15, will break the link between poor public services, patronage and corruption. “It can break a link between poor public service, patronage, and corruption that is growing more worrisome,” Rajan said, delivering 20th Lalit Doshi memorial lecture here.

The drive is likely to include identifying the poor, creation of unique biometric identifiers, opening bank accounts linked to these identifiers and eventually transferring government subsidies to these accounts. “When fully rolled out, I believe it will give the poor the choice and respect as well as the services they had to beg for in the past,” Rajan said, adding that financial inclusion will be an important part of government’s and Reserve Bank’s plans for the coming years.

Rajan laid extra stress on the cash benefit transfers, saying “money liberates and empowers”. He also said profitability for banks is very crucial for the success of the scheme, and mentioned ideas like government paying the bank commission for transfers. To prevent the hazard of people squandering the money on alcohol, etc, Rajan said the money could be transferred to the women of the family, who are generally better spenders.

Other aspects such as linking the transfers to conditions like children attending the school regularly too can be looked at, he said.
Acknowledging that a corrupt monitor will vitiate the entire effort, Rajan advocated that we should still go ahead with the efforts and look for automation on monitoring wherever possible.

Coming out against the hazard of transfers making one addictive, Rajan stressed the need to use cash transfers as a tool to build capabilities in education and health-care, rather than using the resources only for inessential consumption. Still, if data on misspending emerges, we can look at alternatives such as giving some of the benefit in the form of electronic coupons which can be used by specified individual for a narrow purpose like food, education or health-care, Rajan said.

In the financial inclusion drive, RBI will play the role of enabler and undertake efforts like “to nudge” banks to offer all the basic products to address financial needs. Rajan also said the central bank is looking at re-examining KYC norms, to simplify them. He also stated that RBI’s efforts to open the payment banks and small local banks are directed at deepening the financial inclusion itself.
He said inclusion of new and inexperienced bank account holders will require protection, and hence RBI is beefing up ‘consumer protection code’ which will emphasise the need for simple and easy to understand banking products.

“We are strengthening the customer grievance redressal mechanism, while looking to expand supervision, market intelligence, and coordination with law and order to reduce the proliferation of fly-by-night operators,” he said. Additionally, RBI is also working with the government to expand the financial literacy, he said.