DISCUSSION
banks”. At the same time the report
Misreading the Recommendations
Mohinder Kumar Arora
S S Sangwan’s (EPW, 26 July
2014) refutation of the Nachiket
Mor Committee report, based on
a survey in rural Punjab which
finds that rural residents prefer
commercial banks to regional
banks, is contested here. It is
argued here that Sangwan has
misread the recommendations
of the committee, which is well
aware of the varied banking
needs of different populations,
and does not emphasise
regional banks as a universal
solution for greater financial
inclusion, as Sangwan claims.
The report in fact argues
for a mix of banking models
supported by technology, in what
is termed as “comprehensive
financial services”.
Mohinder Kumar Arora (mohinder.kumar@
nabard.org) is Assistant General Manager,
NABARD, Jammu and Kashmir Regional
Office, Jammu.
128
I
read “Bank Preference for Financial
Inclusion in Rural Punjab” (EPW,
26 July 2014) by S S Sangwan with
interest. The approach and conclusions
drawn by the author are problematic and
not universally “true for other areas of the
country” as claimed. To begin with,
Sangwan misreads the Nachiket Mor
Committee (NMC) report and ends up
misquoting it; second, the article offers a
misplaced conclusion.
Uninformed village residents, devoid
of varied and full options of banks and
banking facilities, are subject to inquir-
ies in surveys to indicate “bank prefer-
ences”. Their constrained and guarded
opinions are used narrowly by the author
to disprove recommendations of the
NMC report, to force the conclusion that
small branches of commercial banks are
the “preferred option” over regional banks
for financial inclusion. The NMC report is
misinterpreted by Sangwan, and is not
about promoting financial inclusion in a
conventional form, which has failed so
far; it goes beyond, to imbibe global and
historical perspectives of financial deep-
ening and aims high – at efficient and
comprehensive financial services (CFS)
supported by technology.
The NMC report places high potential
value on “national banks” as “valuable
national resource” (RBI 2014: 64), but
this is misquoted by Sangwan to say
that the report “favours regional
banks”. The report basically aspires to
see small-business and low-income-
household customers graduate from
sporadic local branch relationships to
integrated relationships with national
banks just like higher income house-
holds, larger businesses and corporate
houses. In this context, the report only
stated that the “bank branch” (RBI 2014:
64) is neither effective nor efficient, but
this is misquoted by Sangwan to ascribe
this apparently negative trait to the
entire “banking system i e commercial
SEPTEMBER 27, 2014
treated the “bank branch” as an “invalu-
able channel” and a “gateway to national
banks” to differentiate it from “national
banks” on the basis of functionality
(RBI 2014: 64). It is to be construed as
Adam Smith’s social (national and
regional) division of labour (functions),
relying on specialisation and coopera-
tion among bank branches, replacing
Darwinian economic selection that rests
on exclusivist cut-throat competition
among bank monopolies indicated by
the article.
Ignoring Important Questions
The article overlooks that the report
conceived branches to “free-up capa-
city” (RBI 2014: 64) for high-value loans
and comprehensive services, even as it
expressed valid concerns about the branch
as a “very high cost-to-serve channel”.
The report located the root of the trou-
ble in small-value deposits, nil balances
(unused “no-frills” savings accounts)
and risky assets or credit products. Does
the existing form of financial inclusion
render branches financially vulnerable?
The article ignores this pertinent ques-
tion to miss the report’s emphasis on
“maximising profitability” (RBI 2014:
64) by alleviating functions of branches
considered “invaluable” with potential.
Further, the NMC report did not rec-
ommend a single “banking design” led
by “regional banks”, as misquoted by
Sangwan, but a rich mix of all banks
and designs of the banking system as
per the needs of the economy that are
flexible to suit changing requirements.
Plausibly the NMC aspired to spare
branches for high-value businesses,
while “routine customers” could be at-
tended by a multiplicity of “agent based
models” (RBI 2014: 64). Unfortunately,
the article dilutes and diverts the
issue to prove commercial-bank-branch-
based financial inclusion to be the most
preferred, without concern for feasi-
bility of branches except through
fee received from enhanced usage of
DBT accounts.
Financial deepening and CFS must be
problems as much for bank-branches
vol xlIX no 39 EPW Economic & Political Weekly

(supply side) as for rural populations
(demand side). In an ideal situation,
both sides cooperate and merge to create
and feel a collective necessity of financial
services for mutual benefit. Therefore, a
better approach may have been to first
conduct a survey of 20 commercial bank
branches to compile data on financial
services delivered to 72 surrounding vil-
lages in general and 491 households of
two sample villages in particular. It may
have documented attitudinal patterns
and branch profitability (pre- and post-
financial inclusion), which would be
useful in dispelling fears of critics about
poor implementability of the road map
recommended by the NMC. It is not com-
mon knowledge that the Committee on
Financial Inclusion under C Rangarajan
made a point of departure by conducting
a field study of attitudes of branch man-
agers. If a branch is not keen or shows
apathy, the plan/road map may not be
implemented, howsoever implementable
it is. Functional comfort and staff (dedi-
cation, sensitisation, adequacy), and not
profitability is the priority of a branch,
and human resource pressures are nor-
mally ignored, for which reason the NMC
recommended trying multiple “agent
based models” (RBI 2014: 64). Emphasis
on “profitability” by the NMC implicitly
necessitated a survey of branches and
study of village production systems.
Awareness of DBT and opinions of villag-
ers are limited approaches to analyse
the problems of CFS.
Just a Wish List
If the supply side is subject to constant
constraints, villagers’ opinions become a
wish list and will not matter. Khamanon
tehsil town with 72 surrounding villages
does not have any alternative except 20
commercial bank branches which the
NMC in its report called “clones of each
other” (RBI 2014: 4). These 20 commercial
branches located in town made the least
effort to deliver all services including
credit to the 72 surrounding villages.
Even DBTs were far from encouraging.
The supply side was choked, which
should have been studied systematically.
Sangwan shows an uncritical bias for
commercial banks and ignores coopera-
tive banks, regional rural banks (RRBs),
Economic & Political Weekly EPW SEPTEMBER 27, 2014
and a multiplicity of banking systems
based on pluralist approaches, for no
valid reason. From a historical perspec-
tive, a paper (Kumar 2007) reasonably
argued, with respect to agriculture, for
having compatibility and adaptability
between credit/banking system on one
hand and the mode of production on the
other. Global perspectives, likewise,
guided the NMC to recommend suitability.
The history of banking proves that sur-
vival of customers and banks, in a gen-
eral sense, depends on determinants of
compatibility, suitability, adaptability
and acceptability. But the question is
what should “adapt” to whom? If agri-
cultural production system is subsist-
ence-based or trapped at below-subsist-
ence levels, forcing small farmers to
depend on fair price shop for subsidised
foodgrains for 6-8 months every year
(e g, in Jammu and Kashmir), then can
we advise commercial bank branches to
“adapt” to subsistence agri-systems and
finance such producers, and for how
long? Banking needs economics and
economics needs political freedom.
Unabated “adapting” to the inherently
weak production systems of farmers,
artisans and small businesses could pre-
cipitate the collapse of the banking system
through branches, and the resurgence of
informal financing by medieval money-
lenders/feudal-traders. Banks may lend
money, go hand-in-hand, but cannot
continue to monitor end use so as to take
subsistence production processes out of
daily crises (Marx 1977). In the existing
mode of production moneylender/trader
and commercial bank branch unwittingly
interchanged their positions; but two
commercial bank branches see each
other as competition because two “play-
ing clones” strive for monopoly instead
of cooperation. Sangwan’s suggested
banking model of commercial bank
branches, concentrated on national high-
ways surrounded by villages with ATMs,
looks simplistic and lacks sound econom-
ic underpinnings, and tends to favour an
exploitative “centre-periphery” model
for concentration of financial resources
to create monopolies. Reverting to “ser-
vice area branch” approach suggested
by Sangwan would aid a monopolised
division of rural territory.
vol xlIX no 39
DISCUSSION
Social scientists and policymakers
need to be clear on whether the future
lies in promoting DBT-based banking,
perpetually based on below-subsistence
economy, or in sound systems producing
economic surpluses that become favour-
ite, attractive, and are chased by banks
for CFS. The industrial revolution in Eng-
land did not have to over-depend on
bank financing. German industrial de-
velopment was financed by savings co-
operatives. Pluralism and compatibility
guided banking in the developed world
(Kumar 2007).
Data on amount of savings deposits is
not reported, which could have given
readers a clearer idea of village economic
conditions. Sample villages are charac-
terised by economic differentiation and
transformation process with/without
financial inclusion; 50% of households are
engaged in government/private service,
small businesses, and household dairy.
Since branches are unable to scale up
these routine customers, agent-based
models should be applied. But the article
is silent on this issue. The article over-
looks current trends that suggest strength-
ening and repositioning of district central
cooperative banks (DCCB) and RRB
branches to deliver CFS at par with com-
mercial bank branches. The National
Bank for Agriculture and Rural Develop-
ment (NABARD) implements schemes of
core banking solution (CBS) for branches
of DCCB and RRB, and RuPay Kisan Credit
Card (KCC), i e, ATM/debit cards, for
DCCB. Almost 200 cooperative banks
and 6,800 cooperative branches are
fully on CBS platforms today. Why should
these various banks, enabled by techno-
logy, not be part of future designs of
banking systems? The article sidelines
and negates this question. The author’s
conclusions, based on opinion, are unre-
alistic, unreliable and far from being
universally “true”.
REFERENCES
Kumar, Mohinder (2007): “Rural Credit – Issues,
Contradictions and Perspectives”, Journal of
Rural Development, 26 (4): 461-82.
Marx, Karl (1977): Capital, Vol 3 (Moscow: Progress
Publishers).
RBI (2014): Report of the Committee on Comprehen-
sive Financial Services for Small Businesses and
Low Income Households, Reserve Bank of India,
Mumbai.
129