Addressing the Tenth Annual International Seminar on Policy Challenges for the Financial Sector in Washington, the Deputy Governor, Reserve Bank of India, Smt. Usha Thorat, discussed the dynamics between financial inclusion and financial regulations for ensuring a formal financial system that delivers affordable financial services to the excluded population without compromising on acceptable levels of safety and reliability.The Seminar was co-hosted by the Board of Governors of the Federal Reserve System, the International Monetary Fund, and the World Bank at Washington on June 2-4, 2010.
Focussing on the approach of regulating non-bank intermediaries, Ms. Usha discussed the issue of allowing NBFCs especially microfinance companies to provide savings facilities and deposit products for their clients. Highlighting the difficulties in ensuring effective supervision of large number of small deposit taking entities and the constraints in extending deposit insurance to such entities, she said, “Hence fresh approvals to NBFCs for accepting deposits are not considered, while capital, liquidity and leverage requirements have been tightened for those already permitted to do so.”
As for the microfinance companies acting as business correspondents of banks for branchless banking, RBI is currently examining the proposition and is evaluating the risks such as conflicts of interest, co-mingling of funds, misrepresentation and other agency related risks to safeguard the interests of the consumers. Ms. Usha recognized the fact that non-bank non-financial entities have also emerged as active players in financial inclusion by offering banks customised payments and remittance services to their customers based on innovative ICT solutions. There performance however may deteriorate if combined with financial businesses due to conflicting interests, she added.