The government of West Bengal had wanted to start a savings scheme for the poor people in the state, one with a rate of interest comparable to any bank. But the Reserve Bank of India did not allow state governments to run savings schemes. However, RBI later changed its rules to clear the decks for such schemes, in which nationalised banks can participate. Thus the first such scheme in India came into effect on November 6, 2013 in West Bengal.
This scheme, called Safe Savings Scheme, is expected to be a big step towards financial inclusion in the state. Financial inclusion implies the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low-income groups. Hence, the savings accounts created through this scheme for the poor would be no-frills accounts. Minimum formalities would be required related to customer identification. This is important to get the poor to open accounts, as they often lack such documents as birth certificates to prove their dates of birth, having little access to proper hospitals.
Need for financial inclusion
Unrestrained access to public goods and services is indispensible for an open and efficient society. As banking services are for the public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy.
With the aim of financial inclusion, the Reserve Bank of India had, on September 23, announced the appointment of a Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households. Towards this end, last June, global analytical company, CRISIL launched CRISIL Inclusix, an index that measures progress in financial inclusion across the country.
Key objectives of financial inclusion
>> To extend the formal banking system among the less privileged in urban and rural India.
>> To wean them away from unorganised money markets and moneylenders.
>> To equip them with the confidence to make informed financial decisions.
India not financially inclusive
India is home to the largest unbanked population in the world. According to the latest World Bank report on global financial inclusion, only 33% of people above 15 years of age have an account at a formal financial institution. Hence, majority of adults across the country are excluded from the formal financial system. Over the past eight years, RBI has mandated and worked with financial institutions to open almost 100 million no-frills accounts targeting the poor across India. A lot needs to be done still, though, as India is a vast country.
As per the CRISIL Inclusix index, West Bengal lies at the bottom among the large states. Only Kolkata district in West Bengal features among the top 50 districts in India. West Bengal, along with Maharashtra, also demonstrates the highest disparity among districts.
West Bengal comes up with a winner
Hence from the above data, it is apparent that a lot of work remains to be done. In this context, the new Safe Savings Scheme of West Bengal comes as welcome news. It is expected to open up opportunities for the vast numbers of the poor of the state to save money on easy government-backed terms and earn interest on them, rather than keeping them at home and using them up, often unwisely.
Salient points about the scheme:
>> The scheme is called Safe Savings Scheme (3S)
>> The scheme would be run by the West Bengal Infrastructure Development Finance Corporation (WBIDFC)
>> For a start, it has tied up with United Bank of India as a partner. Other nationalised banks are expected to follow suit.
>> WBIDFC will engage 30,000 agents to mobilise deposits in the designated banks
>> At the same time, WBIDFC will submit a request to the banks seeking to transfer the amounts to itself
>> The agents will help the poor open no-frills savings accounts at partner banks
>> Being no-frills accounts, there will be minimum customer identification formalities.
>> 3S will earn people returns that are higher than the National Small Savings Schemes run by the Centre through post offices
>> Deposits in multiples of Rs. 1,000 can be made for 1 year to 5 years, earning interest rates varying between 9 and 9.25%
>> The interests would be paid by WBIDFC, which is a government outfit
Leading the way
Considering the lack of financial inclusion in India, the Safe Savings Scheme can act as a torch-bearer for other states to come up with similar schemes. Hence, the state can play a leading role in improving the saving habits of people in the country, and
Written by Anushtup Haldar for Team M3.tv