One of the first initiatives that the new RBI Governor Mr Raghuram Rajan took after assuming office a few months back was the formation of the Nachiket Mor committee on “Comprehensive Financial Services for Small Businesses and Low Income Households”.
Now the committee which was set up only in September 2013 has submitted its report at the same speed with which Raghuram Rajan displayed on the licensing of new banks. RBI released a copy of the report on january 7th for public comments. The Comments may be emailed or sent by post to the Principal Chief General Manager, Rural Planning and Credit Department, Reserve Bank of India, Central Office, 10th floor, Shahid Bhagat Singh Marg, Mumbai 400 001 on or before January 24, 2014.
The committee has made several radical recommendations and while laying down its vision statement for financial inclusion and deepening, has suggested providing a universal bank account to all Indians above the age of eighteen years and has recommended a Vertically Differentiated Banking System with Payments Banks for Deposits & Payments and Wholesale Banks for credit outreach with relaxed entry point norms of ` 50 crore.
On priority sector, the Committee has recommended Adjusted Priority Sector Lending Target of 50 per cent against the current requirement of 40 per cent with sectoral and regional weightages based on the level of difficulty in lending. The Committee has also recommended risks and liquidity transfers through markets.
The Committee has advocated regulatory convergence between banks and NBFCs based on the principle of neutrality with regard to classification of non-performing assets and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 eligibility.
The Committee has suggested that a State Finance Regulatory Commission (SFRC) be created into which all the existing State Government-level regulators could be merged and functions like the regulation of Non-Government Organisations-Micro Finance Institutions and local Money Services Business could be added on.
The Committee has desired that the Reserve Bank should issue regulations on suitability, applicable specifically for individuals and small businesses, to all regulated entities within its purview so that the violation of such regulations would result in penal action for the institution as contemplated under the relevant statutes through a variety of measures, including fines, cease-and-desist orders, and modification and cancellation of licences.
The recommendations are radical and will have significant impact on the Banking and Financial sector in India and will also significantly affect the stock markets. It will also affect the proposed new Banking licensee aspirants.
In view of the nature of some of the recommendations that may also affect security of public money, it is essential for experts in the field to study the report and submit their comments to RBI in time.
Mr M.S.Sriram, a former professor of IIM Ahmedabad opines has published an interesting article titled “Why the Nachiket Mor committee report on financial inclusion disappoints” in livemint.com which makes a good reading to begin your exploration of the report.