The RBI urges banks to address credit gaps in underserved sectors

KOLKATA: Despite India’s progress in providing access to banking services across the country, micro and small business units, marginal farmers and members of self-help groups continue to suffer from lack of institutional credit and grassroots customers do not have access to comprehensive financial services.

“While credit supply to priority sectors has indeed improved, we still have a long way to go to meet the credit needs of small and medium enterprises,” Reserve Bank of India Deputy Governor Swaminathan J said last week. “Similarly, almost half of SHGs are still unlinked credit facilities, while a significant section of small and marginal farmers are not yet covered by bank credit.”

His comments were based on a review of the core parameters of the Financial Inclusion Index, developed by the central bank to measure the progress achieved on financial inclusion across three dimensions: access, use and quality of financial services.

“While some progress has been made in terms of access to buildings, much remains to be done to improve use and quality,” he said. “Deepening financial inclusion is not just about increasing the number of bank accounts, but about ensuring everyone has access to a comprehensive range of financial services tailored to their needs.

The remarks were made on June 19 during the State Level Bankers’ Committee Convenors’ Conference held at the College of Agricultural Banking, Pune.

The RBI released a copy of his speech on Monday. Deepening financial inclusion will include “savings, credit, insurance and investment products that can improve their economic well-being.” The data showed that the business correspondent model was used to increase access to banking.

“However, a recent study by the Reserve Bank indicates that cash banks largely provide only a limited set of services, namely cash deposit and withdrawal services, and that people in remote areas may still not have access to the full suite of banking services normally available in bank branches,” said the vice president.

Expanding lending, particularly to underserved sectors such as small and medium-sized enterprises, agriculture and marginalized communities, is essential to supporting inclusive economic growth and sustainable development.

“Addressing these credit gaps requires a multi-pronged effort in which SLBCs play a key role,” the RBI authority said.

He suggested that SLBCs should conduct detailed analyzes to identify the root causes of the lack of credit growth seen in several pockets.

“SLBCs can develop more targeted and effective credit plans. This approach will not only improve the flow of credit, but also ensure that it reaches the sectors and regions that need it most, thus supporting sustainable economic development,” he said, suggesting that banks should use leverage to make full use of technology to increasing financial inclusion and lending.

“Technology can be a game-changer…SLBCs should promote the use of fintech solutions to streamline banking operations and improve customer service,” he added.

Of the 785 districts, as of March, 179 districts are fully digital. Five states – Kerala, Telangana, Andhra Pradesh, Tripura and Tamil Nadu – have fully enabled the digital functioning of all their districts.