Mumbai, Jan 11 (KNN) The Reserve Bank Committee on Comprehensive Financial Services for Small Businesses and Low Income Households has suggested a system of risk weighs based on the difficult sectors and difficult regions where the credit has not reached, head of RBI panel on financial inclusion, Nachiket Mor has said.

"A lot of the priority sector credit is being absorbed by the existing developed states. You are not seeing it going to different areas. We say if you lend money there, you will get another 20 per cent weightage. The idea is to encourage banks to go in difficult areas and difficult sectors," Mor told reporters here yesterday. 

On the sectors, Mor said that the direct farm loans which he said have a cost of 25 per cent spent only in reaching a customer and in paper work, while the same for small businesses is 10 per cent. 

Speaking about the regions, Mor said that there is a need for incentivising the banks to go to the areas where they have little penetration on loan fronts.
 
Mor further said that the Committee has not recommended increase in the priority sector lending requirements for banks.  
"The committee recommends that the RBI revise the PSL targets and require banks to meet an adjusted PSL target of 50 per cent against the current requirement of 40 per cent." 

"We have not recommended an increase in PSL requirements, they remain at 40 per cent. If a bank did 40 per cent under current guidelines, they will get 50 per…,” he clarified.

The proposed payments banks, a new set of lenders suggested by the committee to widen the spread of financial services, can be created by converting prepaid payment issuers (PPIs), said the chairman of the panel.

Even other entities that are interested in the business can set up the payments banks, Mor said. Such banks can convert themselves into full-service banks over a period of time, he said.

Similarly, the proposed wholesale banks can come up through the conversion of non-banking finance companies, Mor said.

The process of giving entry to such banks should be decided by RBI, Mor said.

Early this week, the panel headed by Mor submitted a report on improving the financial inclusion process through the creation of dedicated banks and universal electronic bank account numbers for every citizen by January 2016.

Such banks will have a minimum entry capital requirement of Rs 50 crore, one-tenth of what a full-service bank requires, since they will have a near-zero risk of default, the panel said.

The Mor panel recommendations for dedicated banks for financial inclusion has come at a time when the central bank is in the process of giving entry to a third set of private banks in India’s Rs.81 trillion banking sector.

The target of having a bank account for all adults in India by 2016 is not too ambitious and can be achieved with progress made in Aadhaar number rollout, Mor said.

"We are saying right now there is a process (Aadhaar rollout) going on, open the bank account.... That's why 2016 is not a heroic goal, because we think the process will terminate by 2015," he told reporters.

The Committee had recommended setting a target of having a bank account for every adult in the country by January 2016.

It had said there should be a point of presence of banking system for withdrawals, payments, deposits within a 15 -minute walk by 2016. (KNN Bureau/SD)