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Financial Inclusion

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Financial Inclusion

Financial inclusion is an important priority of the government. The objective is to ensure the excluded sections, i.e., weaker sections and low-income groups, access to various financial services such as a basic savings bank account, need-based credit, remittance facility, insurance, and pension.

The government has recently launched an effective scheme to promote the cause of financial inclusion—the PMJDY:

Pradhan Mantri Jan-Dhan Yojana

To achieve the objective of financial inclusion by extending financial services to the large hitherto the unserved population of the country and to unlock its growth potential, the Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched on 28 August 2014. The Yojana envisages—

(i) Universal access to banking facilities with at least one basic banking account for every household,
(ii) Financial literacy, access to credit and insurance.
(iii) The beneficiaries will receive a RuPay Debit Card having inbuilt accident insurance cover of Rs1 lakh.
(iv) In addition, there is a life insurance cover of Rs. 30,000 to those who opened their bank accounts for the first time between 15 August 2014 and 26 January 2015 and meet other eligibility conditions of the Yojana.

The Yojana has entered the Guinness World Records for opening most bank accounts during the week starting 23 August 2014 as part of the financial campaign. As on 28 January 2015, 12.31 crore bank accounts have been opened, of which 7.36 crore are in rural areas and 4.95 crores in urban areas. Under the PMJDY, 67.5 percent of the accounts as on January 28, 2015, is with zero balance.

ALM Of Banks

Banks have been faced with Asset-Liability Management (ALM) problems in recent times due to their existing long-term loans forwarded to certain sectors, viz., infrastructure, core sector, and real estate sector. Again, raising new funds for new projects in these sectors had become quite difficult for the banks. These sectors constitute the major portion of banks’ non-performing assests.

Banks have been seeking permission for longer tenor amortization of the loan with the periodic refinancing of balance debt. Banks have been raising resources in a significant way, issuance of long-term bonds for funding loans to infrastructure sector has not picked up at all. Infrastructure and core industries projects are characterized by long gestation periods and large capital investments. The long maturities of such project loans consist of the initial construction period and the economic life of the asset/underlying concession period (usually 25–30 years).

In pursuance of the Union Budget 2015–16, the RBI announced ‘eased’ norms in July 2015 for the banks to take care of the Asset–Liability Management issues of the banks, which are as follows:

(i) Banks allowed to raise fund through long-term bonds (with a maturity period of not less than 7 years),
(ii) Such bonds exempted from the mandatory regulatory norms such as the CRR, SLR, and PSL.
(iii) Such funds to be used to finance longterm projects in infrastructure, core sector and affordable housing. Affordable the housing means loans eligible under the priority sector lending (PSL), and loans up to Rs.50 lakh to individuals for houses costing up to Rs.65 lakh located in the six metropolitan centers. For other areas, it covers loans of Rs.40 lakh for houses with values up to Rs.50 lakh.
(iv) Banks can extend long term loans with flexible structuring to absorb potential adverse contingencies, known as the 5/25 structure. Under the 5/25 structure, a bank may fix a longer amortization period (25 years) with periodic refinancing (every 5 years.

India is looking at investing the US $1 trillion in infrastructure development by 2017, half of which is expected to come from the private sector. The instructions announced by the RBI are in pursuance of the Union Budget 2015–16 announcement.

Gold Investment Schemes

Two new gold investment schemes were launched by the Government of India by November 2015—the Sovereign Gold Bonds and Gold Monetization Schemes. The schemes are aimed at twin objectives:

(i) Reducing the demand for physical gold; and
(ii) Shifting a part of the gold imported every year for investment purposes into financial savings.

Brief feature of the schemes are as given below:

Sovereign Gold Bonds

These are issued by RBI on behalf of the GoI in rupees and denominated in grams of gold and restricted for sale to the resident Indian entities only, both in demand and paper form. The minimum and maximum investment limits are two grams and 500 grams of gold per person per fiscal year, respectively. The rate of interest for the year 2015–16 was 2.75 percent per annum, payable on a half-yearly basis. The tenor of the Bond is for a period of 8 years with exit option from 5th year onwards. KYC norms are the same as that for gold. Exemption from capital gains tax is also available. Redemption is made in the rupee value equivalent to the price of gold at the time of maturity.

Gold Monetisation Scheme

In this scheme, BIS (Bureau of Indian Standards) certified CPTCs (Collection, Purity Testing Centres) collect the gold from the customer on behalf of the banks. The minimum quantity of gold (bullion or jewellery) which can be deposited is 30 grams and there is no limit for maximum deposit.

Gold Saving Account can be opened with any of the designated bank and denomination in grams of gold for short-term period of 1–3 years, a medium-term period of 5–7 years and a longterm period of 12–15 years. The CPTCs transfer the gold to the refiners. The banks will have a tripartite/bipartite legal agreement with refiners and CPTCs.

For the year 2015–16 interest rates were fixed at 2.25 percent and 2.5 percent for the medium and long- term, respectively. Redemption is made in cash/gold for short term and in cash for medium and long term deposits.

The difference between the current borrowing cost for the government and the interest rate paid by the government under the medium/long term deposit will be credited to the Gold Reserve Fund.

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