FINANCIAL and cause embarrassment to the authorities when direct

FINANCIALINCLUSIONThere havebeen some recent reports of malpractices with respect to Jan Dhan accounts. Inthis context, it may be interesting to know the grass-root level challengesthat are impacting financial inclusion.In India,where nearly one-fourth of population is illiterate and below the poverty line,ensuring financial inclusion is a challenge. The two indicators, poverty andilliteracy, vary widely between different States in India.

Rural poverty isabove 30 per cent of population in places such as Assam, Bihar, Madhya Pradesh,Uttar Pradesh, Orissa, Jharkhand, Chhattisgarh, and Manipur. Rural poverty canbe attributed to lower farm income, lack of sustainable livelihood, lack ofskills, under employment and unemployment. Thus, ensuring deposit operations inthese accounts is a challenge.REASON BEHIND FRAUD?? India hasa literacy rate of 73 per cent with some States such as Bihar, Uttar Pradesh,Jharkhand, Madhya Pradesh and Rajasthan where the literacy rate ranges between62 per cent and 70 per cent. The banks have devised ways to address limitationsarising out of illiteracy by ensuring biometric access to bank accounts.However, Aadhaar seeding implies that some numericals have still to be punchedin the machine to operate an account.

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As all the numerals are in English, onlythe banker or the business correspondent (BC) can punch in the Aadhaar number.Similarly, the messages that are received on mobile phones from banks are alsoin English and therefore the illiterate person has to seek someone’s assistanceto understand and interpret the message.In each ofthe above cases, the privacy of an individual’s bank balance is breached. Thismakes the illiterates, and population confined at home – females and elderly –vulnerable to malpractices.

There are also anecdotes that enterprising BCs, toensure ease of business, give the same Personal Identification Number (PIN) toall the residents in a single village. This can further compromise privacy andcause embarrassment to the authorities when direct benefit transfers throughbank accounts are implemented on a larger scale. Therefore, a financialinclusion strategy sensitive to regional, demographic and gender relatedfactors, needs to be carefully crafted.

Further, itneeds to be considered that why despite extensive efforts from authorities, thePrime Minister’s Jan Dhan Accounts (PMJDA) have underperformed. This could be,in addition to poverty and illiteracy, due to the type of products beingoffered to the unbanked population. Illustratively, recurring deposits areproducts which are more suitable to the salaried income group rather thanpeople in informal sector whose incomes are uncertain, seasonal and unplanned.OPENING OPERATIONAL ACCOUNTS- In theopening of PMJDA, mainly public sector banks (PSBs) rose to the occasion inensuring that every unbanked household had a bank account. Now that 25 crorePMJDAs have been opened in the last two years, a feat unparalleled in historyof financial inclusion, it needs to be considered whether is it also theresponsibility of the PSBs to ensure that these are operational.

Theopening of PMJDA was a mammoth task, as in March 2014 just before PMJDA, totalaccounts on books of commercial banks were around 1 lakh crore. As can be imagined,given the limited resources in banking sector, opening of such large number ofPMJDA within 24 months in far flung areas diverted the attention of bankersfrom their principal activity of mobilizing resources and lending to reliableborrowers.The nextchallenge is monitoring existing borrower accounts. Therefore, to ensure thatthe banking industry is robust and existing banking assets safe, given thatheavy lifting has been done by PSBs, should the newly opened PMJDA in ruralareas and some in urban too, in a sequentially planned manner be moved to ruraland urban cooperatives?Further,at present, there are a number of regulatory authorities that have a role toplay in financial inclusion – Reserve Bank, National Bank for Agriculture andRural Development (NABARD), Securities and Exchange Board of India, SmallIndustries and Development Bank of India, and MUDRA bank.

There is a need tofix responsibility on a single regulatory authority to ensure that JDAs areoperational. In this context, given that NABARD has an extensive presenceacross the country and was formed for the purpose of development of agricultureand rural areas, it should be made the nodal and accountable agency forfinancial inclusion. NABARD may not have the existing capacity, as of now, toaccept the challenge but can certainly be prepared in a phased manner in nextfew years. It has been investing in modernizing, and infusing technology incooperative institutions.INFLUENCE FORMED BY MONEYLENDERS- There isalso need for further research on why the moneylender despite persistentefforts by institutions in formal sector has continued to flourish in thefinancial market. Money lenders continue to account for nearly 30 per cent oftotal banking business. This then gives rise to an interesting relatedquestion: do interest rates matter?In moderntimes, if interest rate matters, why do people prefer to go to moneylenders,despite a network of banks, cooperatives, MFIs and SHGs? Is it simply due toease of doing business or some other factors? This is one area which requiresgrass-root level research.

One of themain reason behind this activity is the illiteracy prevailing in India. Peoplein remote parts of India are incapable in analyzing the harmful effects oftaking money from the moneylenders. Ideally it is a matter of concern theentire economic development of the country and it also promotes illegalactivities on a large scale. CHALLENGES FACED IN THE E-BANKING SECTOR –SecurityRisk- The problem related to the security has become oneof the major concerns for banks. A large group of customers refuses to opt fore-banking facilities due to uncertainty and security concerns. TheTrust Factor- Trust is the biggest hurdle to onlinebanking for most of the customers. Conventional banking is preferred by thecustomers because of lack of trust on the online security. They have aperception that online transaction is risky due to which frauds can take place.

CustomerAwareness- Awareness among consumers about thee-banking facilities and procedures is still at lower side in Indian scenario.Banks are not able to disseminate proper information about the use, benefitsand facility of internet banking Privacyrisk- The risk of disclosing private information of identity theft is one of the major factors that inhibit the consumerswhile opting for internet banking services. Most of the consumers believe thatusing online banking services make them vulnerable to identity theft.

Strengtheningthe public support- In developing countries, in thepast, most e-finance initiatives have been the result of joint efforts betweenthe private and public sectors. If the public sector does not have thenecessary resources to implement the projects it is important that jointefforts between public and private sectors along with the multilateral agencieslike the World Bank, be developed to enable public support for e-financerelated initiatives. Availabilityof Personnel services- In present times, banks are toprovide several services like social banking with financial possibilities,selective up gradation, computerization and innovative mechanization, bettercustomer services, effective managerial culture, internal supervision andcontrol, adequate profitability, strong organization culture etc. Therefore,banks must be able to provide complete personnel service to the customers whocome with expectations. Implementationof global technology- There is a need to have anadequate level of infrastructure and human capacity building before thedeveloping countries can adopt global technology for their local requirements.In developing countries, many consumers either do not trust or do not access tothe necessary infrastructure to be able to process e-payments. Non-Performing Assets (NPA)- Nonperforming assets are anotherchallenge to the banking sector. Vehicle loans and unsecured loans increasesN.

P.A. which terms 50% of banks retail portfolio was also hit due to upwardmovement in interest rates, restrictions on collection practices and soaringreal estate prices. So that every bank have to take care about regularrepayment of loans. Competition-The nationalized banks and commercial banks have the competition from foreignand new private sector banks.

Competition in banking sector brings variouschallenges before the banks such as product positioning, innovative ideas andchannels, new market trends, cross selling ad at managerial and organizationalpart this system needs to be manage, assets and contain risk. HandlingTechnology- Developing or acquiring the righttechnology, deploying it optimally and then leveraging it to the maximum extentis essential to achieve and maintain high service and efficiency standardswhile remaining cost effective and delivering sustainable return toshareholders. Early adopters of technology acquire significant competitiveadvances Managing technology is therefore, a key challenge for the Indianbanking sector.ChallengesFaced with regard to convergence with IFRS-There are number of challengesthat India is likely to face with regard to convergence with IFRS.

Convergencewith IFRS is not only just technical exercise but also involves overall changesin not only the perspective, but also the very objective of accounting in thecountry. Despite of the various benefits of adopting IFRS, implementation ofIFRS is a herculean task in India. Following are a few challenges faced duringadoption and implementation of IFRS-Interactionbetween Legislation and Accounting- There are concernsabout the compatibility of Indian laws with IFRS in certain matters pertainingto accounting, such as formats and presentation requirements.

Similarly, thereis uncertainty over tax treatments of items arising from convergence such asunrealized gains and losses and the move from a tax basis for depreciation(IGAAP) to one of useful economic life (IFRS). Issueof GAAP Reconciliation- Securities Exchange Commission(SEC) laid out with two options in its proposal, firstly calling for thetraditional IFRS first time adoption process, secondly requiring that step plusan on-going unaudited reconciliation of the financial statements from IFRS toUS GAAP. Clearly the second one is a more costly approach for firms and itsusers. EfficientFinancial Reporting Processes- Although many Indiancompanies have still not thought about the impact on their information systems.These will require a fundamental review and initial costs could be significant.At the same time, it is important to have in place sound systems in order toensure that subsequent generation of reporting information is efficient. Taxation-The convergence of IFRS in India will not only affect the Financial Statementsbut also the tax liabilities would also get changed.

Present scenario, IndianTax laws do not recognize the Accounting Standards. To entertain immediatechange in the Indian Tax Law is the major challenge faced by the Indian Lawmakers. Re-negotiationof Contract- The contracts would have to bere-negotiated which is also a big challenge. This is because the financialresults under IFRS are likely to be very different from those under the IndianGAAP.