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FinMin-RBI tension resurfaces

December 26, 2013 09:21 IST

FinMin-RBI tension resurfaces

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Manojit Saha in Mumbai

Banks are in a tight spot as ministry wants them to open ATMs at all rural branches.


After a period of relative calm for a few months, the tension between the finance ministry and the Reserve Bank of India (RBI) seems to have resurfaced. The source of the dissonance this time is a finance ministry diktat that public-sector banks must open automated teller machines (ATMs) at all rural branches.

This is required to meet the financial-inclusion objectives, the Department of Financial Services, under the finance ministry, has said in a communiqué to government-run banks. But central bank officials are not amused. They see this as an attempt to enter the turf of RBI, which regulates the country’s banks.

According to central banking sources, RBI Governor Raghuram Rajan has been briefed about all government instructions to banks that are seen as trespassing into areas under RBI’s jurisdiction.

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Photographs: Andy Clark/Reuters

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The directive from the ministry has put banks in a tight spot. According to them, there are several challenges in opening ATMs at rural branches. Apart from lack of infrastructure and security, the biggest issue is the economic viability of rural ATMs.

“At least 60 per cent of the ATMs in rural areas have less than 75 users, which is seen as a break-even point,” said a senior banker.

As on March 31, 2013, the number of ATMs in rural India was 11,564, about 10 per cent of the total ATMs in the country. Rural ATMs’ share in total was the highest for public-sector banks (12.3 per cent). Old-generation private-sector banks followed, with 10.2 per cent of their ATMs in rural areas.

Such a communiqué from the ministry has come after a long time, say sources. During 2011-12, when Pranab Mukherjee was the finance minister and D K Mittal the secretary in the Department of Financial Services, the ministry sent directives to public-sector banks quite regularly. This had led former RBI Governor D Subbrarao to alert the finance ministry about its jurisdiction.

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Photographs: Reuters

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Immediately after taking charge as finance minister in August 2012, P Chidambaram had assured banks that no communication would be sent to them without his approval. Things were fine until the first week of December.

To make the matters worse, the ministry has not only stopped at sending instructions to government-owned banks, but has also started conducting weekly meetings with executive directors of all banks to take stock of the progress made in financial inclusion.

Interestingly, the financial-inclusion plan had been finalised and scrutinised by the central bank. According to RBI, considerable progress has been made in financial inclusion in the past three years, with all identified unbanked villages now getting banking presence.


Photographs: Anindito Mukherjee/Reuters

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