Union Finance Minister P. Chidambaram on Friday exhorted state-run banks to mobilise funds through low-cost deposits for mitigating the burden of high interest rates.
"There is enough money/liquidity in the system. There is much higher disposable money in the hands of everyone. Banks should rapidly expand low-cost deposits to mitigate the burden of high interest rates," Chidambaram said at a function of the state-run Corporation Bank in New Delhi.
Lamenting that millions of Indians were still outside the banking system, Chidambaram said there were enough people to open current account or savings account (CASA) so as to ensure inclusive growth.
"Banks must make a determined drive in the current fiscal (2008-09) to increase their CASA deposits. All state-run banks should aim to grow their CASA to 40 percent of their total deposits, as it was the only way to grow through in hard times," the minister asserted.
Alluding to the market buzz in rural India where a lot of buying and selling activity was taking place, Chidambaram said regrettably the money transacted remained outside the banking system.
"As there is enough money in circulation across rural and urban India, banks should encourage people to open CASA in their branches, which in turn will help them (banks) to lower the cost of money," he noted.
Advising banks to set a target for every employee in mobilising CASA deposits, Chidambaram said the rising aspirations of the people showed there was enough money in the system that remained untapped.
By using technology and improving efficiency, the banking reach can be expanded to those sections of society which are still out of financial inclusion and are at the mercy of money lenders.
Referring to the changing dynamics of rural India, Chidambaram said gone are the days when people would ask their elected representatives for a water tank or a school in their village. Instead, the people want state-run banks to open a branch with an ATM (automatic teller machine) facility to meet their rising aspirations.
Since banks cannot open branches in every village, technology and human capital can be leveraged to reach out the masses. Banks should explore the business correspondent model to rope in more people into the financial system.
Advocating a pro-active role for banks in the agriculture sector, Chidambaram said during the four-year UPA government tenure, about 120 million farming families were brought into the financial system by providing low-interest credit, debt relief package and a host of subsidies.
"Farm credit has been increased substantially during the last three years, reaching Rs.2.5 trillion in 2007-08 from Rs.860 billion in 2004-05. We aim to exceed the Rs.2.8-trillion target set for this fiscal (2008-09) and touch Rs.3 trillion," Chidambaram added.
Later, the finance minister unveiled Corporation Bank's life insurance product (Janashree Bima Yojana) for self-help groups in association with the state-run Life Insurance Corporation of India (LIC).
He also digitally inaugurated the 1000th and 1001st branches of the bank, located in Bangalore and at Sidlaghatta in Chikkaballarpura district, about 90 km from the city.