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recommended use of business correspondents and busi-
ness facilitators ‘riding on appropriate technology’ as a
core inclusion strategy. Apart from the categories of in-
dividuals and institutions already allowed to function as
BC/BF, the report recommended engaging non-banking
finance companies in the microfinance sector as lim-
ited BCs of banks for providing savings and remittance
services. As regards the SHG-bank linkage programme,
the suggestions in the report were more promotional in
nature. It however did not find merit in engaging SHG
federations as financial intermediaries.
Many of the recommendations of the RangarajanCom-
mittee have been reiterated by those that followed suit
and incorporated in subsequent policy pronouncements.
The Committee on Financial Sector Reforms (Chairman
Raghuram Rajan) in their report (2009) dwelled further
on the strategies that would help deepen the reach of
financial services. It underscored the need to increase
commercial viability (by removing interest rate ceilings
and allowing market-based pricing) and cost efficiency,
while emphasizing the necessity to innovate around
vulnerability-reducing financial instruments (saving,
remittances, crop insurance, health insurance, pensions,
etc.). Exclusion, as per the report, increasingly reflects the
rich–poor dichotomy rather than rural–urban differen-
tials. The inclusion efforts, hence, must be made to target
segments of excluded people (for instance, urban poor)
rather than distinct sectors (agriculture, for example).
The report questioned the efficacy of using branch expan-
sion as an exclusive strategy to increase outreach, point-
ing out that even in densely banked urban areas poor
are excluded.
While endorsing the recommendations of the
Rangarajan Committee with respect to BCs, the
Raghuram Rajan Committee suggested broadening the
definition of BC by involving non-traditional channels
that have extensive and low cost networks (e.g., post
offices), keep regular contact with the potential customers
(e.g., kirana shops, cell phone companies) or with some
leverage over potential borrowers (e.g., buyers of produce,
sellers of inputs such as fertilizers) as they could function
as viable business entities in the financial inclusion space.
Going a step ahead, the committee presented a case for
authorizing some of these channels (telecom companies,
for instance) to become direct and independent financial
intermediaries dealing in regulated financial services.
It reiterated the suggestion of the previous committee
to allow MFI-NBFCs to be BCs of banks, not only to
facilitate limited savings and remittance services, but in
extending credit too.
The task of framing the vision for and working out an
institutional and regulatory framework of financial deep-
ening and inclusion was entrusted by the RBI with the
Mor Committee in 2013. The committee, as indicated
earlier, set some ambitious targets for the financial system
to fulfill by the end of 2015 with respect to inclusion of
low-income households and small business activities—
full service electronic (Aadhar linked) bank accounts
for all adults, universally distributed electronic payment
access points; convenient access to regulated lenders and
suitable and affordable loan products, convenient access
to suitable deposit and investment products; and legal
right to suitable financial services. Each of the vision state-
ment of the committee combines an inclusion (defined as
access) goal with financial market deepening (measured as
credit/deposit/investment/insurance to GDP ratio) goal.
The vision of the committee indeed is inspiring, though
one would wonder about their feasibility in terms of the
accelerated time frame and costs of implementation.
5.1.1 Priority Sector Lending: Transforming or
Waning in Importance?
Directed credit through priority sector allocation has
been used in India since the late 1960s as the major
policy instrument to make the financial system cater
to the needs of the ‘vulnerable’ sectors and segments
(agriculture, small and tiny enterprises, and other weaker
sections) that are more likely to be bypassed by com-
mercial banking activity. The priority sector norms have
been in line with the logic of centralized planning, the
chief mechanism by which national resources have been
redistributed among states as also social and real produc-
tion sectors.
During the decades of the 1970s and 1980s the scope
and description of the sectors were revised a few times,
and targets and sub-targets reviewed. In 1991, the year
when the economy embarked on the path to reform
and restructuring, there was a recommendation from
the Committee on the Financial System (Chairman: M.
Narasimham) to reduce the scope of mandated credit
under priority sector from 40 per cent (fixed in the mid
