A radical overhaul of the banking system in north eastern states has been recommended by an RBI-appointed committee to make the region financially inclusive.
The committee headed by RBI's Deputy Governor Usha Thorat made a series of recommendations that include increasing banking penetration and strengthening of Regional Rural banks and Urban Co-operative banks in the region.
It said post offices, traditional institutions and NGOs need to be co-opted by the banking industry so as to encourage economic activities.
In order to access markets in the North East the formal banking industry has to undergo a radical overhaul of their systems, it said.
The findings of the committee were presented at the Special Summit on 'Banking, Industries and Credit Issues in North Eastern Region' held here last week.
The committee cited topography, infrastructure, low level of commercialisation and law and order issues as reasons for low level of banking penetration in the region.
Commending role of Micro-Finance Institutions in the region, the report said all institutions desirous of sustainable growth in North East must support initiatives by the MFIs.
The committee also asked banks such as Nabard, Sidbi and Nedfi to review their loan policies and spread their operations as further improvement in banking infrastructure is necessary for improving the economy of the region.
There is a need to take advantage of high literacy, social capital, rich culture and unique geography in the region, the report said.
The committee called for government support for IT based financial inclusion and said entrepreneurship and capacity development was key to improving the situation.
It said payment system in the region has been improved and forex services are now available at 20 new centres.
The recent RBI initiatives for the region also include establishing satellite connectivity for remote banking outlets.
It said initiatives to expand outreach through Self Help Groups have been launched in the region. SHGs and several bank branches and ATMs were opened in the region in recent years.
A total of 661 business facilitator outlets are operating in the region apart from 43 business correspondent outlets in Assam, Meghalaya, Mizoram and Sikkim by SBI.
As per the report, to enhance payment systems and fund transfer, 43 clearing houses were opened and 31 clearing houses were automated.
To improve banking infrastructure, 229 new bank branches, 182 ATMs, 661 BF outlets, 43 BC outlets were also opened in the region in last couple of years.
Providing financial services to remote locations especially in the hills becomes economically inviable. Here IT-enabled systems can play a major role where the costs to the bank is reduced while also reducing the transaction costs to the borrower, it said.
SBI has recently started such an initiative called SBI Tiny in Mizoram as a pilot project.
Following the success of the pilot project, the SBI also rolled out the facilities in Arunachal Pradesh and the toughest terrain in Garo Hills.
The RBI committee commended the micro finance sector in the region saying it has been perhaps one of the few sectors, which can claim to have grown indigenously and with very little external support.
Today, it has offered employment to over 5,500 people besides providing services to 1,10,000 individual clients and more than 60,000 SHGs.
It is perhaps one of the few demand-led services to have evolved and grown despite many constraints and problems, the report said.
Given the large-scale diversity of the region, it is necessary to built up linkages with institutions which are more locally based and embedded within the community which not only includes the MFIs but also the traditional institutions.
The correspondent banking scheme as proposed by Reserve Bank of India should be leveraged by all banks operating in the region, the report said.
In order to reach remote areas and provide financial access to many, it is imperative that market-led financial services and products are expanded, it said.
If banking has to be meaningful for the region, it has to reach and touch majority of them and in a sustainable manner, the report added.