India in the spotlight
By International Adviser, 11 Nov 15
Samir Mehta, manager of JO Hambro’s Asia ex-Japan Fund, gives his observations from a recent research trip to India, a market which is a large overweight in his portfolio.
The Reserve Bank of India (RBI) is one of the better-managed central banks in emerging markets.
A tentative start by the RBI towards financial inclusion has been given a big push by the Modi administration.
At the micro level, this push for financial inclusion by the Government is starting to see great progress.
In just one year, almost 190 million new bank accounts were opened in India; almost 40% of these accounts are now linked to the Aadhaar card (a unique 12-digit biometric and demographic-linked centralised database card).
Significant losses
In a bid to reduce the significant losses that were routine in subsidy payments to Indian citizens, the energy-related subsidy is now credited directly to recipients’ bank accounts.
Additionally, these newly-opened bank account holders are given a RuPay debit card. By October 2015, two million transactions, with an average transaction size of Rs2000 (US$3), were being conducted.
The Government has also linked an accident insurance scheme to these accounts, with annual premiums of just Rs30 (US$0.50).
A large unbanked, cash-oriented population is now incentivised to become part of the formal financial system.
Micro financing
Micro finance lending is also gaining traction. Several medium-sized firms who survived the last crisis are now well-capitalised, extremely well-organised and regulated.
This financial outreach is starting to empower mainly poorer women, but also small and medium-sized enterprises (SME) across the country.
Currently too small to make any dent in the credit statistics, this trend will, however, build over time.
Recently, the RBI approved, in principle, 10 microfinance institutions to become Small Finance Banks, whose main objective is to provide a savings vehicle for the unserved portion of the population and supply credit to SMEs using technology where possible.
