Why 2015 will be important for financial inclusion in India

The year 2015 could be a watershed year for India in its quest to provide access to a wide range of financial services to all its citizens.

In particular, developments expected in February and September could pave the way forward for financial inclusion in the country.

This is besides what public-sector banks do to take the story further after opening a large number of bank accounts last year under the Prime Minister's Jan Dhan Yojana to tap the unbanked population of India.

The reason February is important is because the second day of the month is the last date announced by the Reserve Bank of India to submit applications for small finance banks and payment banks.

This is arguably the first opportunity to some financial intermediaries to get involved in offering a complete range of financial services that a bank can offer.

After this date it will be clear how many applications the RBI received for such banks and how many among them are microfinance institutions, which have always evinced interest in offering bank-like services to the poor.

The second important development expected this year is in September when Bandhan Financial Services, a non-banking finance company - microfinance institution (NBFC-MFI), will be able to start operating as a bank.

For Chandra Shekhar Ghosh, its Founder and Chairman and Managing Director, this will be the first opportunity to reach out to the poor with a full range of banking services.

NBFC MFIs have always complained that they are not allowed to collect deposits and their operations are only restricted to taking on bank loans and then lend to poor borrowers.

This model will not only change and but will also showcase how an MFI is able to make a transition as a bank.

What will be watched also is how Bandhan leverages its 61 lakh borrower base and makes a difference.

As a bank, it will need to collect and manage voluntary deposits. Also, it needs trained staff to handle multiple products. And it needs to showcase greater skills in asset and liability management and treasury operations.

As an MFI, one needs to only assess the risk of the borrower (which per se is not a small or easy task to handle) but then as a bank, equations change.

Here, the institution needs to build the trust of poor borrowers to park their funds with the bank.

How Bandhan handles the transition will be a test case for others.

In a way, it will also a pointer to the pace of financial inclusion in India.

Going by the numbers that people in the sector often refer to, 60 per cent of all adults in India have access to bank accounts. This number has doubled in the last seven years.

The events unfolding this year will show if this pace quickens.