1389355167_Nachiket Mor Comm Report.pdf

## Report Summary Committee On Comprehensive Financial Services For Small Businesses And Low Income Households

� The Committee on Comprehensive Financial Services 
for Small Businesses and Low Income Households (Chairperson: Dr. Nachiket Mor) submitted its final report on December 31, 2013.  The Reserve Bank of India (RBI), on September 23, 2013, had appointed the Committee to propose measures for achieving financial inclusion and increased access to financial services. 
� **Priority Sector Lending:**  The Committee suggested 
that investment by banks in bonds and equities and provision of guarantees to PSL beneficiaries be 
counted towards meeting the banks' PSL targets. 
� **Customer protection issues:**  The Committee 
proposed that financial service providers be required to commit capital against customer protection risk. 
� The Committee proposed the following to be achieved 
by January 1, 2016 : (i) provide each Indian resident 
above the age of 18 with an individual, full-service 
electronic bank account, (ii) set up widely distributed Electronic Payment Access Points offering deposit and withdrawal facilities at reasonable cost,(iii) provide each low-income household convenient access to formally regulated providers that can provide suitable: (a) credit products, (b) investment and deposit products, and (c) insurance and risk management products at a reasonable price, and (iv) to provide every customer the legally protected right to be offered 
suitable financial services. The major recommendations of the Committee are: 
� Wide-spread payment network and universal access 
to savings:  The Committee recommended that every 
resident receive a Universal Electronic Bank Account 
at the time of registering for an Aadhaar card.  It recommended that RBI prohibit banks from refusing to open an account and that Aadhaar be made the 
universal basis for authentication.   
The Committee proposed the setting up of Payments 
Banks whose primary purpose will be to provide payments services and deposit products to small businesses and low income households.  These banks will be restricted to holding a maximum balance of Rs 50,000 per customer and will be required to have a minimum entry capital of Rs 50 crore. It further proposed the setting up of Wholesale Banks which will lend to corporates and purchase securitised retail and small-business loans.  These banks will only accept deposits larger than Rs 5 crore and will require 
minimum entry capital of Rs 50 crore.  
� **Sufficient access to affordable formal credit:**  The 
Committee recommended a number of steps to be 
taken to help banks manage their credit exposures effectively, including allowing banks to purchase portfolio insurance.  Universal reporting of information with credit bureaus should be mandatory for all loans, especially kisan credit cards and general credit cards. 

Further, it recommended that banks price farm loans based on risk and that any waivers be provided by the government through direct benefit transfer and not through interest subsidies or loan waivers. The Committee proposed that a State Finance Regulatory Commission be set up into which all state level financial regulators will be merged. It recommended that the Non-Performing Asset reporting provisions and other regulations for Non- Banking Finance Companies (NBFCs) be aligned with those of banks.  It also suggested measures to ease funding constraints of NBFCs including relaxation of External Commercial Borrowings and equity investment rules.  Further, it proposed the removal of barriers to the transition of NBFCs into banks by including more sectors in the Priority Sector Lending (PSL) classification. 

It recommended the removal of the cap on interest rate on loans at the base rate plus 8% per annum.  It also recommended that the PSL target be revised from 40% 
to 50% of credit provided.  
It proposed that firms be made liable to ensure suitability of products issued to customers and that RBI 
frame regulations regarding the same. It proposed the setting up of a unified Financial Redress Agency (FRA) that will handle customer grievances across all financial products in coordination with their respective regulators.  
DISCLAIMER: This document is being furnished to you for your information. You may choose to reproduce or redistribute this report for non-commercial purposes in part or in full to any other person with due acknowledgement of PRS Legislative Research ("PRS"). The opinions expressed herein are entirely those of the author(s). PRS makes every effort to use reliable and comprehensive information, but PRS does not represent that the contents of the report are accurate or complete. PRS is an independent, not-for-profit group. This document has been prepared without regard to the objectives or opinions of those who may receive it. 
Committee on Comprehensive Financial Services for Small Businesses and Low Income Households