Payments, Banking and Cost implications of cash – India

Electronic Payments have always intrigued me. I have written about this in the past. I was reading through a few more documents on electronic payments and read through the Reserve Bank of India Vision Document on Payments. Quite an insightful document in terms of statistics. However, my feeling was it doesn’t quite clearly layout the strategic framework to be adopted for payments in India. SOme statistics from the vision document and some other sources.

 Penetration of banking services
  • Of the six lakh villages in India, the total number of villages with banking services stands at less than one lakh villages as at end March 2011 and nearly 145 million households are excluded from banking.
Penetration of Electronic payment
  • Only 0.6 million of the 10 million plus retailers in India have card payment acceptance infrastructure.
  • Mid-2011, the number of non-cash transactions per person stands at just 6 per year.
  • 32% of e-commerce takes place through the system of “cash on delivery” (COD) NOT online payment.
 Other numbers:
  • The Indian bill payment market is a US$ 160 billion market. Indian households pay on an average 50 -55 bills a year. Among the electronic payments infrastructure, ECS occupies a 50% share followed by cards and bank account funding.
  • It is estimated that Government subsidies alone constitute more than Rs. 2.93 trillion and if these payments are effected electronically, it may translate to 4.13 billion electronic transactions in a year.
  •  The penetration of ATMs is 63 per million population and that of PoS terminals is 497 per million population
 Banking Infrastructure
  • Today, the banking infrastructure in the country consists of 80,000 bank branches, 1,50,000 post offices, 88,000 ATMs, and 500,000 POS machines. Of these, the rural banking infrastructure only consists of about 30,000 bank branches and 1,20,000 post offices. In comparison, there are more than 10 lakh telecom retailers that operate throughout the country.
  • 18 million outstanding credit cards and 228 million debit cards.
 How much cost does the economy bear to support a cash economy?
Cost of cash to the economy is 5-7% of GDP.
-costs for rbi  include printing currency, currency chest management, and wear and tear
-cost for bank include cash logistics, cash management, security, storage, and the opportunity cost of idle cash in branches and ATMs

Housing and Housing Finance in India (Part-1)

Housing is a significant engine for growth and development of any economy. Safe, hygienic and affordable housing has a direct impact on the quality of life and health of households, leading to a better civil society and higher productivity at work. Moreover, the housing construction sector itself leads to direct and indirect employment to a large number of people in several associated industries. The Government, the RBI and the NHB have been consistently working towards achieving the goal of housing for all.

A major policy concern, however, with respect to housing has been the severe mismatch between the demand and supply of housing units especially for the economically weaker section and lower income groups. As per Technical Group on Urban Housing Shortage (2012-17), more than 95% of such housing shortage in urban areas is in the EWS and LIG category. The Working Group on Rural Housing for the Twelfth Five Year Plan (2012-17) has estimated the total housing shortage in rural areas at 43.67 million units. It is also of major concern that 90% of the rural housing shortage (approximately, 39.30 million units) are in respect of Economically Weaker Sections.

In this backdrop we have to note a few key underlying issues. There has been large scale migration of people from rural and smaller urban centres to a handful of large cities over the past few decades. This has resulted in extremely high demand for housing in these cities leading to escalation of property prices and thereby making most housing in big cities beyond the reach of even the middle class. This has not only led to the peculiar problem of large number of highly priced unoccupied/unsold houses in spite of the country having a large housing shortage, it has also led to severe challenges to the civic infrastructure and service delivery capabilities of these cities adding to the exclusion. It is imperative that for a more inclusive future, in addition to direct measures like improving affordability of housing in the larger cities and enabling easier home finance options, alternate strategies like building rental housing options for economically weaker sections and development of smaller urban centres would be key.

While there are a host of issues to be addressed in order to create an enabling environment in the country that results in adequate and proper housing for all, let us focus on the access to housing finance challenge in the next few posts.