Transforming Banking Through Telecom - an Approach

India presently faces the challenge of achieving financial inclusion, with the banking system estimated to be covering only 400 million of India's population of 1.2 billion. As per Reserve Bank of India (RBI) data, current users of the banking system are largely in urban areas. An important aspect of achieving financial inclusion is also to provide a means for cash management in a safe, effective and low-cost manner. The well-documented telecom boom in India with an estimated 900 million individual users provides a potential framework that could transform the banking system in India. This paper proposes a framework for mobile phone companies to offer payment services to start with, called "payment banks". New technologies can reform the banking sector apart from giving a much needed impetus for the cause of financial inclusion and will be a large step forward in spreading banking services to millions of new clients in the under-banked regions of India. The need for a "Payment Bank" has been discussed in the NachiketMor Committee Report of the RBI. Our paper formulates a theoretical model for achieving financial Inclusion by leveraging advantages in technology in India and enabling select Telecom operators to offer rudimentary cash management services to start with before offering a bouquet of financial services products to the vast majority of India's population who do not avail of the existing network of Banks. The paper suggests possible basic changes to enable this process apart from using existing infrastructure to enable wider dissemination of financial products. An impact analysis of these suggested changes are also discussed along with remedial measures