"A great institution is being born in West Bengal," he said while inaugurating Bandhan Bank here.

Bandhan Bank today launched its operations with 501 branches in the country. The company, which started operations as a micro finance institution, got final approval from RBI in June to launch commercial banking operations. Jaitley said Bandhan Bank Chairman and Managing Director Chandra Shekhar Ghosh has said that the priority area of the bank will be small and medium enterprises (SMEs).

"It is a landmark initiative in the service of country and state. It is these entrepreneurs in SMEs, many of them in unorganised sector, who today form the backbone of Indian economy. "Small entrepreneurs, from shopkeepers to hawkers, they are generating almost 11-12 crore jobs in this country. The large organised industry is able to generate only a small fraction of that," Jaitley said.

He said if private sector initiatives like Bandhan Bank join this effort of funding at the grass-root level, then the small enterprises can grow on their own feet. "All over the eastern parts of the country, in states like West Bengal, if we are able to create small entrepreneurs in lakhs we can then see it as a response to agrarian poverty that is building up," Jaitley said.

The objective is to extend over Rs 1 lakh crore worth funds to SMEs across the country, Jaitley said, adding that SMEs usually repay what they borrow and the banks' NPAs are not because of lending to this sector. "If funding of unfunded sector continues, it is they who generate jobs and it is they who take very little assistance from the state and go back and return what they borrow. The problem of NPA, certainly this segment is not responsible for them," he said.

Jaitley also said that the Centre has set up a MUDRA agency which will slowly evolve as MUDRA Bank and the main purpose is to fund the unfunded. Bandhan, as an MFI, has already extended loans to 7.5 lakh small entrepreneurs. "The NPA rate of those small entrepreneurs is less than 1 per cent. More than 99 per cent of them earn a return on what they borrow from institution," Jaitley said.

Jaitley also said that the banking system is now becoming more and more technology enabled, rather than the traditional brick and mortar branches. "The RBI's recent initiative to have 11 Payments Banks where most people who own just a mobile phone would be in a position to make all payments through various instruments through the banking system itself, this will be an extremely important step in taking India in the direction of becoming more and more cashless," he said.

RBI last week awarded in-principle approval to 11 entities to launch Payments Banks within 18 months. He said along with 110 million people subscribing to the social sector insurance schemes and also the launch of pension schemes, banking activity needs to expand to bring people into the formal banking fold.

He said private institutions like Bandhan Bank will fill the gap. "It will create jobs, it has already created 7.5 million micro entrepreneurs, it will now create millions of small and medium entrepreneurs with modest amount of loans and once it is able to do that its ability to attract deposits as a responsible institution will also increase," he said. He further said that banks have taken initiatives to extend the reach of banking facility as brick and mortar branches were not able to reach out to each and every village in the country.

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