at the start of june i wrote to the leaders of the local government in laanemaa that eesti pank finds that having a single network of cash machines for all the banks would not improve access to banking services in rural areas. this is because it would not be possible for any commercial bank to differentiate its services from those of other banks by offering higher quality if there were a single network. furthermore, a single network dilutes the responsibility of each individual bank, making it harder for clients or the public to affect the decisions taken by the banks. cost efficiency will probably become even more important, meaning there are no grounds to expect that access to cash services in rural areas will improve. i do not conclude that the commercial banks ought to maintain an unnecessarily large network of branch offices and cash machines. there is no real difference here whether such a network is supported by the clients of the banks or by the estonian taxpayer, in any case it is an unreasonably expensive solution. that said, the commercial banks do need to explain their vision for access to banking services more clearly than they have done so far, and they should themselves arrive at a solution that is acceptable to society. in short, the position of eesti pank is that the guiding principle for the provision of cash and banking services across estonia is that it should make economic sense. at the same time, every person in estonia must have access to banking services, and so we must find alternative flexible solutions in estonia. the next question is how those flexible solutions should be supplied. although this topic is under discussion in the minister ’ s working group, i can suggest some options drawn from the experience of other countries, which the banks and the government may want to consider during their discussions on the accessibility of banking services : • a cashback system in shops – when paying for their food in shops by card, people can add some extra to the total amount paid and then get that in cash from the shop. for this to work, the commercial banks need to allow shopkeepers to offer this service without charging them any percentage of the cash that is withdrawn. the banks would gain by having a more efficient cash network, shopkeepers would gain additional clients in their shops, and those clients would benefit by being able to withdraw cash more conveniently and securely. • state service points – offices providing a wide range of services from the state, the banks and other enterprises, all in one place. this would allow people in rural

recent trends of levying unreasonably high service / user charges and enhancement of user charges without proper and prior intimation. it is in this context that the governor, reserve bank of india had mentioned in the annual policy statement 2005 - 06 that rbi will take initiatives to encourage - greater degree of financial inclusion in the country ; - setting up of a mechanism for ensuring fair treatment of consumers ; and - effective redressal of customer grievances. it would, therefore, be reasonable to expect banks to focus on the above aspects while designing their products for customers. ii ) branch banking : traditionally banks have been looking to expansion of their branch network to increase their business. against this background it is interesting to observe that the new private sector banks as well as the foreign banks have been able to achieve business expansion through other means. it has been realized that it might not be necessary to establish a wider brick and mortar network to reach a wider population. banks are, therefore, examining the potential benefits that may accrue by tapping the agency arrangement route and the outsourcing route. while proceeding in this direction banks ought not to lose sight of the new risks that they might be assuming and hence put in place appropriate strategies and systems for managing these new risks. iii ) competition : with the ever increasing pace and extent of globalisation of the indian economy and the systematic opening up of the indian banking system to global competition, banks need to equip themselves to operate in the increasingly competitive environment. this will make it imperative for banks to enhance their systems and procedures to international standards and also simultaneously fortify their financial positions. iv ) technology : a few banks which have impressive branch networks have not been able to meet their customers ’ expectations due to inefficiencies arising out of inadequate investment in technology and consequently faced an erosion of their market shares. the beneficiaries are those banks which have invested in technology. another distinct advantage of use of technology is the ability to effectively use quantitative techniques and models which can enhance the quality of their risk management systems. recognising the benefits of modernising their technology infrastructure banks are taking the right initiatives. the challenge in this regard will be for banks to ensure that they derive maximum advantage out of their investments in technology and to avoid wasteful expenditure which might arise on account of a. uncoordinated and piecemeal adoption of technology ; b. adoption of inappropriate / inconsistent technology and c. adoption of obsolete technology. a case in point