“When the financial inclusion happens, banks will replace microfinance institutions. Then microfinance institutions will take the role of money lenders,” RBI deputy governor KC Chakrabarty said

Microfinance institutions (MFIs) will not be able to bring financial inclusion as their cost of lending is high, a top Reserve Bank of India (RBI) official said, reports PTI.

"Microfinance institutions will not be able to bring financial inclusion. Their cost of lending is high," RBI deputy governor K C Chakrabarty told reporters in Mumbai on the sidelines of the inauguration of Bank of India's mobile-based remittance facility for urban financial inclusion.

"The definition of financial inclusion is providing access to appropriate financial products and services to the most vulnerable group of the society in a fair, transparent and cost-effective manner by the mainstream financial institutions," he said.

When banks reach that level, the competition will bring down the cost, he said.

"When the financial inclusion happens, banks will replace microfinance institutions. Then microfinance institutions will take the role of money lenders," he added.

The Customer Service Committee under former Securities and Exchange Board of India (SEBI) chief M Damodaran will oversee the banks' dealings with customers, he said.

"How fair and transparent the products and pricing are, how the banks provide them to the customers, whether the bank has a system to address the customer complaints, how they deal with the customers, what are the legal and regulatory changes necessary, how the bank's ombudsman is working, all these things will be examined by a high-level committee under the chairmanship of former SEBI chief M Damodaran," he said.

Both the Indian Banks' Association (IBA) and the RBI do rate the banks, but internally, he said.

"We have internal rating and on the basis of that, we will advise banks about the modifications, changes and improvement they have to bring. But we will not make these ratings public," he said.

The deputy governor on Thursday inaugurated Bank of India's (BoI) mobile-based remittance facility through business correspondence for urban financial inclusion.

Bank of India plans to open seven lakh accounts for the unbanked urban poor, the bank's chairman and managing director, Alok Misra, said.

"Using the facility of mobile-based remittance facility through business correspondence, people can send money to their relatives over mobile and can receive the money in every nook and corner of the country," he said.

BoI plans to include one crore un-banked people in its fold and will reach out to about 30,000 villages in the next three years, he said.