Financial Inclusion in India: A comparative study of pre and post liberalization period
achievements of Nationalized Banks in India
(1) ANIL KUMAR DHAGAT *
*Ph.D., Professor, Department of MBA,
Gyan Ganga Institute of Technology and Sciences
Rani DurgavatiVishwaVidyalaya,Jabalpur (M.P.) India
dhagatanil26@gmail.com
(2) MEGHNA JAIN **
**Assistant Professor,
Department of MBA,
Gyan Ganga Institute of Technology and Sciences
Rani DurgavatiVishwaVidyalaya, Jabalpur (M.P.) India
meghnajain13@gmail.com
Abstract
Key Words: Financial Inclusion, Banking, Liberalization, society.
The issue of financial inclusion is emerging as the new paradigm of economic growth. Financial
inclusion plays a major role in driving away poverty from the country. Financial inclusion refers to
delivery of banking services to masses including privileged and disadvantaged people at an affordable
terms and conditions. It not only enhances overall financial intensity of agriculture but also help in
increasing rural non-farm activities which lead to development of rural economy and improve economic
condition of people. The three major aspects of financial inclusion are (i) access financial market (ii)
access credit market (iii) Learning financial mattress, and develop financial understanding for self and for
the economy. India being a developing country has been targeting socio economic upliftment of its rural
and semi urban societies by making efforts towards financial inclusion in undeveloped and backward
society of the Country continuously after independence. The Reserve bank of India and the nationalized
banks in India have played a very important role in the function of financial inclusion in the country. The
pace of the role and the pattern and processes of financial inclusion in India have been different before
and after the new economic policy. The financial inclusion has been considered as a very important
behavioral issue for successful implementation of various socio economic upliftment schemes of
government and for upgraded livelihood of rural and semi urban society in the country.
The RBI and all nationalized banks have taken various steps for involving rural society in various
financial inclusion programmes time to time. There were many fold activities for financial inclusions in
the country before and after liberalization in the country.
This paper seeks to provide evidence on impact of financial inclusion in India in pre and post new
economic policy period through descriptive and empirical studies of available statistical data and case
studies and also evaluates the role of nationalized banks in promoting the financial inclusion
programmes and movements in the country pre and post liberalization period. The paper also explains
the further opportunities, scope and challenges for financial inclusion in India.
The paper concludes that financial inclusion plays a major role in driving away the poverty from the
country. In India a day will come when all Indians will have their bank accounts and everybody will take
part in financial inclusion.
Introduction to Financial Inclusion
Poverty and exclusion continue to dominate socio-economic and political discourse in India as they have
done over the last six decades in the post-independence period. Poverty reduction has been an important
goal of development policy since the inception of planning in India. Despite being one of the ten fastest
growing economies of the world, India is still home to one-third of the world’s poor. Further analysis
shows that poverty is getting concentrated continuously in the poorer states.
In developing economies like ours, the banks, as mobilisers of savings and allocators of credit for
production and investment, have a very critical role. As a financial intermediary, the banks contribute to
the economic growth of the country by identifying the entrepreneurs with the best chances of successfully
initiating new commercial activities and allocating credit to them. At a minimum, all retail commercial
banks also provide remittance facilities and other payment related products. Thus, inherently, the banking
sector possesses a tremendous potential to act as an agent of change and ensure redistribution of wealth in
the society.
However, it is disheartening to note that the number of people with access to the products and services
offered by the banking system continues to be very limited even years after introduction of inclusive
banking initiatives in the country through measures such as the cooperative movement, nationalization of
banks, creation of regional rural banks, etc. As Nobel Laureate Prof. Amartya Sen has also noted, “the
thrust of developmental policy in India has undergone a paradigm shift from an exclusive focus on
efficiency to one on equity; from the rate and pattern of growth, and on inequalities, distribution of
income and wealth to the extent to which people are deprived of the requirements for leading a fulfilling
life and suffer ‘capability deprivation’. Over the past five years, Reserve Bank of India, as also other
policy makers have resolutely pursed the agenda of financial inclusion and achieved discernible progress
in improving access to financial services for the masses.
However, the progress is far from satisfactory as evidenced by the World Bank Findex Survey (2012).
According to the survey findings, only 35% of Indian adults had access to a formal bank account and 8%
borrowed formally in the last 12 months. Only 2% of adults used an account to receive money from a
family member living in another area and 4% used an account to receive payment from the Government.
The miniscule numbers suggest a crying need for a further push to the financial inclusion agenda to
ensure that the people at the bottom of the pyramid join the formal financial system, reap benefits and
improve their financial well-being.
Importance of Financial Inclusion:
The importance: of financial inclusion has been emphatically underlined in the wake of the financial
crisis. As we all know, the crisis has had a significant negative impact on lives of individuals globally.
Millions of people have lost their livelihoods, their homes and savings. One of the prominent reasons for
crisis was that the financial system was focused on furthering its own interests and lost its linkage to
real sector and with the society at large. The crisis also resulted in a realization that free market forces
do not always result in greater efficiency in the financial system, particularly while protecting the interests
of the vulnerable sections of society. This is due to the information asymmetry working against these
sections, thereby placing them at a severe disadvantage. In wake of the Crisis, therefore,
Mr Muhammad Yunus , Winner of the Nobel Peace Prize quoted related thoughts in his Book ‘ Bankers
to the Poor” “I have come to believe ,deeply and firmly, that we can create a poverty –free world, if we
want to. I came to this conclusion not as a product of a pious dream, but as a concrete result of experience
gained in the work of the Grameen Bank. It is not micro- credit alone which will end poverty. Credit is
one door through which people can escape from poverty. Many more doors and windows can be created
to facilitate an easy exit. It involves conceptualizing about people differently; it involves designing a new
institutional frame work consistent with this new conceptualization.” Financial Inclusion is a step ahead
to realize that Indian socio economic development need some basic fame work to ensure the facilitation
and lit- ratification of financial behavior in the common men in the country.
Bank Nationalization in 1969 and the tremendous push for branch building which followed in its wake
were attempts at including the excluded. Despite geographical and functional reach of the Commercial
Banks, large numbers of people remain excluded. Small and Marginal farmers, women, unorganized
sector workers, artisans, self-employed, unemployed, pensioners, etc. remain excluded from the
opportunities and services provided by the formal financial sector. There are abundant opportunities for
intermediation and mobilization of savings and extension of bank credit at the bottom of the pyramid.
About 60 to 70 percent of enterprises and individuals in our country do not have access to basic financial
services such as savings and credit. Hence increased financial inclusion of all those who presently stand
excluded is of paramount importance. Bank linkages with self help groups (SHG), financing of small and
medium enterprises, rural artisans, rural non-farm activities, etc will prove to be great business
opportunities for banks. Emphasis on volume- led growth to competitive balance sheet size, shift of focus
from interest income to non interest income from capital adequacy to capital efficiency, etc are vital for
maintaining bench marks of return on assets, return on owned funds, net NPAs , capital adequacy, cost to
income ratio , net interest margin and intermediation costs
The Concept of Financial Inclusion: “Financial inclusion is delivery of banking services at an
affordable cost (No frills accounts) to the vast section of disadvantaged and low income group.
Unrestrained access to public goods and services is the sine qua of an open and efficient society. As
banking services are in the nature of public goods, it is essential that availability of banking and payment
services to the entire population without discrimination is the prime objective of the public policy.
”Financial Inclusion as defined by the RBI: “As the process of ensuring access to financial services
and timely and adequate credit where needed by vulnerable groups such as the weaker sections and low
income groups at an affordable cost from Mainstream financial institutions.”
CRISIL defines financial inclusion as, “The extent of access by all sections of society to formal
financial services, such as credit, deposit, insurance, and pension services”.
Objectives of Financial Inclusion
RBI considers Financial Inclusion and Financial Literacy as twin pillars where Financial Inclusion acts
on the supply side i.e. for creating access and financial literacy acts from the demand side i.e. creating a
demand for the financial products and services.
As per RBI, providing access to basic banking services is the first phase of the financial inclusion
process.
RBI’s focus on banks as the principal vehicle for financial inclusion also stems from the fact that only
they can offer the entire suite of products that would facilitate meaningful financial inclusion.
Financial Inclusion has the ability to generate positive externalities: it leads to increase in savings,
investment and thereby, spurs the processes of economic growth.
It also provides a platform for inculcating the habit of saving money, especially amongst the lower
income category that has been living under the constant shadow of financial duress, mainly because of
absence of savings, which makes them a vulnerable lot.
It also creates avenues of formal credit to the unbanked population who are otherwise dependent on
informal channels of credit like family, friends and moneylenders. Availability of timely, adequate and
transparent credit from formal banking channels will allow the entrepreneurial spirit of the masses to
increase outputs and prosperity in the countryside.
It will open the doors of formal remittance facilities to the low income and unbaked populace who,
presently, are forced to use all kinds of informal and costly ways of sending money from one place to
another.
Financial Inclusion has now been viewed as a remedy to plug gaps and leaks in distribution of
government benefits and subsidies through direct benefit transfers to beneficiaries’ bank accounts rather
than through subsidizing products and making cash payments.
Thus, on the whole, Financial Inclusion has the potential to bring in the unbaked masses into the formal
banking system, canalize their savings, stoke their entrepreneurial ambitions by making available credit
and thus give a fillip to the economy.
Financial Inclusion before 1990: In India, before 1990, the banking sector was working as a government
institution without any competition and was fully governed by the government and RBI, The functions and
objectives of banks were governed by the ministry of finance and were controlled by RBI. The banking
objectives were limited and were pro to pure banking only though then governments had made many
programmes for bankers to act as catalyst in socio economic upliftment programmes of central and state
governments but financial inclusion was not taken as prime objective of banks before new economic policy
introduction. Though public sector banks were expanding their branches in rural areas and had objectives
to reach common men but they had limited objectives towards inclusion of all in financial activities across
the country. some prime acts were as follows: (i) Development of rural branches, (ii) Development of agro
credits, (iii) involvement of rural society in banking , (iv) Payment of scholarships through banks, (v)
Increase of deposits from rural areas, (vi) Development of Micro credit facilities (vii) Maximization of
saving bank accounts (viii) Involvement of youth in banking (ix) Increase of SSI financing, (x) Canalizing
savings through saving bank and fixed deposits or reinvestment plans, xi) Development activities through
social responsibility programmes.(xii)Publicity of banking facility in rural and semi rural areas (xii)
Transferring money, through Bankers cheques, Demand Drafts, transfer orders etc. (xiii)Assistance in
share market processing , (xvi) assistance in across border transfer of funds, collection of funds, etc.(xv)
mobilizing capital from one place to another place (xvi) Guarantee of export business deals across the
country (xvii) Financing of State government and central government schemes of social welfare and social
developments, (xviii) Financing of Large , Medium and Small scale industries, Business, Projects, and
offering overdraft facilities. There were very less dedicated efforts for over all inclusion, the biggest issue
was financial literacy in rural and semi urban areas even in urban areas the level of financial literacy was
below the global standard for urban townships.
 The financial inclusion after 1990 : In the movement of liberalization of Indian economy and also due to
reforms in financial sector in India. The Indian economy was brought to smart functioning in spite of the
fact that many a sectors were not prepared to cope up with the required changes but the movement of
reforms in many sectors brought a challenging scenario and led to reassessment of functioning and
rescheduling benchmarks. The banking sector also witnessed new and challenging environment with
introduction of financial sector reforms in the country. There was a realization that banking sector can not
progress until and unless it is brought under competitive market and until and unless its functions are
redefined and goals and benchmarks are not restructured. Out of many forward steps financial inclusion
was one of the joint tasks for financial sector. Liberal Licensing for private sector players, allowing of
wider operational scopes to banking sector and modernization of banking inclusion of technology in
banking sector and customer based orientation in banking services became priority and important issues
for survival in competitive scenario. Exploring of the existing potential in the country and giving a larger
scope to banking sector the concept of financial inclusion was accepted as multidimensional strategy for
inclusive economic growth of the country. The objective of financial inclusion is to extend financial
services to the large hitherto un served population of the country to unlock its growth potential .In
addition, it strives towards a more inclusive growth by making financing available to the poor in
particular, It had been the approach towards balancing mismatch between have and have knot’s.
In India a many fold processing was initiated for achieving financial inclusion targets and ensuring
desired benchmarks in this regard. The following acts were the priority for bankers in India to attain
targets and benchmarks of financial inclusions: (i) Position of households availing banking services,(ii)
Extension of bank branches in rural semi urban areas urban areas of the country(iii) Increase in ATM
net work, (iii) Increase in facility of bank services village and average population per branch (iv) Increase
in number of branches of scheduled commercial bank branches in the country,(v) Extension of banking
infrastructure in the country, (vi) Increase in house hold bank accounts in the country (vii) Increase in
business correspondents model in banking sector in the country, (viii) Setting up of ultra small branches
in the rural areas of the country, (ix) Extension of USSD based Mobile banking in the country,(x)
Providing accounts and infrastructure for ensuring direct benefits transfer to beneficiaries of various
schemes of state and central government of the country.(xi) Financial literacy programmes, (xi)
Reaching to all SSI.s and rural entrepreneur’s through micro financing with the help of rural and semi
urban bank branches and through SHG’s and NGO’s all over the country. (xii) Sustainable development
of agro based industries in rural India. All those objectives were close ended and were based on the
theme of extension and education of common men towards his rights and privileges for their sustainable
growth and socio economic status in the country.
An over view of Financial Inclusion objectives attained by the public sector banks in India: In India
the role play of public sector bank is attached with state governments and with central government hence
have more scopes to contribute towards financial inclusion objectives the following tables provide some
light on the achievements that are witnessed as land mark of movement of financial inclusion in the
country:
Table FI-1
Census2001
House
holds
Comparative position of Banking Services Availed by House holds in 2001 and 2011.
Total
Numbers
Households
of
No of Households
Percent
Census2011
Number
Households
of
Number
Percent
91,369,805
53,444,983
144,814,788
54.4
67.8
58.7
Availing Banking
Availing Banking
Services
Rural
Urban
TOTAL
138,271,559
53,692,376
191,963,935
41,639,949
26,590,693
68,230,642
30.1
49.5
35.5
Services
167,826,730
78,865,937
246,692,667
( Source RBI reports 2000-2013)
FI-1 Table shows a significant increase in the number of house holds availing banking services in all
segments of population of the country. There is a increase of 24.3 percent of bank accounts in rural sector
where as an increase of 18.3 percent in urban sector of population and a over all increase of 23.2 percent
increase is registered in one decade. On the other side house hold availing banking facilities in 2001 were
41639949 which increased to 91369805 in 2011 this increase is more than double then of 2001 on the
other hand house hold in urban areas availing banking facilities in 2001 were 26590693 have increased
up to 53444983 this increase is just double of 2001 year data relatively increase of availing banking
facilities in rural areas of India shows a satisfactory increase but as compare to total house holds still
46percent approx rural household are not availing banking facilities , Country like India this is a
challenge because it shoes that around five families out of ten are not a part of inclusive growth process
in rural India . where as in urban areas also 40 to 45 percent house hold have not banking inclusion this
is not appositive direction urban areas have more access to development and growth but if they lack
financial literacy and still hold non banking deals, can not be considered satisfactory on the part of
banking sector and the planners and executers of the economy.
Table FI-2 Number of Branches of Public sector Scheduled Commercial Banks in India-2013:
Banks
Public
Sector
Banks
Total Banks
Rural
23286
Semi Urban
18854
Urban
14649
Metropolitan
13632
Total
70421
37,953
27,219
19,327
17,844
102343
(Source RBI reports 2000-2013)
Table FI-2 provides a picture of contribution of public sector banks in India. It shows that in out of all
banks operating in India ration of public sector banks is 70.4 percent and private sector banks and other
banks only contribute 29.6 percent branches all over India. The above table shows that Indian public
sector banks have been continuously supporting financial inclusion practices in the country. Not only in
urban areas but also in rural India out of all available branches around 61 percent branches belong to
public sector banks. And 69 percent branches in semi urban areas are of public sector banks and 76.4
percent branches in urban areas are operated by public sector banks in India, further if we analyze the
role of other sectors role in providing banking infrastructure in India we find that 39 percent rural
branches and 31percent branches in semi urban areas and 23.6 percent branches in urban areas are owned
by private sector or other type of banks . If we the analysis is done on the basis of existence of sector in
India then PSB’s are oldest organization in the country 50+ years where as the presence of private sector
banks presence is reported after 1990 around 23 years after LPG and new economic policy. The pace of
growth of private sector can not be ignored in all segments of population in the country. Comparatively
public sector could have used its old experience and link expertise of expansion in the economy more
then what then have explored and used for financial inclusion in the country. `
Table FI-3 Number of Operating Branches of Scheduled Commercial Banks (2009 to 2013):
Year
Rural
2009
2010
2011
2012
2013
31476
32493
33905
36356
37953
SemiUrban
19126
20855
23114
25797
27219
Urban
Metropolitan
Total
15273
16686
17599
18781
19327
14325
15446
16419
17396
17488
80200
85480
91037
98330
102343
Table FI-4 New Branches Opened in last Five Years
Year
2009
2010
2011
2012
2013
Rural
706
1021
1422
2453
1598
Table FI-5 .
Semi-urban
1290
1729
2258
2686
1422
Urban
1046
1417
919
1186
546
Metropolitan
953
1139
981
982
451
Total
3995
5306
5580
7307
4017
Terms used : KCC – Kisan Credit Card; GCC- General Credit Card; ICT – Information and
Communication Technology; BC – Business Correspondent ( Source RBI Reports 2000-2013)
The Table FI-5 Provides a summery of various other factors which are very important contains of achieving
financial inclusion objectives in India. The above table highlights the banking outlets position and their increase
in last four years , Number of saving bank accounts being opened in last four years in the country by banks
Savings received in four years , accounts opened, Amount canalized in to long term funds through FD accounts
opened and the amount received through fixed deposits in last four years by the banks in India The number of
Kissan Credit cards issued to villagers the amount of credit provided through kissan credit cards, also number of
General credit cards and amount of credit offered through these cards, on the other hand the volume of credit
transactions and business correspondent facilities offered in last four years . There has been a significant growth
in generating new saving bank account for house holds first time but achievements are not very high, The Kisan
Credit cards are very important tool for inclusion of farmers and agriculturist in the inclusion system , in four
years targets attained does not satisfy the required benchmark for rural sector inclusions. Table shows a growth
of 38 percent in four years this growth rate figure can not take the bankers to targeted bench marks.
Similarly the targets of generating General Credit Cards in rural and semi urban areas are at lower side this trend
may be due to lack of financial literacy in the targeted population. The figure of utilization of such credit cards
also shows that users have not utilized the cards for availing adequate credits for their economic needs.
Table FI-6
POPULATION GROUP-WISE DISTRIBUTION OF DEPOSITS AND CREDIT
OF SCHEDULED COMMERCIAL BANKS
(Amount
in Rs.
Billion)
Fiscal
Year
Rural
Deposit
Credit
s
Semi-urban
Deposit
Credit
s
4569.3
8484.46
0
201112
5782.11
4182.27
(9.4)
(8.7)
(13.7)
201011
4968.57
2941.04
7212.02
(9.2)
(7.2)
(13.3)
200910
4235.02
2498.04
6182.07
(9.2)
(7.5)
(13.4)
200809
3654.91
2086.94
5319.44
(9.3)
(7.3)
(13.5)
200708
3030.25
1830.97
(9.4)
(7.6)
Urban
Metropolitan
Deposits
Credit
Deposits
Credit
12809.0
4
7809.33
34665.8
6
31654.37
(9.5)
3830.7
2
(20.7)
11163.8
0
6849.80
(9.4)
3203.7
2
(20.6)
(16.8)
9511.16
5593.30
(20.7)
(16.7)
8244.63
4618.70
(9.6)
2667.3
6
(16.2)
(20.9)
(16.2)
4293.77
(9.3)
2306.2
9
6576.24
(13.3)
(9.6)
(20.4)
(56.1)
30920.7
1
(57.0)
26091.0
1
(56.7)
22154.3
7
(65.7)
27147.12
(66.6)
22161.13
(66.2)
19202.25
3835.76
(56.3)
18387.9
2
(67.2)
15972.63
(16.0)
(56.9)
(66.7)
200607
2581.28
1547.85
3568.27
(9.9)
(7.9)
(13.7)
200506
2265.34
1274.45
3022.45
(8.4)
(14.4)
(10.8)
200405
2135.36
1064.97
2963.03
(12.2)
(9.2)
(16.9)
200304
1951.11
852.44
(12.9)
200203
1897.8
3
(9.7)
1510.7
6
(10.0)
1305.9
6
5312.69
3161.66
(20.4)
(16.2)
4315.65
14525.9
9
12888.33
2481.41
(55.9)
11326.9
8
(66.1)
9908.35
(20.6)
(16.4)
(54.1)
(65.3)
3761.33
1895.93
8672.01
7311.21
(21.5)
(16.4)
(49.5)
(63.1)
2673.78
(11.3)
1013.5
4
3307.79
1563.99
7239.32
5478.69
(9.6)
(17.6)
(11.4)
(21.8)
(17.6)
(47.7)
(61.5)
1762.69
747.76
2405.23
846.84
2900.23
1252.90
5718.53
4744.61
(13.8)
(9.8)
(18.8)
(11.2)
(22.7)
(16.5)
(44.7)
(62.5)
200102
1599.25
657.00
2154.74
733.55
2551.78
1085.92
4664.72
4359.43
(14.6)
(9.6)
(19.6)
(10.7)
(23.3)
(15.9)
(42.5)
(63.8)
200001
1399.57
561.29
1867.72
639.34
2172.93
934.69
4066.83
3429.03
(14.7)
(10.1)
(19.6)
(11.5)
(22.9)
(16.8)
(42.8)
(61.6)
199900
1208.76
474.95
1601.05
550.76
1887.12
766.14
3524.40
2898.47
(14.7)
(10.1)
(19.5)
(11.7)
(23.0)
(16.3)
(42.9)
(61.8)
199899
1029.46
412.80
1363.57
481.45
1600.31
672.90
3025.37
2327.45
(14.7)
(10.6)
(19.4)
(12.4)
(22.8)
(17.3)
(43.1)
(59.8)
199798
867.64
367.72
1142.20
416.08
1335.88
574.06
2574.97
1928.52
(14.7)
(11.2)
(19.3)
(12.7)
(22.6)
(17.5)
(43.5)
(58.7)
199697
725.11
323.72
966.58
374.78
1102.92
512.99
2127.66
1610.88
(14.7)
(11.5)
(19.6)
(13.3)
(22.4)
(18.2)
(43.2)
(57.1)
199596
611.06
291.22
824.24
334.44
946.73
487.16
1878.70
1522.51
(14.3)
(11.1)
(19.3)
(12.7)
(22.2)
(18.5)
(44.1)
(57.8)
199495
573.99
281.83
742.24
286.65
887.16
457.58
1555.25
1199.01
(15.3)
(12.7)
(19.7)
(12.9)
(23.6)
(20.6)
(41.4)
(53.9)
199394
477.76
250.74
618.14
246.50
732.21
366.85
1351.06
936.08
(15.0)
(13.9)
(19.4)
(13.7)
(23.0)
(20.4)
(42.5)
(52.0)
199293
406.72
231.56
524.37
235.90
623.89
330.11
1185.70
860.78
(14.8)
(14.0)
(19.1)
(14.2)
(22.8)
(19.9)
(43.3)
(51.9)
199192
350.58
205.87
458.69
217.79
538.93
292.68
982.66
705.78
(15.0)
(14.5)
(19.7)
(15.3)
(23.1)
(20.6)
(42.2)
(49.6)
( Source RBI report2013)
Above Table FI-6 Deals with the status of growth in the deposits and credits of scheduled commercial
banks in various segments of population of the country, It also provides the facts that how much savings
are generated from rural, semi urban, urban, and metropolitan towns of the country by SCB’s and also the
distribution of credit in respective areas . trends are that funds received from rural savings are not served
as credit in the same areas ,this may be because there is no potential demand of capital and funds in rural
segments the same trend is observed in semi urban and urban areas too. Where as in metropolitan towns
more credits are disbursed then the deposits received , this indicates that funds generated in rural and
urban areas are canalized towards demand side at metros. The other important issue reviled from the
above table is that Metro towns also serve deposits at highest percentage the total deposit percentage of
rural, semi- urban and urban is at par or below then the percentage of deposits of metropolitan towns.
The deposits from industrial towns are natural but they should be used for the financial inclusion motives
and for that lending , financing and credit releases should be gradually increased .This may be in the form
of agro credits, SSI credits , through SHG’s and through NGO’s for involving large population in to the
sustainable development process through financial inclusion.
Reserve Bank of India and Financial Inclusion:
Reserve Bank of India (RBI) is bank of banks in India and has significant control over the activities of all
public and private banks in the country. Also plays an important role in controlling fiscal, financial, and
monetary, policies and operational behavior of other various financial institutions that have direct or
indirect role in the economy of the country. Having banker’s Institutional leadership and playing
important role in financial and monetary policy making it had played a very significant role in promoting
the concept of financial inclusion in the country. Indian Bankers have been following the standards and
directions of the RBI in the implementation of many schemes related to financial inclusion in the
country.
The following are some important initiatives that are taken by RBI in as frame work or as guidelines for
promoting financial inclusion mission:
(i)RBI has adopted a bank-led model for Financial Inclusion, but has permitted non-bank entities to
partner banks in their financial inclusion initiatives.
(ii) As a philosophy, RBI has always encouraged banks to pursue Financial Inclusion as a commercial
activity and to not view it as social service or charity. The self-sustainability and commercial viability of
the financial inclusion initiatives are important if banks have to scale up their operations to cover more
unbanked areas.
(iii) RBI has encouraged banks to leverage technology to attain greater reach and penetration while
keeping the cost of providing financial services to the minimum. While RBI remains technology neutral,
RBI requires banks to seamlessly integrate whatever technology Banks choose, with their CBS
architecture.
(iv) RBI has advised banks to adopt innovative business models and delivery channels to expand their
financial inclusion efforts. There is a need for banks to develop new products and design new delivery
models that are customized to the unique needs of the financially excluded population, both in the rural
and urban areas.
(v) Considering that financial Literacy is an important adjunct for promoting financial inclusion,
consumer protection and ultimately financial stability, RBI has adopted an integrated approach wherein
efforts towards Financial Inclusion and Financial Literacy would go hand in hand. Besides the various
initiatives taken by RBI individually to encourage financial literacy, a National Strategy for Financial
Education (NSFE) has also been finalized under the aegis of the Financial Stability and Development
Council (FSDC) to co-ordinate efforts of various stakeholders involved in this process.
(vi) RBI has been playing a supportive role in financial inclusion by creating a conducive regulatory
environment and providing institutional support to banks in their FI efforts. Importantly, RBI has
provided banks the freedom and the space to determine their own strategies for rolling out financial
inclusion and have encouraged them to identify their own goals and targets through their respective
Financial Inclusion Plans.
(Source RBI Reports 2013)
Initiatives of Reserve Bank of India on Financial Inclusion:
(i)Learning from the experience gained from the outcomes of RBI’s financial inclusion initiatives over the
years, RBI has taken certain additional steps to provide greater impetus to the process of financial
inclusion.
(ii) RBI has encouraged banks to adopt a structured and planned approach to financial inclusion with
commitment at the highest levels, through preparation of Board approved Financial Inclusion Plans
(FIPs). The first phase of FIPs was implemented over the period 2010-2013. The Reserve Bank has
sought to use the FIPs as the basis for financial inclusion initiatives at bank level through certain
measures:
(iii) Banks advised to prepare Board approved FIPs for the period 2013-2016.
(iv) RRBs also advised to prepare comprehensive financial inclusion plans, consequent to their migration
to CBS in 2011.
(v) In order to ensure closer monitoring of FI performance of bank branches, banks have been advised
to disaggregate their FIPs up to controlling office and branch level.
(vi) Structured comprehensive monitoring mechanism put in place by RBI for evaluating banks’
performance against their FIP plans. Annual review meetings are being held with CMDs of banks to
ensure top management support and commitment to the FI process.
(vii) In the Annual Policy Statement for 2013-14, banks have been advised to consider frontloading
(prioritizing) the opening of branches in unbanked rural centers over a three year cycle co-terminus
with their financial inclusion plans. This is expected to facilitate the branch expansion in unbanked rural
centers.
(viii) After successful achievement of the target of ensuring provision of banking services through a
banking outlet in every village with population above 2000 by March 2012, SLBCs were advised to
prepare a road map for provision of banking services in all unbanked villages with population below
2000 in a time bound manner. Under the road map, SLBC’s have identified about 485000 unbanked
villages with population less than 2000 and the same have been allotted to banks.
(ix) An integrated approach has been adopted by RBI for achieving financial inclusion through financial
literacy. Financial Literacy Centers and rural branches of scheduled commercial banks have been
advised by RBI to conduct outdoor Financial Literacy Camps at least once a month.
(x) In order to ensure consistency in the messages reaching the target audience of financially excluded
people through these financial literacy camps, the Reserve Bank has released a comprehensive Financial
Literacy Guide containing guidance note for trainers, operational guidelines for conduct of financial
literacy camps and financial literacy material.
(xi) In order to ensure smooth roll out of the Government’s Direct Benefit Transfer (DBT) initiative,
banks have been advised to:
(xii) Open accounts of all eligible individuals in camp mode with the support of local Government
authorities.
(xiii) Seed the existing and new accounts with Aadhaar numbers.
(xiv) Put in place an effective mechanism to monitor and review the progress in implementation of DBT.
(xv) Emphasis is on increasing the proportion of brick and mortar branches vis-a-vis BC outlets. The
guidelines on opening 25% of all new branches in unbanked rural centres and opening of intermediate
brick and mortar structures have been issued for this purpose.
(xvi) Greater emphasis is being placed on volume of transactions carried out through the newly opened
bank accounts. The monitoring format for progress in FIP has been modified to include detailed
coverage of transactions in savings, credit and EBT accounts through BCs. Besides, banks have also been
advised to monitor cost incurred on financial inclusion activities.( Source : RBI report 2013)
Achievements of Public Sector Banks in Financial Inclusions:
The reality of the progress made by banks under the 3-year FIP (April 2010 - March 2013) on key
parameters itself speaks of the journey traveled so far:(1) Banking outlets in villages have increased to nearly 2, 68,000 from 67,694 outlets in March 2010.
(2) About 7,400 rural branches have been opened during this 3-year period compared with a reduction
of about 1300 rural branches during the last two decades.
(3) Nearly 109 million Basic Savings Bank Deposit Accounts (BSBDAs) have been added, taking the total
number of BSBDA to 182 million. The share of ICT-based accounts has increased substantially. The
percentage of ICT accounts to total BSBDAs increased from 25 per cent in March 2010 to 45 per cent in
March 2013.
(4) With the addition of nearly 9.48 million farm sector households during this period, 33.8 million
households have been provided with small entrepreneurial credit as at the end of March 2013.
(5) With the addition of nearly 2.24 million non-farm sector households during this period, 3.6 million households
have been provided with small entrepreneurial credit as at the end of March 2013. It is important to analyze
this progress against the some disconcerting trends that were noticed in the run up to the structured
Financial Inclusion initiatives that the banks launched since 2010 onwards. First, the number of banked
centers in the country between 1991 and 2007 had actually come down (from 35236 to 34471). Second,
the number of rural branches during the same period had also declined significantly (from 35206 to
30409). Against this backdrop, the progress made during 2010-13 is certainly remarkable.
(6) To enable a successful financial inclusion, innovation of products for the specific needs of the poor is
not only necessary but also an essential condition. Today, banks can provide a bouquet of financial
services through the various networks of agents and branches by leveraging and fine tuning technology
platforms. Technology holds the key to providing models for efficient delivery of small value
transactions in large volumes while reaping economies of scale. The implementation of such effective,
scalable and platform-independent technology will help drive down the cost of providing banking
services to the poor.
(7) The Immediate Payments Service (IMPS), an instantaneous 24x7 electronic funds transfer system
has been developed by the National Payment Corporation of India (NPCI). high inter-bank fund
transfers in a secured manner with immediate confirmation features. The AEPS architecture designed
by Unique Identification Authority of India (UIDAI) in collaboration with the NPCI is a platform which
banks can leverage upon for expanding their financial inclusion initiatives. The basic premise of AEPS is
that one BC Customer Service Point (CSP) will have the ability to service customers of many banks based
on the unique bio-metric identification data stored in the Aadhaar database. The AEPS platform is
expected to empower a bank customer to use Aadhaar as his/her identity to access the respective
Aadhaar enabled bank account and perform basic banking transactions like balance enquiry, cash
withdrawal and deposit through the BC. IMPS facilitate customers to use mobile instruments as a
channel for accessing their bank accounts and put
Financial Inclusion Plan 2013-16
In order to continue with the process of ensuring access to banking services to the excluded, banks have
now been advised to draw up a fresh 3 year Financial Inclusion Plan for the period 2013-16. Banks have
also been advised that the FIPs prepared by them are disaggregated and percolated down up to the
branch level. The disaggregation of the plans is being done with a view to ensure involvement of bank
staff across the hierarchy, in the FI efforts and also to ensure uniformity in the reporting structure under
the Financial Inclusion Plan. The focus is also now more on the volume of transactions in new accounts
opened as a part of the financial inclusion drive.
Financial Inclusion Plan 2013-16
In order to continue with the process of ensuring access to banking services to the excluded, banks have
now been advised to draw up a fresh 3 year Financial Inclusion Plan for the period 2013-16. Banks have
also been advised that the FIPs prepared by them are disaggregated and percolated down up to the
branch level. The desegregation of the plans is being done with a view to ensure involvement of bank
staff across the hierarchy, in the FI efforts and also to ensure uniformity in the reporting structure under
the Financial Inclusion Plan. The focus is also now more on the volume of transactions in new accounts
opened as a part of the financial inclusion drive.
Challenges to Financial Inclusion
While several initiatives are being taken for ensuring widespread financial access, certain factors
continue to impede progress. Some of the major issues that various stakeholders face in their quest for
universal financial inclusion are
1-In India several initiatives are being taken for ensuring widespread financial facilitation to common
and untapped rural and urban society but none of them could reach to the point of remarkable
achievement in last fifteen years.
2-The inclusion programmes are taken as expenditure where as they are investments for bright future
of financial sector in the country.
3- The data facts reveal that in India 58.7% of household’s avail of banking services in which 54.4% are
from rural areas and 67.8% from urban areas.
4- There is a thrust of policy which ensures the financial inclusion through better use of the financial
infrastructure and efficient use of Technology in connecting untapped society in rural and urban areas.
5-Ther is no complete sustainable model for the delivery of financial inclusion programmes in the
country. Public sector banks are adopting their own working plans and strategies for financial inclusion
on the basis of their conveniences.
6- There is no organizational support to bankers for running an effective programme for financial
literacy. Financial literacy is first condition for the implementation of various financial inclusion
programmes.
7- Country like India where villages are scattered there is a need of technology supported
Findings: In India, the financial inclusion movement was initiated by public sector banks in early nineties
and subsequently private sector banks became partners in this movement. On the basis of analysis and
observations made by the researchers here are some findings which may highlight some useful facts for
future planners of financial inclusions.
(1) 1- Financial inclusion is treated as such it is a social responsibility of the bankers where it is a part of
routine business expansion with more concentration towards untouched customer base of
unreached areas The banking organizations need to synchronize their planning process along with
financial inclusion as a essential component.
(2) Target fixing in financial inclusion should be made essentially along with the scopes of revisions
periodically, because there are many factors which may become reason for hindrance in achieving
targets and may be beyond reach and control of bankers.
(3) There cannot be a pure profit making target policy at initial level in the case of first time entry areas
of financial inclusion programmes, Bankers may keep their targets to be at BEP level for the
inclusion targets.
(4) There can be a well trained team to plan strategies for inclusion processes keeping in view the socio
economic parameters of identified areas, there has been a complaint that as many 30% new
accounts opened during efforts in inclusion programmes became inoperative and got to be deleted
from the targets achieved.
(5) The programmes of financial literacy should also be a parallel effort to ensure the responsible
behavior from benefiters of financial inclusion programmes.
(6) Indian villages are scattered hence the policy of appointment of business correspondents
(7) There is a need to ensure that progress on the ground line actions to ensure not only opening of
accounts but also to ensure that other financial advantages are also served along with new accounts to
sustain those accounts are being kept in operating condition in future also.
Suggstions :
(1) Can It be a profitable business or mere a social responsibility issue?: The goal of universal financial
access is yet to receive the complete conviction/ commitment of the Board/ top management of banks.
This is often due to a lack of genuine belief that this can be pursued as a profitable business activity. RBI
has always maintained that the expenses incurred on FI initiatives need to be viewed as an investment
instead of being considered as expenses, and the same should be weighed against present/ future
benefits likely to accrue from the same.
(2) Which can be considered as scalable model for achieving Financial Inclusion?: Another major
challenge is that banks are yet to develop sustainable and scalable business and delivery models to guide
their FI initiatives. While several alternate models have been tried out, the time has come for banks to
zero in on the models that they find most suited to their goals and to focus on scaling up the same.
(3) How to deal with Non operating Saving bank accounts?: While access to financial services has
improved, the usage of the financial infrastructure continues to be tardy. While more than 2.70 lakh
banking outlets are available across the country, the number of transactions in these accounts remains
unimpressive. For instance, nearly half of the Basic Savings Bank Deposit accounts are not seeing
transactions. This not only restricts the potential benefits that could accrue from increased financial
access but also reduces the viability of FI activities for banks and BCs. The reduced viability, in turn,
impacts the scalability of the model, thereby hampering FI efforts.
(4) Problems related to Technology and appropriate Software for low cost services Issues?: While banks
have innovated on technology, the same has not resulted in significant reduction in the cost of providing
financial services. Beneficiaries/ stakeholders often complain of constraints in digital/ physical
connectivity. This coupled with delays in issuance of smart cards, reliability issues in hardware
infrastructure such as hand held devices, etc. have impacted the quick roll out of financial services across
the country. It is, indeed, disheartening to note that India, despite being the software service provider to
the world, is unable to develop reliable software solutions and back office services for supporting our own
FI activities.
(5) Linked issues?: The process of seeding the bank accounts with Aadhaar numbers is faced with various
constraints which could impact the roll out of the Government’s DBT initiatives.
(6)Can it be made a mission? At last, the collective will power of the society and of all the concerned
stakeholders is lacking and, consequently, the mission of complete financial inclusion is yet to become a
national ambition.
(7) Lack of universal approach towards financial inclusion: The current policy objective of inclusive
growth with financial stability cannot be achieved without ensuring universal financial inclusion. RBI‘s
experience suggests that the banks alone will not be able to achieve this unless an entire support system
partners them in this mission. Only the support of policymakers, regulators, governments, IT solution
providers, media and the public at large can bring about a decisive metamorphosis in the journey towards
universal financial inclusion.
(8) Attitude of banks and financial institutions should be positive for financial inclusions:
Financial Inclusion of the unbanked masses is expected to unleash the hugely untapped potential of the
sections of the society that constitute the bottom of the pyramid. However, in pursuing the FI mission,
the normal banking model has been found wanting in terms of cost, scalability, convenience, reliability,
flexibility and continuity. To ensure that the banks give adequate attention to financial inclusion, they
must view this as a viable business proposition rather than as a corporate social responsibility or a
regulatory obligation. For the business to remain viable it would be important to focus on increasing
usage of existing banking infrastructure which would happen only if the banks can offer an entire
bouquet of products and services to the holders of the large number of basic bank accounts opened
during the last three years as also to the new customers that the banks have created.
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Websites
1) http://www.rbi.org.in/scripts/BS_Speeches
Financial Inclusion in India: Journey So Far And Way Forward
(Keynote address delivered by Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India at the
FinanceInclusion Conclave organized by CNBC TV 18 at New Delhi on September 6, 2013)
2) http://www.rbi.org.in/scripts/BS_Speeches
Speech on Financial Inclusion delivered by Dr. (Smt) Deepali Pant Joshi, Executive Director, Reserve
Bank of India at the Vth Dun and Bradstreet Conclave on Financial Inclusion – Kolkata on October 28,
2013
3) http://crisil.com/pdf/corporate/CRISIL-Inclusix.pdf
4) http://www.iosrjournals.org/iosr-jbm/papers/vol1-issue3/D0132529.pdf
5) http://www.studymode.com/essays/Financial-Inclusion-The-Scope-And-1121167.html