Financial Inclusion in India – An Assessment

The Indian government and the Reserve Bank of India have been working together to promote financial inclusion as one of the country’s major national goals. Some of the most significant endeavors in the previous five decades involve nationalization of banks and the establishment of a strong branch network, commercial banks, co-operatives, and regional rural banks are all on the timetable required priority sector lending objectives, a lead bank scheme, and more Self-help organisations can be formed, and banks can designate BCs/BFs to aid them , providing door-to-door banking services, zero-balance BSBD accounts, and other services.

Financial Inclusion Importance

Financial inclusion contributes to economic growth by broadening the financial system’s resource base by fostering a savings culture among a large proportion of the rural population. Financial inclusion also protects low-income people’s financial holdings and other resources in the event of an emergency by bringing them within the formal banking industry’s perimeter. Financial inclusion decreases the exploitation of vulnerable populations by usurious money lenders by giving easy access to formal credit.In rural regions, the Gini coefficient increased to 0.28 in 2011-12 from 0.26 in 2004-05, whereas in urban areas, it increased to 0.37 from 0.35.

Financial Exclusion Extent

The amount of financial exclusion is provided from several viewpoints / angularities based on various data sources, such as 

• The Government of India Population Census 2011

• NSSO 70th Round Survey Results

• CRISIL – Inclusix

• According to the Reserve Bank of India

• Results of the IMF’s ‘Financial Access Survey’

• The National Bank for Agriculture and Rural Development (NABARD) conducted an all-India survey on rural financial inclusion in 2016-17.

Results of the NSSO’s 70th Round Survey

Institutional and non-institutional lending sources account for about equal proportions of total credit in India (viz. 49 per cent and 51 per cent). In terms of the function of different entities/banks under the institutional sources category, cooperatives are shown to have played a significantly more prominent role in providing loans to farmers in states like Maharashtra, Gujarat, Kerala, and Punjab. Cooperative societies account for more than a third of loans in these states. Commercial banks and Regional Rural Banks have played a vital role in providing loans to farmer households in most southern states. Nearly a quarter of the loans in these states originate from banks, both directly and indirectly through bank-linked SHGs. Institutional agencies account for 83 percent of all loans taken by major farmers and roughly 60 percent of loans taken by marginal farmers among those who have accessed credit. Moneylenders play a significant role in the lives of farmers in general, and small and marginal farmers in particular.

Financial Inclusion Initiatives

• Advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with the bare minimum of features, such as no minimum balance, deposit and withdrawal of cash at bank branches and ATMs, receipt/credit of funds via electronic payment channels, and the ability to provide an ATM card.

• Relaxed and simplified KYC requirements to make it easier to create bank accounts, particularly for small accounts with balances of less than Rs. 50,000 and annual credits of less than Rs. one lakh. Furthermore, banks are encouraged not to need client introductions while creating bank accounts. Banks are also permitted to utilise the Aadhar Card as confirmation of both identification and address.

• To address the issue of unequal branch distribution, the Simplified Branch Authorization Policy allows domestic SCBs to open branches freely in Tier 2 to Tier 6 cities with populations of less than 1 lakh, subject to reporting. Domestic SCBs in the North-Eastern States and Sikkim can open branches without the RBI’s clearance. With the goal of greater liberalisation, domestic scheduled commercial banks (other than RRBs) have been granted universal authorization to operate branches in Tier 1 centres, subject to specific requirements.

• Banks are required to designate at least 25% of the total number of branches to be opened throughout the year in unbanked (Tier 5 and Tier 6) rural centres under the Compulsory Requirement of Opening Branches in Unbanked Villages.

• Banks have been urged to establish intermediary brick and mortar facilities between their current base branch and BC sites for proper cash management, paperwork, redress of client concerns, and strict oversight of BC activities. This branch might be a low-cost, simple brick-and-mortar facility with the bare minimum of equipment, such as a core banking solution terminal coupled to a pass book printer and a cash safe for bigger client transactions.

Conclusion

Financial inclusion may be described as the process of ensuring vulnerable groups, such as weaker parts and low-income groups, have inexpensive access to financial services and timely and enough financing when they need it. Financial inclusion, in its broadest sense, refers to universal access to a wide variety of affordable financial services. Not just banking goods, but also other financial services such as insurance and equity products are included.