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Inclusive Finance in India - Initiatives & Interventions of

Dr. K. Bhanu Prakash1
Dr. J. Chandra Prasad2


1 in 2 adults around 2.5 billion people does not have a formal bank

account. About 80 per cent of the poor living under $2 per day has no bank accounts and 200
million micro-to-medium enterprises in developing economies lack access to affordable
financial services and credit as per World Bank Report. In India, only 1 in 2 Indians has a
savings account, only 1 in 7 Indians has access to banking credit and 11 per cent of bank
branches are limited to its 6 largest cities as per CRISIL Inclusix. The reasons and strategies
for inclusion may vary from country to country and true inclusion can truly lift the standard
of life of the poor and the disadvantaged.
Inclusive Financial System is a sine-qua-non for the socio-economic development of
any nation. Ensuing and ensuring access to appropriate financial products and services
needed by vulnerable groups such as weaker sections and low income groups at an affordable
cost in a fair and transparent manner by mainstream Institutional players is the spirit of
Financial Inclusion. Deposit penetration (DP), Credit penetration (CP), Branch Penetration
(BP) and wide- access to financial services are emerged as key drivers of financial inclusion.
The ambit of financial inclusion includes insurance, money transfer (remittances), social
security, etc.

. Dr. K. BHANU PRAKASH, Associate Professor, VESTAL Institutions, Eluru.

. Dr. J. CHANDRA PRASAD, Director, SKSD Womens College, TANUKU.

The paper deals with the initiatives and interventions embarked by Reserve Bank of
India in changing the face of Inclusive Financial System and also suggesting the measures to
gear up the process of inclusive financing in Indian context.

In the words of Former UN Secretary-General Kofi Annan, The stark reality is that
most poor people in the world still lack access to sustainable financial services, whether it is
savings, credit or insurance. The great challenge before the world is to address the
constraints that exclude people from full participation in the financial sector. Together, we
can build inclusive financial sectors that help people improve their lives.
Globally, 1 in 2 adults around 2.5 billion people does not have a formal bank account.
About 80 per cent of the poor living under $2 per day has no bank accounts and 200 million
micro-to-medium enterprises in developing economies lack access to affordable financial
services and credit as per World Bank Report, 2014.

44% of youth worldwide have an account at a formal financial institution.

1.3 billion women worldwide remain outside the formal financial system

15% of adults in fragile and conflict-affected states have a formal account

23% of adults living on less than $2 per day have a formal account.3
Financial inclusion, or broad access to financial services, is defined as an absence of

price or non- price barriers in the use of financial services. It is a process by which financial
products and services are made available to all classes of the population at a reasonable
price. Governments the world around are concerned to unrestrained access to public goods
and services is the sine-qua-non of an open and efficient society as per World Bank Criterion.
As per the Dr. C. Rangarajan Committee Report

on Financial Inclusion, 2008, defined

. The Global Financial Inclusion (Global Findex) Database, World Bank, 2014.

. Dr. C. Rangarajan Committee Report on Financial Inclusion, 2008.

Financial Inclusion as the process of ensuring access to financial services and timely and
adequate credit where needed by vulnerable groups such as weaker sections and low income
groups at an affordable cost.
Financial inclusion can be broadly defined as an economic state where individuals and
firms are not denied access to basic financial services based on motivations other than
efficiency criteria.

Financial Inclusion in India - An Overview

Financial Inclusion can be defined as a way of liberating the poor from dependence
on indifferently delivered public services and from venal politicians. Further, in order to draw
in the poor, the products should address their needs - a safe place to save, a reliable way to
send and receive money, a quick way to borrow in times of need or to escape the clutches of
the money lender, easy to understand life and health insurance and an avenue to engage in
savings for the old age. It is not a panacea for all 5 As outlined by Rajan, the New Model of
Financial Inclusion cater the needs of households in a following phased manner.

. Basic Suite of Products By Banks, Key To Financial Inclusion: Rajan - The Hindu, 11th Aug, 2014, p.1.

New Model of Financial Inclusion - Household Access To

Financial Services
Source: A Hundred Small Steps - RaghuRam Rajan Committee
Report on Financial Inclusion

Financial Inclusion in India - A Kaleidoscope

Source: Financial Inclusion Lab, 2014.

Of the 24.67 crore households in the country, 10.19 crore do not have access to
banking services. In rural areas, 44 per cent households and in urban areas 33 per cent still do
not have a bank account.6 Hence, the ambit of financial inclusion includes opening up nofrills accounts, improving financial literacy, secured banking, technology enablement,
capacity building and outreach mechanism. The Inclusive Development Model of Financial
Inclusion also considers the idea of inclusive economics and inclusive governance. The RBI
will accordingly nudge banks to offer a basic suite of services.

. The Challenge of Financial Inclusion, The Hindu, 25th Aug, 2014, p.1.

Financial Inclusion in India - The Intervention and

Intermediation of RBI
RBI has adopted a Bank-Led Model for achieving financial inclusion and removed all
regulatory bottlenecks in achieving greater financial inclusion. Some of the key initiatives
include: (i) Open Basic Savings Bank Deposit (BSBD) Account; (ii) Relaxation and
Simplification of KYC Norms; (iii) Simplification of Branch Authorisation Policy;
(iv) Compulsory Requirement of Opening Bank Branches in Unbanked Villages
(Tier 5 and 6); (v) Opening of Intermediate Brick and Mortar Structure; and (vi) Grant of
Credit through KCCs and KSCs etc.,

Financial Inclusion Initiatives:


Branches of Scheduled Commercial Banks

During 2005-06 To 2012-13.

Source: RBI Report on Basic Statistical Returns, 2014.

Due to the relentless efforts of RBI, the number of branches of SCBs spread across
the length and breadth of the country and the braches increased manifold from 68,681 in
March, 2006 to 1,02,343 in March, 2013. The number of branches in Rural Areas
increased from 30,572 to 37,953 during March, 2006 to 2013.


Number of Banking Outlets in Villages During

2009-10 To 2012-13.

Source: RBI Annual Report, 2011-12.

The number of branch outlets in Villages are also increased from 67,694 in March,
2010 to 2,68,454 in March, 2013.

(iii) Number of BSBD Accounts During 2009-10 To


Source: RBI Annual Report, 2012-13.

The number of BSBD Accounts opened increased from 73.45 million in March, 2010
to 182.06 million in March, 2013.

(iv) Number of KCCs During 2009-10 To 2012-13.

Source: RBI Annual Report, 2012-13.

To meet credit requirements of small farmers, banks are advised to issue Kisan Credit
Cards. Upto 31st March, 2013, the total number of KCCs issued remained at 33.79 million
with a total outstanding credit of 2,622.98 billion.

(v) Number of GCCs During 2009-10 To 2012-13.

Source: RBI Annual Report, 2012-13.

Banks have been advised to introduce General Credit Card facility upto Rs. 25,000 at
their Rural and Semi-Urban Branches. As on 31st March, 2013, banks had provided credit
aggregating Rs.76.34 billion in 3.63 million GCC Accounts.

(vi) ICT Based Accounts - BCs

Source: RBI Annual Report, 2012-13.

In order to provide efficient and cost-effective services in un-banked and remote
corners of the country RBI directed commercial banks to provide ICT based banking services
through BCs. The number of ICT transactions through BCs increased from Rs. 26.52 million
in March, 2010 to Rs. 250.46 million in March, 2013. While transactions amount increased
steadily from Rs. 6.92 billion to Rs.233.88 billion during the period.

(vii) Expansion of ATM Network

Source: RBI Report on Trend & Progress of Banking in India,

The total number of ATMs in Rural India witnessed a CAGR of 30.6 per cent during
March, 2010 to March, 2013. The number of ATMs increased from 5,196 in March, 2010 to
11,564 in March, 2013.

(viii) Financial Literacy Moves

Financial Education, Financial Inclusion and Financial Stability are three elements of
Financial Tripod.

Source: RBI Monthly Bulletin, Jan, 2014, p. 32.

While Financial Inclusion works from supply side of providing access to various
financial services, financial education feeds the demand side by promotion awareness among
the people regarding the needs and benefits of financial services offered by banks and other
institutions. These two promote greater financial stability.
Financial Stability Development Council (FSDC) has explicit mandate to focus on
financial inclusion and financial literacy simultaneously. RBI had issued revised guidelines
on the Financial Literacy Centres for promoting financial literacy as a vehicle to speed up the
process of financial inclusion.

The Road Ahead

Keeping in view the importance of inclusive growth, the Government of India
announced a Latest Action Plan as envisaged in the CFIP or Sampoorn Vittiya Samaveshan,
hopes to extend coverage of basic financial services to all excluded households.
In the first phase, the CFIP will endeavour to provide universal access to all the
beneficiaries through sub-service areas (SSAs). Each SSA will consist of 100-1,500 families
in a cluster of villages and each SSA will be serviced by a BC Agent (BCA) whose task it
will be to facilitate account opening and smooth banking operation. A Smart Card (RuPay
card) will be issued to enable customers to operate their accounts even without BCs.
Simultaneously suitable awareness will be created among the financially excluded.
In the second phase, there is a proposal to make available a pension scheme for
identified individuals in the un-organised sector and offer microfinance products through
government-owned insurance companies. By far the biggest challenge is one of altering the
mindset of banks, policy makers and bank customers, both potential and existing.

Think Digitally - Act Locally. The 5 Is viz., Involvement of all stakeholders in

the process of inclusive growth, Introspect various means to achieve this and Innovate new
and specific low-cost solutions, Intervention and Intermediation of RBI as a regulator to fillip
the inclusive growth paves the way to scale India as Top among comity of nations.

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