Financial Literacy: A rural and urban comparative study with

respect to banks
Bachelor of Commerce
Banking & Insurance
Semester V
(2014-2015)
Submitted by
(Krutika Pravin Talekar)
(Roll no. 57)

Parle Tilak Vidyalaya Associations

M.L.DAHANUKAR COLLEGE OF COMMERCE
Dixit Road, Vile-Parle (E)
Mumbai- 400 057.

Financial Literacy: A rural and urban comparative study with

respect to banks
Bachelor of Commerce
Banking & Insurance
Semester V
Submitted
In Partial Fulfillment of the requirements
For the Award of Degree of
Bachelor of Commerce- Banking & Insurance
By
(Krutika Pravin Talekar)
(Roll no. 57)
Parle Tilak Vidyalaya Associations
M.L.DAHANUKAR COLLEGE OF COMMERCE
Dixit Road, Vile-Parle (E)
Mumbai- 400057.
2

DECLARATION

I Krutika Pravin Talekar the student of T.Y.B.Com. Banking &

Insurance Semester V (2014- 2015) hereby declare that I have completed
the project on Financial Literacy: A rural and urban comparative

study with respect to banks.

The information submitted is true and original to the best of my
knowledge.

_____________________
(Signature of Student)
Krutika Pravin Talekar
Roll number 57

M.L.DAHANUKAR COLLEGE OF COMMERCE

Dixit Road, Vile-Parle (E)
Mumbai- 400057.

CERTIFICATE
This is to certify that Mr. /Ms. Krutika Pravin Talekar, Roll no: 57 of
Third Year B.Com. Banking & Insurance, Semester V (2014- 2015) has
successfully completed the project on Financial Literacy: A rural and
urban comparative study with respect to banks under the guidance of
_____________.
Course Coordinator

Principal

Project Guide/ Internal Examiner

External Examiner

ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions in the completion
of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this project.

I would like to thank my Principal, Dr.Madhavi S. Pethe for providing the necessary facilities required for
completion of this project.

I take this opportunity to thank our Coordinator Prof.Mrs.Mitali Shelankar, for her moral support and
guidance.

I would also like to express my sincere gratitude towards my project guide _____________ whose guidance and
care made the project successful.

I would like to thank my College Library, for having provided various reference books and magazines related
to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the completion of
the project especially my Parents and Peers who supported me throughout my project.
5

Table of Contents
SR. NO
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Name of the Topic

Page No

Financial Literacy
Financial Literacy all over the world
Financial Literacy in India
Need of Financial Literacy
Importance of Financial Literacy
Objectives of Financial Literacy
Issues of Financial Literacy in India
Financial Inclusion
Financial Inclusion activities by various banks
Credit counseling
Rural study of Financial Literacy
Urban study of Financial Literacy
Pradhamantri Jan Dhan Yojna
Articles by Economic times
Conclusions Findings And Recommendations
Bibliography

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20
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Executive summary

Financial literacy is the knowledge of finance as well as the awareness of finance and
matters related to it .Financial literacy is low all around the world .In India there need to be a lot
of improvement in literacy rate in terms of finance .People not only in rural areas but also in the
urban areas have less knowledge of finance and banking schemes. Awareness of financial
literacy will lead to a great change in the economic development of the country .There are many
financial inclusion initiatives taken by various banks in order to educate people of India in terms
of finance .The Reserve Bank of India, the development authorities of India and the commercial
and cooperative banks have taken a step forward for the literacy programmes and initiatives to
make India more literate and aware of the financial services useful to them. There are credit
counselling centres (ccls) which are also an important part of the inclusion activities in India.
The rural sector is still to get the benefits of these programmes as most of the rural population is
not aware of it as compared to the urban India. In the recent years India is on a positive side in
terms on financial education .Hence we should learn more and more about finance and
investments as it leads a bright future.

1. FINANCIAL LITERACY

The term can encompass concepts ranging from financial awareness and knowledge,
including of financial products, institutions, and concepts; financial skills, such as the ability to
calculate compound interest payments; and financial capability more generally, in terms of
money management and financial planning.

Financial literacy is the ability to understand how money works in the world: how
someone manages to earn or make it, how that person manages it, how he/she invests it (turn it
into more) and how that person donates it to help others. More specifically, it refers to the set of
skills and knowledge that allows an individual to make informed and effective decisions with all

of their financial resources. Raising interest in personal finance is now a focus of state-run
programs in countries including Australia, Canada, Japan, the United States and the UK.
OECD, defines financial literacy as a combination of financial awareness,
Knowledge, skills, attitude and behaviors necessary to make sound financial decisions and
Ultimately achieve individual financial wellbeing. Financial literacy is expected to impart the
Wherewithal to make ordinary individuals into informed and questioning users of financial
Services. It is not just about markets and investing, but also about saving, budgeting,
Financial planning, basics of banking and most importantly, about being Financially Smart.

Financial literacy is a complex concept, and it is important to understand its full import.
In fact, as a society, we are yet to fully recognize the need and potential of financial literacy. As
I would explain subsequently, financial illiteracy permeates across all levels of society and
Economic strata. The nature of illiteracy and its manifestations may vary, but it gets reflected
in the everyday financial choices that many of us make. The lack of basic knowledge about
Financial products and services and their risk-return framework is one common instance of
Financial illiteracy that is widely observed. The greed for higher returns eventually culminates
into a crisis involving larger number of retail investors. This basic lesson holds true not just
For an individual investing his hard earned savings in financial products, but also for a bank or
financial institution that manages public funds and channels them, either as investments or
loans. Thus, appreciation of various aspects of financial literacy and how it impacts our lives
holds the key to prudent financial planning and welfare maximization, both- at the individual
level and for the society as a whole. Financial literacy is in its self a barrier because it implies
that a person may be financially illiterate. Making financial choices and discussions concerning
money and financial issues can cause a certain level of discomfort if a woman is uncomfortable
discussing it. The label of illiterate creates another barrier. It gives the perception of a person
not understanding or not having the knowledge to understand. The ability to process financial
9

information and make informed decisions about personal finance has received growing attention
in the developed world, and recently, in the developing world, as a potentially important
determinant of household well-being. The term financial literacy is used often but many do not
truly understand the definition. As Stone (2004) states, "financial literacy is the ability to read,
analyze, manage and communicate about the personal financial conditions affecting material
well being". The concept of financial literacy is taking into consideration the ability to balance
your check book or being able to read your financial statements.

A better informed citizen can be more prudent in planning his personal finance
consequently helps in strengthening the countrys economy. It is important that people should
accurately perceive their own economic decision Therefore there should be substantial
contribution from government of India and other non- government organizations.

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Financial Literacy = Financial knowledge + Financial Behaviour + Financial Attitude

Financial Knowledge
About 24% of the respondents exhibited high financial knowledge. This was a relatively
low score compared to the OECD survey across the 13 countries, where on an average, more
than half of the respondents scored high on financial knowledge. The lowest scoring country in
the OCED survey, South Africa, had about one-third respondents with high financial
knowledge. Rest of the countries in the OCED survey had more than 40% of respondents with
high financial knowledge. The performance on different dimensions suggested lack of
understanding of the basic principles related to money in everyday life. Nearly one-third of the
respondents were unable to perform the simple numerical task involving division. Further,
meaningful understanding of inflation was not widespread. Only about 19% of the respondents
understood the impact of inflation on the rate of return. Even on the other dimensions of
financial knowledge, the scores were relatively low compared to the countries surveyed by the
OECD.

Financial Behaviour
A majority of the respondents engaged in desirable financial behaviour when dealing with
personal money and household finance. Based on the financial behaviour score, about 68% of
the employed were classified as possessing positive financial behaviour. This was comparable
with the financial behaviour reported for Germany, Norway, Ireland, Malaysia and Peru by the
OECD survey, where about 60% scored high on financial behaviour (Atkinson and Messy
2012). About 90% of the responded were found to be strongly inclined to assess the
affordability of items. On this dimension, it appeared that respondents in India were not
different from those in several other countries surveyed by the OECD. In fact, Indians appeared
11

to be one among the best in their propensity to assess affordability. Similarly, on timeliness of
the payment of bills respondents from India had scores that were similar to the scores of
respondents from other countries in the OECD survey.
Financial Attitude
The output of detailed analysis of the influence of the explanatory variables using
multinomial logistic regression is presented in Table 5. Gender, family income and decision
making by self were three variables that showed statistically significant influence in both the
sets of comparisons. Unlike effect of gender on financial knowledge and behaviour, women
showed significantly superior financial attitude compared to men. The odds ratios were about 2
and 4 when indifferent financial attitudes was compared with average and positive financial
attitude respectively. While increase in family income increased the chance of positive
compared to indifferent financial attitude, increase in family income decreased the chance of
improvement in financial attitude to average from indifferent. While financial decision making
by self decreased the chance of positive compared to indifferent financial attitude, it increased
the chance of financial attitude being average compared to indifferent. Living in joint family
reduced the chance of positive compared to indifferent financial attitude. Absence of budgeting
improved the chance of positive compared to indifferent financial attitude.

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2. Financial Literacy all over the world

Asia Pacific Middle East Africa

A survey of women consumers across Asia Pacific Middle East Africa (APMEA)
comprises basic money management, financial planning and investment. The top ten of
APMEA Women MasterCard's Financial Literacy Index is: Thai 73.9, New Zealand 71.3,
Australia 70.2, Vietnam 70.1, Singapore 69.4, Taiwan 68.7, Philippines 68.2, Hong Kong 68.0,
Indonesia 66.5 and Malaysia 66.0.

Australia
The Australian Government established a National Consumer and Financial Literacy
Taskforce in 2004, which recommended the establishment of the Financial Literacy Foundation
in 2005. In 2008 the functions of the Foundation were transferred to the Australian Securities
and Investments Commission (ASIC). The Australian Government also runs a range of
programs (such as Money Management) to improve the financial literacy of its Indigenous
population, particularly those living in remote communities.
In 2011 ASIC released a National Financial Literacy Strategy informed by an earlier ASIC
research report 'Financial Literacy and Behavioral Change to enhance the financial wellbeing
of all Australians by improving financial literacy levels. The strategy has four pillars:
1. Education
2. Trusted and independent information, tools and support
3. Additional solutions to drive improved financial wellbeing and behavioral change
13

4. Partnerships with the sectors involved with financial literacy, measuring its impact and
promoting best practice
ASIC's MoneySmart website was one of the key initiatives in the government's strategy, it
replaced the FIDO and Understanding Money websites.
ASIC also has a MoneySmart Teaching website for teachers and educators. It provides
professional learning and other resources to help educators integrate consumer and financial
literacy into teaching and learning programs.

Saudi Arabia
A nationwide survey was conducted by SEDCO Holding in Saudi Arabia to understand
the level of financial literacy in the youth. The survey involved a thousand young Saudi
nationals and the results showed that only 11 percent keep track of their spending; although 75
percent thought they understood the basics of money management. An in-depth analysis of
SEDCOs survey revealed that 45 percent of youngsters do not save any money at all, while
only 20 percent save 10 percent of their monthly income. In terms of spending habits, the study
indicated that items such as mobile phones and travel account for nearly 80 percent of
purchases. Regarding financing their lifestyle, 46 percent of youth rely on their parents to fund
big ticket items. Fortunately, 90 percent of the respondents stated that they are interested in
increasing their financial knowledge.

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Singapore
In Singapore, the National Institute of Education Singapore established the inaugural
Financial Literacy Hub for Teachers in 2007 to empower school teachers to infuse financial
literacy into core curriculum subjects to embed pedagogically sound activities to engage
students in learning. Such day-today relevant and authentic illustrations enhance the experiential
learning to build financial capability in youth. Integral to evidence-based practices in schools,
research on financial literacy is spearheaded by the Hub which has published numerous impact
studies on the effectiveness of financial literacy programs and on the perceptions and attitudes
of teachers and students. A longitudinal study on the impact of financial literacy education on
attitudinal and behavioural change is on-going. The baseline study on financial literacy in
Singapore Schools 2008/9 (Koh, 2011) involved more than 6000 students and a thousand school
teachers. It is the vision of the Hub to empower educators to equip their students to be
financially savvy so as to make informed decisions and exercise discipline in managing their
personal finance. The Hub is committed to spearheading high quality education programmes
with research embedded for continual improvement so as to provide evidence-based practices.
The Singapore government through the Monetary Authority of Singapore funded the
setting up of the Institute for Financial Literacy in July 2012. The Institute is managed jointly by
Money SENSE (a national financial education programme) and the Singapore Polytechnic. This
Institute aims to build core financial capabilities across a broad spectrum of the Singapore
population by providing free and unbiased financial education programmes to working adults
and their families. From July 2012 to May 2014, the Institute has reached out to more than
24,000 people in Singapore via workshops and talks.

15

The United Kingdom

The UK has a dedicated body to promote financial capability - the Money Advice
Service.
The Financial Services Act 2010 included a provision for the FSA to establish
the Consumer Financial Education Body, known as CFEB. From April 26, 2010, CFEB
continued the work of the FSA's Financial Capability Division independently of the FSA, and
on April 4, 2011, was rebranded as the Money Advice Service.
The strategy previously involved the FSA spending about 10 million a year across a
seven-point plan. The priority areas were:
New parents
Schools (a programme being delivered by pfeg)
Young Adults
Workplace
Consumer communications
Online tools
Money advice.

Canada
In 2006, Canadian securities regulators commissioned two national investor surveys to
gauge peoples knowledge and experience with investments and fraud. The results from both
studies demonstrated there is a need better to educate and inform investors about capital
markets and investment fraud. Education in this area is particularly important as investors take
on more risk and responsibility of managing their retirement savings, and a large baby
boomer population enters the retirement years across North America.
16

United States
In America, much of the nation's financial education resources are run through a national
nonprofit organization called Jumpstart Coalition Jumpstart Coalition. Each state, in turn, has its
own chapter organization that holds events and helps members promote financial education to
youth.
The US Treasury established its Office of Financial Education in 2002; and the US
Congress established the Financial Literacy and Education Commission under the Financial
Literacy and Education Improvement Act in 2003. The Commission published its National
Strategy on Financial Literacy in 2006. The Jumpstart Coalition has championed personal
financial literacy in the United States since as early as 1995.
While many organizations have supported the financial literacy movement, they may
differ on their definitions of financial literacy. In a report by the Presidents Advisory Council
on Financial Literacy, the authors called for a consistent definition of financial literacy by which
financial literacy education programs can be judged. They defined financial literacy as the
ability to use knowledge and skills to manage financial resources effectively for a lifetime of
financial well-being.
In 2007, the Institute for Financial Literacy established an annual awards program to
promote the effective delivery of financial products, services and education by acknowledging
the accomplishments of individuals and organizations that advance financial literacy education.
In 2013, winners included Allstate Insurance Company in the category of for-profit organization
of the year, and the iGrad Financial Literacy Platform in the category of best educational
product in debt management.

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3.Financial Literacy in India

Geographical area - 7th largest in the world - Population - 2nd in the world1.2 billion
28 States and 7 Union Territories - 625 districts
600 thousand villages in India. However, only 33495 villages had a bank branch
One branch per 14,000 population - 55 % have deposit accounts & 9 % credit accounts
Multilingual and multiethnic society - High poverty & Illiteracy - Dependence on
informal sources of finance

GENESIS

Financial Literacy was initiated by SEWA Bank in June 2002

Focused within Gujarat
ISMW (Indian school of microfinance for women) startFed CCFL in 2005 with a
commitment to spread it across the country.

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Reserve bank of India and Financial Literacy

The Reserve Bank of India has undertaken a project titled "Project Financial Literacy".
The Objective of the project is to disseminate information regarding the central bank and
general banking concepts to various target groups, including, school and college going children,
women, rural and urban poor, defense personnel and senior citizens.

19

This survey is conducted in the period between February and April 2012 and interviewed
25,500 respondents in 28 countries including global superpowers like USA, Canada and
Australia. Out of a possible score of 100, Brazil topped the charts with a 50.4 followed by
Mexico with 47.8, Australia with 46.3, USA with 44 and Canada with 43.8 in top 5 overall
country ranking. India ranked 23rd as the report termed only 35% of Indian respondents
as financially literate.

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4. Need of Financial Literacy

Financial Literacy, essentially, involves two elements, one of access and the other of
awareness. It is a global issue, and the relative emphasis on the two elements varies from
country to country. For developed countries with widespread financial infrastructure, the
access to financial products/services is not a matter of concern. It is more of a financial
literacy issue in that market players/consumers are required to be educated about the
characteristics of the available financial products/services, including their risks and returns. In
developing countries like India, however, the access to products itself is lacking. Therefore,
here, both the elements, i.e. access and awareness need to be emphasized, with improving
access assuming greater priority.
Financial literacy is an essential pre-requisite for ensuring consumer protection. The low
levels of transparency and the consequent inability of consumers in identifying and
understanding the fine-print from a large volume of information leads to an information
asymmetry between the financial intermediary and the consumer. In this context, financial
education can greatly help the consumers to narrow this information divide. Besides,
knowledge about the existence of an effective grievance redress mechanism is essential for
gaining the confidence of the unbanked population and overcoming apprehensions they may
have about joining, what would appear to be a complex and unfriendly financial marketplace.
For the population group that would have newly entered into the formal financial system
through our financial inclusion initiatives, awareness about the consumer protection
mechanism is critical as any unsavory experience could result in them being permanently
lost to the financial system.

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5. Importance of Financial Literacy

1. More and more, the burden of making sound financial decisions is coming to rest on the
shoulders of consumers. Many companies have shifted their retirement plans from
traditional pension plans to those requiring employees to participate in, pay part of the
cost for, and make investment decisions about. 401(k) plans are the best example of this.
2. Social Security used to be seen as a major source, if not the major source, of retirement
income. Now it serves more like a safety net that will provide enough only for survival,
not enjoyment.
3. We are living longer. This means that we must have accumulated more funds before
retirement to cover living expenses over a longer time. Otherwise, we could become a
burden for our families.
4. The financial environment seems like it is changing faster. Bull markets, bear markets,
rising interest rates, falling interest rates, and the increased number of finance-related
articles with conflicting views in the press can make creating and following a financial
path difficult.
5. There are more financial options. Hundreds of credit card options, several types of
mortgages, different types of IRAs, and the ever-growing number of investment options
further complicate financial decision making.
6. There are more choices of financial services companies. Banks, credit unions, brokerage
firms, insurance firms, credit card companies, mortgage companies, financial planners,
and others are all trying to get your business.

22

7. The numbers themselves seem to have gotten larger. Costs and wages have generally
continued to rise to the point where having an income or retirement nest egg that several
years ago would have seemed luxurious, now just seems barely adequate.

In recent years, financial literacy has gained the attention of a wide range of major banking
companies, government agencies, grass-roots consumer and community interest groups, and
other organizations. Interested groups, including policymakers, are concerned that consumers
lack a working knowledge of financial concepts and do not have the tools they need to make
decisions most advantageous to their economic well-being. Such financial literacy deficiencies
can affect an individual's or family's day-to-day money management and ability to save for
long-term goals such as buying a home, seeking higher education, or financing retirement.
Ineffective money management can also result in behaviors that make consumers vulnerable to
severe financial crises.

Financial literacy allows people to increase and better manage their earnings - and
therefore better manage life events like education, illness, job loss or retirement. It also
promotes understanding and acceptance of important political reforms, such as health care or
pension reforms. While the significance of financial literacy has not yet been fully articulated
and recognized by the international development community - or by policy makers and
practitioners in developing countries - measures to promote and improve financial education are
becoming more frequent.

The providers of financial literacy programs are a diverse group that includes employers,
the military, state cooperative extension services, community colleges, faith-based groups, and
Community-based organizations. Commercial banks are also important providers of financial
literacy education. All but two of the forty-eight retail banks responding to a recent survey by
the Consumer Bankers Association.
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6. Objectives of Financial Literacy

1. To educate the people in rural and urban areas with regard to various financial products
and services available from the formal financial sector
2. To make the people aware of the advantages of being connected with the formal financial
sector
3. To provide face-to-face financial counselling services, including education on responsible
borrowing and offering debt counselling to individuals who are indebted to formal and/or
informal financial sectors
4. To formulate debt restructuring plans for borrowers in distress and recommend the same
to formal financial institutions, including cooperatives, for consideration
5. To take up any such activity that promotes financial literacy, awareness of the banking
products, financial planning and amelioration of debt-related distress of an individual
6. To take up any other activity that facilitates the above.

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7. Issues in Financial Literacy in India

A large population of alphabetically illiterate population - requiring basic financial

knowledge
A large section of financially excluded population- need to be told of benefits of
financial inclusion and also to be provided
A large growing segment of educated middle class-requiring financial education
A growing capital market with increasing retail participation-requiring financial
education and consumer protection
A growing insurance market with participation of private players - need consumer
protection and financial education
A large section of workers having no pension
A move from Defined Benefit Pension Schemes to Defined Contribution Pension
Schemes
Hence, a large workforce need to be told about riskiness of various investment
portfolios

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8. Financial Inclusion

Financial Inclusion is the process of ensuring access to appropriate financial products and
services needed by all sections of the society in general and vulnerable groups such as weaker
sections and low income groups in particular at an affordable cost in a fair and transparent
manner by mainstream institutional players.

Financial Inclusion or inclusive financing is the delivery of financial services at affordable

costs to sections of disadvantaged and low-income segments of society, in contrast to financial
exclusion where those services are not available or affordable. An estimated 2.5 billion
working-age adults globally have no access to the types of formal financial services delivered
by regulated financial institutions. For example in Sub-Saharan Africa only 24% of adults have
a bank account even though Africa's formal financial sector has grown in recent years.[1] It is
argued that as banking services are in the nature of public good; the availability of banking and
payment services to the entire population without discrimination is the prime objective of
financial inclusion public policy.

Financial Inclusion, broadly defined, refers to universal access to a wide range of

financial services at a reasonable cost. These include not only banking products but also other
financial services such as insurance and equity products (The Committee on Financial Sector
Reforms, Chairman: Dr.Raghuram G. Rajan). Household access to financial services is depicted
in following figure.

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Household Access to Financial Services

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Twin Aspects of Financial Inclusion

Financial Inclusion and Financial Literacy are twin pillars. While Financial Inclusion
acts from supply side providing the financial market/services what people demand, Financial
Literacy stimulates the demand side making people aware of what they can demand.

Developing Economies face the problem of low level of literacy, poor accessibility and
low demand. Therefore it is necessary for developing an Index for measuring both Access as
well as the level of Literacy.

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Financial Inclusion through Financial Literacy

Financial Inclusion and Financial Literacy are twin pillars: Financial Literacy stimulates the demand side making people aware of what they can
demand.
Financial Inclusion acts from supply side providing the financial market/services what
people demand.

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Content of Financial Literacy material Simple messages of Financial

Awareness
Why Save?
Why save regularly and consistently?
Why start saving early in your life?
Why save with banks?
Why borrow within Limits?
Why borrow from banks?
Why borrow for income generating purposes?
Why repay loans?
Why you should keep money aside regularly and consistently during your earning life for
pension in old age?
What is interest? How moneylenders charge very high interest rates?

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Methodology - Building Capacity

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9. Financial Inclusion Activities by Various Banks

Reserve Bank of India

The Reserve Bank has undertaken a project titled 'Project Financial Literacy'. The
objective of the project is to disseminate information regarding the central bank and general
banking concepts to various target groups, such as, school and college going children, women,
rural and urban poor, defence personnel and senior citizens. It would be disseminated to the
target audience with the help, among others, of banks, local government machinery, NGOs,
schools, and colleges through presentations, pamphlets, brochures, films, as also through the
Reserve Bank's website. The Reserve Bank has already created a link on its web site for the
common person to give him/her the ease of access to financial information in English and
Hindi, and 12 Indian regional languages.

A financial education site was launched on November 14, 2007 commemorating the
Childrens Day. Mainly aimed at teaching basics of banking, finance and central banking to
children in different age groups, the site will also eventually have information useful to other
target groups, such as, women, rural and urban poor, defence personnel and senior citizens.
The comic books format has been used to explain complexities of banking, finance and central
banking in a simple and interesting way for children. The site has films on security features of
currency notes of different denominations and a games section. The games currently on
display have been especially designed to familiarize school children with Indias various
currency notes. The site will soon be available in Hindi and twelve regional languages.

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In addition, with a view to promoting financial awareness, the Reserve Bank conducted
essay competitions for school children on topics related to banking and financial inclusion. The
Bank has also been participating in exhibitions to spread financial literacy. Last year, it
participated in the exhibition aboard the 'Azadi Express' a train to commemorate 150 years of
Indias freedom struggle which began in the year 1857. The train during a years run will cover
several places in the country. Recently, the Reserve Bank launched RBI Young Scholars Award
Scheme amongst students undergoing undergraduate studies to generate interest in and
create awareness about the banking sector and the Reserve Bank. Under the scheme, up to
150 young scholars would be selected through country-wide competitive examination and
awarded scholarships to work on short duration projects at Reserve Bank.

33

State Bank of India

The Bank has set up 45,487 BC Customer Service Points (CSPs) through alliances both at
National and Regional level.
The Bank is offering various technological enabled products through Business
Correspondent (BC) channel, such as, Savings Bank, flexi RD, STDR, Remittance & SBOD facilities.
The Bank has achieved 100% coverage in 31,729 villages during FY14. The cumulative
coverage has gone up to 52,260 villages.
11,423 BC outlets have been set up in Urban/Metro centres which cater to the
requirements of migrant labourers, vendors, etc. During FY14, 226 lac remittance
transactions for Rs. 9,983 crore were registered through BC channel.
During FY 14, Bank has opened 1.50 crore Small accounts with simplified KYC.
The transactions volume through BC Channel has grown to Rs. 22,525 cr. during FY 14
as against Rs. 13,033 crore during FY13.
With a view to facilitate transactions through alternate channels, the Bank has issued 24
lac FI Rupay ATM Debit Cards to FI customers.
Linking of villages to branches through CSPs in a Hub and Spoke model has been
launched and 69,749 villages have been linked so far. A facility of depositing loan
repayments at 31,919 BC outlets has also been enabled.
Under Direct Benefit Transfer (DBT) Scheme, the Bank has handled 27.41 lac
transactions amounting to Rs. 505 crore as Sponsoring Bank in addition to 7.1 lac
transactions amounting to Rs. 98.61 crore as Receiving Bank. Overall 1.36 crore accounts
linked with Aadhaar across the country.
SBI is the sole Sponsoring Bank for DBT for LPG transactions which are processed
centrally for all the three Oil Marketing Companies. Over 8.98 crore transactions
amounting Rs 5,393 crore processed.

34

 4.46 lac SHGs credit linked with credit deployment of Rs. 5,134 crore. Our market share
in SHGs is 22%.

FINANCIAL LITERACY CENTRES (FLCs)

As per RBI guidelines, the Bank has set up Financial Literacy Centres (FLCs) with the
following objectives:
To facilitate financial inclusion through provision of two essentials i.e. Literacy and easy
access.
To Impart knowledge to be able for financial planning
To inculcate savings habits
To improve the understanding of financial products
For effective use of financial services by common man.

The Financial Literacy Centres (FLCs) will impart financial literacy in the form of simple
messages like Why Save, Why Save early in your Life, Why Save with Banks, Why borrow
from Banks, Why borrow as far as possible for income generating activities, Why repay in time,
Why insure yourself, Why save for your retirement etc.,

Apart from providing financial literacy at the centre itself, the FLCs are conducting Camps
in villages, Seminars and workshops to create awareness among the people.

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Kotak Mahindra Bank

Kotak Mahindra Bank introduced a financial inclusion programme, 'Kotak Samridhi', for
milk producing farmers in West Bengal. The programme will allow registered members of milk
unions to receive payments against supply of milk in their bank or card accounts.

"We are taking concerted efforts to bridge the barriers to formal banking system across
the country through financial inclusion. Kotak Samridhi takes us a step closer towards inclusive
banking as it introduces farmers of village dairy societies in West Bengal to the formal banking
channel," Mahesh Balasubramanian, executive vice president and head of branch banking at
Kotak Mahindra Bank, told reporters here today.

The programme is being implemented in association with National Payment Corporation

of India (NPCI) and AMUL. In the first phase, it will be introduced in 75 villages in Hooghly
and Bardhaman districts of West Bengal covering over 10,000 milk producers. In the next
phase, the bank will launch the programme in Kaira district of Gujarat, covering 1,200 villages
in all and consisting of around 300,000 milk producers.

Kotak Mahindra Bank will set up a network of business correspondent (BC) agents who
will help the members of milk unions to enroll for this programme. The agents will be given
point-of-sale (POS) terminals to facilitate cash withdrawal transactions at BC outlets.

"The milk producers will receive remuneration in their bank or card accounts, and the
automated payment disbursal process will limit risky cash handling. Members will also get
access to NPCI's ATM and POS infrastructure across India. The technology also enables
36

farmers to withdraw cash as desired at the village dairy society itself through the BC network,"
Tushar Trivedi, executive vice president of Kotak Mahindra Bank, said.

Apart from the remittance service, the private lender also aims to offer deposit and loan
products to the milk producers. Balasubramanian said the bank aims to introduce a similar
programme for wheat and paddy in Haryana and Punjab.

Kotak Mahindra Bank had 503 branches at the end of September, 2013. Of these, 119
branches were in semi-urban locations, while 76 branches were in rural centres. The bank plans
to close the current financial year with a network of 600 branches, including 240-250 branches
in semi-urban and rural areas.

37

Bank of Maharashtra
Bank of Maharashtra is the premier bank of Maharashtra, known as a common man's
bank since inception, its initial help to small units has given birth to many of today's
industrial houses The Bank has the largest network of branches by any Public sector bank in
the state of Maharashtra. The Bank was founded by a group of visionaries led by the Late
V. G. Kale and the Late D. K. Sathe and registered as Banking Company on 16 September,
1935 at Pune. Today, Bank of Maharashtra has over 12 million customers across the length
and breadth of the country served through 1577 branches in 23 states and 2 union territories
As on 30.09.2011 Bank has 1564 Branches in all over India.

The Bank has done well to complete networking and interconnectivity of all its
branches across India through core banking solutions (CBS). They have been participating in
our endeavor to promote financial inclusion with measures like No Frill Accounts,
Simplified account opening, KYC Procedure, apart from meeting Priority Sector targets.
With over 54 per cent of the branches located in rural and semi-urban areas,
The Bank has set up a Trust viz. Mahabank Agricultural Research and Rural
Development Foundation (MARDEF), for providing Credit Plus services to the farmers; their
Gramin Mahila via Balak Vikas Mandal (GMBVM) Trust would also help in forming,
nurturing, training and linkage of self-help groups.

25000 Self Help Groups are being financed making it a total of more than 75000 SHGs
financed by them. Today, the Bank has adopted 75 more backward villages for an integrated
development for basic infrastructure in sanitation, healthcare, education, energy and water
conservation in these villages.

38

Indian Bank
National Pilot Project on Financial Inclusion (NPPFI)
Pursuant to the discussion the then Governor, RBI had with the Bankers in the Union
Territory of Puducherry on 21.11.2005, a National Pilot Project on Financial Inclusion
(NPPFI) was conceived and launched on 30.12.2005 by Indian Bank, the SLBC convener
involving all the banks.

As a prelaunch and demonstrative effort, Indian Bank completed the Financial Inclusion
process of providing No frills Savings Bank account to all the households of Mangalam
village in the Union Territory of Puducherry. Thus Mangalam village became the first village
in the country wherein all the households were financially included.
To start with, Bank provided no frills accounts. As a next step small overdraft facilities
were allowed in the SB accounts (OD/SB) in order to cater the account holders general
purpose or consumption needs, which eventually will provide credit history for the future.
Those who took up the income generation activities were provided with General Credit Card
(GCC) facility with a flexibility of rollover.

39

Indian Bank Financial Inclusion - Technological Initiatives:

Banking Service Centre (BSC)

In order to provide banking services to the rural mass and providing on line banking
facilities, the Bank has established 50 BSCs across the country. These centres extend financial
services like cash deposit, cash withdrawal, Transfer transactions, balance enquiry etc.

Mobile Van
Presently, in our Bank, 8 Mobile vans are functioning in various zones covering villages
with population above 2000 as well as below 2000 under Financial Inclusion Plan. So far, 70
locations in the rural areas and providing basic banking access to the villagers under financial
Inclusion. Vans are accompanied by an officer and one clerical staff operated in the villages
on fixed days. Customers are provided with various banking services as that of branches
through these vans.

Ultra Small Branches (USBs)

Ultra Small Branch is an intermediate brick and mortar structure has an area of 100-200
sq.ft set up between the base branch and Field Business Correspondent (FBC) location so as to
provide support to customers through FBC.
Bank has opened 1407 USBs in villages with the population of 2000 and above covered
through FBC model. The designated officer from the branch visits such villages along with
laptop on pre notified fixed day and time every week. The officer will canvass the loan
applications, process and place the proposal for sanction to the base Branch Manager. The
officer also ensures the end use of fund and follow-up for recovery and repayment of the
loans. Cash handling will be done by the FBC.

40

10. Credit Counselling

Credit counseling can be defined as 'counselling that explores the possibility of repaying
debts outside bankruptcy and educates the debtor about credit, budgeting, and financial
management'. It serves three purposes. First, it examines the ways to solve current financial
problems. Second, by educating about the costs of misusing a credit, it improves financial
management. Third, it encourages the distressed people to access the formal financial system.

Credit counseling (known in the United Kingdom as debt counselling) is a process of

offering education to consumers about how to avoid incurring debts that cannot be repaid.
Credit counselling often involves negotiating with creditors to establish a Debt Management
Plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a
repayment plan with the creditor. DMPs, set up by credit counsellors, usually offer reduced
payments, fees and interest rates to the client. Credit counsellors refer to the terms dictated by
the creditors to determine payments or interest reductions offered to consumers in a debt
management plan.

Thus, credit counsellors help their clients find realistic solutions to their problems and
agree on repayments that are achievable. Credit counselling is kept confidential. Counselling
services are generally offered free or for a very nominal charge, so that no undue additional
burden is put on the already indebted customer.

41

Need for Credit Counselling in India

Recent times have seen a significant transformation of the financial landscape shaped by
the forces of globalization, advances in technology, and greater market orientation and financial
innovation. Retail lending has increased phenomenally in the commercial banking sector in
recent years. As commercial banks shifted their focus from traditional need-based lending to a
broad-based portfolio, retail lending became a mainstream business. There has been a rapid
growth in consumer loans, housing loans, credit cards and personal loans. Bank credit to
housing, consumer durables and personal loans (including credit cards) in urban and
metropolitan areas, which covered 8.71 million accounts and stood at Rs.42,700 crore in 2001
rose to 25.5 million accounts totalling to Rs..2,58,000 crore in 2006. The credit growth to these
sectors grew at a Compound Annualised Growth Rate (CAGR) of 43.3 per cent during 2001-06
compared to overall growth of credit of 23.4 per cent in the same period.
In urban areas, with a burgeoning middle-class and changing lifestyle aspirations, more
and more people are resorting to debt to finance their consumption needs, besides asset creation.
In some cases, this could potentially lead to excesses, precipitating defaults. Such defaults could
also be the fall out of circumstances beyond ones control. Costly medical emergencies,
retrenchment from job, hardening of interest rates, etc could inadvertently raise debt burdens in
some cases, not easily manageable within a given income stream. The aggressive marketing of
personal loans and credit cards to vulnerable section of borrowers could also have consequences
of over- indebtedness and rising NPAs.
In rural areas, especially in areas of rain-fed agriculture, vagaries of monsoon, coupled
with lack of adequate risk mitigation policies lead to hardship for the rain-dependent segment of
the farming population. This needs to be considered in conjunction with the fact that the levels
of literacy in our country are still relatively modest at 65.4 per cent in 2001, with wide
differentials between urban and rural areas. In 2001, the proportion of rural literate was about 59
per cent as compared to 80.3 per cent in the urban areas.
42

Issues in setting up of Credit Counselling Centres

Some issues relating to setting up of counselling centres in India that need to be addressed
are as follows:
As credit counselling initiatives, presently, are individualistic efforts of the banks that
have set up counselling centres as Trusts fully funded by them, there is an apprehension
that these centres might be perceived as debt collection wings of the banks concerned.
Thus, although it could be argued that a bank, by virtue of its nature of business, is,
indeed, better placed to take up credit counselling initiatives, there is a need for
appropriate 'firewall' between a bank and the counselling centre set up by it..
A major constraint faced by the counselling centres in their effort to bring about a
solution for the distressed borrowers is the lack of credence attached to the references
made by these centres to banks, on the grounds that they have no locus standi in the
matter. Therefore, there is a need for credit counselling centres to be empowered for
liaising and negotiating with banks on behalf of their customers.
As quality of service is an important aspect, it is desirable to have appropriately benchmarked quality standards for credit counsellors and counselling agencies. Like-wise, it
would also be desirable to have a system of accreditation of counsellors. Once setting up
of counselling centres gather momentum, they could consider forming an association of
credit counsellors.
Enlisting committed and well-trained personnel is crucial for success of counselling
centres this needs to be addressed/ ensured.
Inadequate credit information/credit history of the borrowers or total lack of such
information is another area of concern, which needs to be addressed.
As lack of awareness is major stumbling block in such initiatives, it is necessary to give
wide publicity to the concept of credit counselling and the free availability of such
services.
43

Initiatives taken for Financial Literacy in India

In India Financial Literacy initiative taken by various agencies to enhance financial

capability of Indian population. These initiatives include:
1. RBIs initiative on Financial Literacy
Initiative taken by Reserve Bank of India, Reserve Bank of India has undertaken a project
titled Project Financial Literacy. The objective of this project is to propogate information
regarding the general banking concepts to various target groups, including school and college
students, women, rural and urban poor, defense personnel and senior citizens. The project has
been designed to be implemented in two modules, one module focusing on the economy, RBI
and its activities, and the other module on general banking. The material is created in English
and other vernacular languages. The information is distributed to banks, local government,
schools and colleges through presentations, pamphlets, brochures, films and also through RBIs
website. The other measures implemented by Reserve Bank of India in this regards include
conducting essay competition to promote financial awareness among school children on topic
banking and finance. Recently RBI launched RBI Young Scholars award scheme for
outstanding students in order to generate interest in creating awareness of banking sector of the
country.
2. SEBIs initiative on Financial Literacy
Securities Exchange Board of India has started financial education on a nationwide. To
undertake financial education to various target segments viz. school students, college students,
working executives, middle income group, home makers, retired personnel, self help groups
etc., SEBI has empanelled Financial Educator Resource Persons throughout India. The
Resource Persons are given training on various aspects of finance and equipped with the
knowledge about the financial markets. These SEBI Certified Resource Persons organise
workshops to these target segments on various aspects viz. savings, investment, financial
44

planning, banking, insurance, retirement planning etc. More than 3500 workshops have been
already conducted in various states covering around two lakh and sixty thousand participants.
Investor education programs are conducted by SEBI through investor associations all over the
country. Regional seminars are conducted by SEBI through various stakeholders viz. Stock
Exchanges, Depositories, Mutual Funds Association, Association of Merchant Bankers etc.
SEBI has a dedicated website for investor education wherein study materials are available for
dissemination. SEBI also publishes study materials in English and vernacular languages. Under
Visit SEBI programme, School and college students are encouraged to visit SEBI and
understand its functioning. SEBI has recently set up SEBI Helpline in 14 languages wherein
through a toll free number, investors across the country can access and seek information for
redressal of their grievances and guidance on various issues.
3. IRDAS Initiatives on Financial Education
Insurance Regulatory and Development Authority has taken various initiatives in the area
of financial literacy. Awareness programmes have been conducted on television and radio and
simple messages about the rights and duties of policyholders, channels available for dispute
redressal etc have been propagated through television and radio as well as the print media in
English, Hindi and 11 other Indian languages. IRDA conducts an annual seminar on policy
holder protection and welfare and also partially sponsors seminars on insurance by consumer
bodies. IRDA has done a pan India survey on awareness levels about insurance. IRDA has also
brought out publications of Policyholder Handbooks as well as a comic book series on
insurance. A dedicated website for consumer education in insurance has been launched.

4. PFRDA
The Pension Fund Regulatory and Development Authority, Indias youngest regulator
has been engaged in spreading social security messages to the public. PFRDA has developed
FAQ on pension related topics on its web, and has been associated with various non government
organizations in India in taking the pension services to the disadvantaged community.
45

PFRDAs initiatives have become more broad-based with direct mass publicity on NPS
both as individual model through POPs and group models through Aggregators. PFRDA has
issued advertisements in print media and electronic media through radio and television. PFRDA
appointed intermediaries are called Aggregators who are directly responsible for pension
awareness mostly in vernacular languages and in line with socioeconomic sensibilities.

5. Other Measures
Other than the Reserve bank and other regulators, various NGOs in the country are also
spreading financial literacy in the country. Sanchayan is a NGO dedicated exclusively to
spreading financial literacy and awareness among the youth and adults from low-income
background. Sanchayan conducts free workshops for the underprivileged youth on topics
ranging from the basics of banking, credit cards and PAN cards to the investing in shares and
mutual funds, so that these youth can become financially aware and also a part of the
mainstream banking and financial services industry. Indian School of Microfinance for Women
through its Citi Center for Financial Literacy (CCFL) has formed a network of partner
organizations named National Alliance for Financial Literacy (NAFil) to take financial literacy
as a movement across the country. Also Manndeshi Udyogini Business School for Rural
Women: HSBC has collaborated with Mann Vikas Samajik Sanstha in Satara to provide
financial literacy and management skills to girls and women with no formal education.

46

11. Rural Study of Financial Literacy

The Rural Economy

Rural areas in all countries are immersed in a process of structural change. Agriculture is
increasingly losing importance, but is still important for employment and income. This
development is caused by the emergence of alternative income sources, both within countries
and outside them and by the long-term evolution of international prices. Prices for agricultural
products tend to decrease while the costs of inputs tend to increase6. Although a large share of
the economically active population in developing and transitional countries is still active in
agriculture, its importance as an income source shows a steady decrease worldwide, with
significant differences between continents, countries and specific areas within countries.

The responsibility of meeting the credit needs in the rural areas of India was entrusted
primarily with the cooperative banking sector until about the mid-1960s. As the technological
developments in the agricultural sector started gathering momentum, it was expected that
commercial banks would play an increasing role in the rural credit market through branch
expansion and direct lending. One of the major objectives of the nationalisation of Indian
commercial banks was the improvement of the flow of formal institutional credit into
rural households, especially to the poor, thus relieving them of the burden of usurious debt.

47

Objectives

1. To examine the extent of financial inclusion in rural India

2. To enquire into the role of microfinance in helping the rural population in the case of
financial inclusion.
3. To study the extent of progress made by microfinance in rural India
4. To look into the challenges ahead for microfinance in India

48

Types of sources of Credit

Formal sources of credit
Banks (commercial or government), credit bureaus etc
Problem: often require collateral because of limited liability, which poor peasants cant provide

Informal sources of credit

Can accept less traditional forms of collateral large land owner adjacent to poor farmer
Can more easily monitor each other

Survey Results

51.4% of farmer households are financially excluded from both formal/ informal sources.
Of the total farmer households, only 27% access formal sources of credit; one third of this group
also borrowed from non-formal sources.
Overall, 73% of farmer households have no access to formal sources of credit.
Across regions, financial exclusion is more acute in Central, Eastern and North-Eastern
regions. All three regions together accounted for 64% of all financially excluded farmer
households in the country. Overall indebtedness to formal sources of finance of these three
regions accounted for only 19.66%.
However, over the period of five decades, there has been overall improvement in access
to formal sources4 of credit by the rural households.

49

50

Government of India Population Census 2011

As per census 2011, only 58.7% of households are availing banking services in the
country. However, as compared with previous census 2001, availing of banking services
increased significantly largely on account of increase in banking services in rural areas.

51

Findings on Rural Literacy

About 70 percent of adults in the developing world have no access to financial services, a
percentage far higher in rural areas.

Rural households can have relatively stable incomes. They often have diverse sources of
income from a variety of farm and non-farm activities like trading, food production and
processing, livestock rearing, day labour or seasonal employment on farms or in the city. Access
to financial services that serve productive needs (investing in enterprises, building assets) and
protective purposes (coping strategies for risk exposure), can provide further stability.

52

12. Urban Study of Financial Literacy

Financial literacy is of particular relevance to emerging economies. As these economies
endeavour to improve the financial situation of their citizens by achieving higher economic
growth rates, enhancement of financial literacy would help improve the financial well-being
of their people even further through sound financial decision making.
In addition to providing a comparative picture of the situation of the working young in
urban India with the situation of similar groups in several other countries, this is perhaps
the first study that has rigorously attempted to unravel the determinants of financial
literacy in the context of India. The study is particularly relevant for India given that it is a
young nation with more than 65%3 of its population below the age of 35 and which is
rapidly urbanizing. The study investigates the socio-demographic variables that influence
their financial attitude, financial behaviour and financial knowledge of the working young
in urban India. The study investigates the influence of contextual variables that are unique
to India on financial literacy and provides useful insights for policy making. The study
also examines the relationship among the three dimensions of financial literacy using a
new methodology that is free from the influence of the attributes of the respondents. The
results of such an examination are surprising and instructive.
Several studies have attempted to examine the level of financial literacy in India. Most
of them report that the level of financial literacy in India is poor. For instance, the VISA
(2012) study ranked India at the 23rd position among the 28 countries surveyed. Adopting
the questionnaire developed by the Organisation for Economic Co-operation and
Development (OECD) to facilitate international benchmarking4, this study attempted to
further the knowledge and understanding of financial literacy is India. Compared to some
of the other studies, the OECD approach is more comprehensive as it attempts to measure
the influence of a range of explanatory variables on the three dimensions of financial
literacy, namely, financial attitude, financial behavior and financial knowledge.
53

13. Pradhan Mantri Jan Dhan Yojana

Pradhan Mantri Jan Dhan Yojana (Prime Minister Scheme for People's Wealth) is an
ambitious scheme for comprehensive financial inclusion launched by the Prime Minister of
India, Narendra Modi on 28 August 2014[1] He had announced this scheme on his first
Independence Day speech on 15 August 2014.

Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5
Crore (15 million) bank accounts were opened under this scheme.[2][3] By September 2014,
3.02 crore accounts were opened, with around 1500 crore (US$240 million) were deposited under
the scheme, which also has an option for opening new bank accounts with zero balance.

SBI, India's largest bank had opened 11,300 camps for Jan Dhan Yojana over 30 lakhs
accounts were opened so far, which include 21.16 lakh accounts in rural areas and 8.8 lakh accounts
in urban areas. On the contrast, even taking together all the major private sector banks, have opened
just 5.8 lakh accounts.

54

Purpose
In a run up to the formal launch of this scheme, the Prime Minister personally mailed to
CEOs of all PSU banks to gear up for the gigantic task of enrolling over 7.0 crore (75 million)
households and to open their accounts. In this email he categorically declared that a bank account
for each household was a "national priority".

The scheme has been started with a target to provide 'universal access to banking facilities'
starting with "Basic Banking Accounts" with overdraft facility of Rs.5000 after six months
and RuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card. In
next phase, micro insurance & pension etc. will also be added.
Under the scheme,

Account holders will be provided zero-balance bank account with RuPay debit card, in
addition to accidental insurance cover of Rs 1 lakh.
Those who open accounts by January 26, 2015 over and above the Rs1 lakh accident,
they will be given life insurance cover of Rs 30,000.
Six months of opening of the bank account, holders can avail Rs 5,000 loan from the
bank.
With the introduction of new technology introduced by National Payments Corporation of
India (NPCI), a person can transfer funds, check balance through a normal phone which
was earlier limited only to smart phones so far.
Mobile banking for the poor would be available through National Unified USSD Platform
(NUUP) for which all banks and mobile companies have come together

55

Performance
Due to the preparations done in the run-up, as mentioned above, on the inauguration day,
1.5 Crore (15 million) bank accounts were opened. The Prime Minister said on this occasion"Let us celebrate today as the day of financial freedom." By September 2014, 3.02 crore
accounts were opened under the scheme, amongst Public sector banks, SBI had opened 30 lakh
accounts, followed by Punjab National Bank with 20.24 lakh accounts, Canara Bank 16.21 lakh
accounts, Central Bank of India 15.98 lakh accounts and Bank of Baroda with 14.22 lakh
accounts.

56

14. Articles By Economic Times

Indian women bridging gender gap in Financial Literacy: MasterCard

While people in mature markets may prove to be better financial planners overall, it is
women in emerging markets who remain dominant when it comes to basic money management,
a MasterCard survey has found.
In terms of overall financial literacy, Taiwan and New Zealand tied for first place with a
score of 73 index points each. On the other hand, China and India were ranked the lowest in the
basic money managementindex scoring 55 index points each. Women registered slightly better
scores than men in Asia/Pacific's emerging markets, noted the third edition of the financial
literacy survey.
"It is encouraging to see that women are at par with men when it comes to financial
literacy, but there is still a lot of work to be done to improve levels of financial literacy across
the board," said TV Seshadri, division president, South Asia, MasterCard.
The respondents were asked questions on three aspects of financial literacy - basic money
management skills, investment knowledge and financial planning. The level of basic money
management skills were sought to be determined in terms of budgeting, savings, and
responsibility of credit usage. The study, conducted between April 24 and June 10, 2012, posed
questions to 6,904 respondents, aged between 18 to 64 years across 14 Asia/Pacific countries.

57

Jan Dhan Yojana to help remove poverty, curb corruption: India Inc

The Pradhan Mantri Jan Dhan Yojana scheme will help eradicate poverty and curb
corruption at the grassroot level, industry said today.
"It is an innovative and much-needed step in the right direction which will address the
biggest national challenge i.e. eradication of poverty, through financial inclusion," CIIDirector
General Chandrajit Banerjee said.
On the inaugural day, a record 1.5 crore bank accounts were opened across the country,
the largest such exercise on a single day possibly anywhere in the world.
"The benefits under government's welfare schemes running into thousands of crores of
rupees can be directly transferred to the beneficiaries' accounts. Huge pilferage in the middle
will be eliminated," AssochamSecretary General D S Rawat said.
The plan seeks to give India's poor access to affordable financial services like savings
account, easy credit and insurance, Banerjee said.
"The positive spin-off effects of extending financial services to the masses are multifold
and would clearly impact the overall development trajectory of the
nation," Ficci President Sidharth Birla said.
The key distinction from earlier designs is the introduction of a combination of savings, loans
and insurance products. This would ensure most basic needs of beneficiaries are taken care of,
Birla said.
"Linking financial literacy and direct cash transfer with this programme ensures demand
inducement and sustainability of this model," Birla added.

58

RBI sets up permanent gallery on financial literacy

The Reserve Bank today set up a first of its kind permanent digital gallery here aimed at
spreading awareness on financial literacy.
"It will be a permanent gallery on financial literacy", Reserve Bank of India, Regional
Director, J Sadakkadulla told reporters here.
The gallery, he said, would give information about the fundamentals of financial system
like purpose of savings account, recurring deposits, awareness on banking and financial system
through digital display and by audio-visual facility.
"It is open for public", he said. Similarly, the Reserve Bank has proposed to offer a three
month internship for aspiring post graduates of finance and economics with a monthly stipend
of Rs 12,500, he said.
"It is a three month course and after completion a certificate would be presented to 10
students", he said.
He said the the Reserve Bank of India Quiz planned for this year, was being held in 62
locations across the country on topics like history of RBI, banking and finance topics.
The winners would be able to interact with Reserve Bank Governor Raghuram Rajan, he
said.

59

Financial inclusion plan key criteria for new bank License: RBI
The Reserve Bank today said financial inclusion plan will be an important criteria for
getting new bank licences in the private sector.
The RBI came out with new bank licence guidelines last month wherein it said the
important criterion for processing application would be business model of the applicants and it
should provide for financial inclusion.
"We have also said that new banks are required to establish at least 25 per cent, a quarter,
of their branches in places with less than 10,000 population.
"I do hope that the new bank applicants indeed everybody interested in financial inclusion
will con0jme up with innovative and imaginative ideas," RBI Governor D Subbarao said at an
event here.
As per the guidelines, the interested entities would have to send in their applications by
July 1, 2013.
As per the new norms, the RBI has prescribed private corporates and public sector entities
with 10 years experience to be eligible to apply for new licence.
The initial paid up capital for new banks has been set at Rs 500 crore.
Subbarao said: "A part, indeed an important part of the mandate of central banks is
financial stability and an essential prerequisite for financial stability is financial literacy and
central bank has a unique leverage in providing financial literacy".
Listing the various challenges for financial inclusion, Subbarao said a liberalised Know
Your Customer (KYC) norm and having the unique identity number would help simplify the
process.
He said banks still see financial inclusion as an obligation and not as business opportunity
and hence the reach of inclusion was less.
60

He asked banks to take up financial inclusion as business opportunity to help poor come
under the banking operation.

61

15. CONCLUSIONS FINDINGS AND RECOMMENDATIONS

Financial literacy in India is on the positive side now. The survey conducted by The
Financial Express shows that India has made rapid progress in the field of financial
education among the ten leading nations of the world. The country is now ranked second
in the world with respect of financial literacy. The ING consumer resourcefulness survey
states that the country has a financial literacy level of around 55% second behind the
Japanese. A majority of Indian consumers have not only shown better skills in managing
their financial budget but are also confident of facing any financial impediments in future
as compared to citizens of other nine countries. All these developments can be attributed
as a result of initiatives taken by the Reserve bank of India, commercial banks, NGOs,
SHGs and the government. But the negative side of these is that nearly 98% of Indian
citizens still do not have a Demat account. The country where 48% of the population still
lives on day to day earnings cannot dream of savings and life insurance. However these
inequalities could be overcome if more and more enthusiastic and coordinated efforts are
launched by the aforesaid agencies who are party to financial sector of the country. In this
context, the following recommendations are worth notable to increase the financial
literacy of the country.
Perform shock evaluations of financial literacy programs in developing countries to
augment our understanding of what works in different communities, as well as costs and
benefits of different programmatic approaches.
Support financial literacy programs and schemes to build up insights on valuable
interventions, including new ground-breaking approaches, and to provide test cases for
rigorous impact evaluations.
Develop global guidelines and standards for financial literacy initiatives and consumer
protection frameworks in financial markets and help out stakeholders in implementing
those rules and standards.
62

 Extend baseline surveys of financial capability to developing countries to produce

analogous data on current levels, to monitor progress toward goals, and to provide a
orientation point for impact evaluations.
Endorse the switch over of information on financial literacy between public and private
sectors and across institutions such as worldwide donors, bilateral development agencies,
NGOs, and financial institutions.
Apply lessons from behavioural economics and social marketing to this topic so as to
make the most of results and the skill of consumers to obtain information and then take
action.

63

16. Bibliography
Books
DEAN ROY NASH* FINANCIAL LITERACY: AN INDIAN SCENARIO
Lusardi A. and Mitchell, O. S. (2008). Planning and financial literacy
The Role of Financial Education: The Indian Case' - Inaugural Address by Dr. Y. V. Reddy,
Governor, Reserve Bank of India at the International Conference on Financial Education
organised by OECD and co-hosted by Pension Fund Regulatory and Development Authority

Websites
En.Wikipedia.org
www.slideshare.net
www.economictimes.com
www.rbi.org

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