Financial Inclusion in India: An Overview

Ms. Bhagyashree H. Chauhan

Research Scholar, MES Abasaheb Garware College Pune.
chauhan.bhagya@gmail.com

Poverty is the worst form of violence. - Mahatma Gandhi

Abstract
The need of growing Indian economy is to curb challenges like poverty, unemployment and
to bring financial prosperity to weaker section of society .The RBI Governor has considered
Financial inclusion as one of the key pillar in Economic Development Reforms and taken
initiative to achieve the goal of financial inclusion in effective manner. Inclusive growth is
much needed to include common people into the orbit of development. Inclusive growth
refers to both the pace and pattern of economic growth. It emphasizes on productive
employment rather than on income redistribution. Financial inclusion is a part of inclusive
growth. 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. The paper attempts to study the
overview of financial inclusion in India. The paper also highlight the role of RBI in financial
inclusion, the present scenario of financial inclusion, & various measures taken by RBI and
Government of India for promoting financial inclusion.
Keywords: Financial Inclusion, Poverty, RBI, Economic Growth, Indian Economy.

The test of our progress is not whether we add more to the abundance of those who
have much; it is whether we provide enough for those who have too little.

- Franklin D. Roosevelt

Introduction
The term Financial Inclusion has gained importance since the early 2000s, and is a result of
findings about financial exclusion and its direct correlation to poverty.
Financial inclusion is the delivery of financial services at affordable costs to vast sections of
disadvantaged and low income groups. Financial inclusion of the unbanked masses is a
critical step that requires political will, bureaucratic support and dogged persuasion by RBI.
As the approach of 12th five year plan (2012-2017) is faster, sustainable and more inclusive
growth. The issue of financial inclusion is emerging as the new paradigm of economic
growth. Financial inclusion plays a major role in driving a way the poverty from the country.
The main focus of financial inclusion in India is to promote sustainable development and
generating employment in rural areas for the rural population. The policy makers have been
focusing on financial inclusion of Indian rural and semi-rural areas primarily for most
important pressing needs; (1) Creating a platform for inculcating the habit to save money,
(2) Providing formal credit avenues,
(3) Plug gaps and leaks in public subsidies and welfare programme.
Our Prime Minister started a program named Pradhan Mantri Jan Dhan Yojana which is
nothing but an inclusive financing strategy as it focuses to take into account all the low
income segments of the society and provide the financial services at affordable costs i.e. no
minimum balance requirement, interest on deposit to be given, life insurance cover of Rs.
30,000/-, easy transfer of money across India, access to pension etc.

Concept of Financial Inclusion

The concept of financial inclusion has a special significance for growing economy like India
as bringing the large segment of the productive sectors of the economy under formal financial
network.
Dr. C. Rangarajan, Chairman: The Committee on Financial Inclusion: Financial inclusion
may be defined 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
Dr. Raghuram G. Rajan, Chairman: The Committee on Financial Sector Reforms: Financial
Inclusion 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.
Planning Commission Government of India committee on financial sector reform
mentions that 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.
RBI defines financial inclusion as a 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 regulated mainstream institutional players.

Objectives of the Study

1. To evaluate the role of Reserve Bank of India (RBI) towards Financial Inclusion.
2. To analyze the present scenario of Financial Inclusion in Indian Economy.
3. To list the various measures of Reserve Bank of India (RBI) and Government of India
(GOI) with respect to Financial Inclusion.

Research Methodology
The present paper is based on secondary data. The data used for the study have been collected
from RBI bulletin, annual reports of RBI, various reputed journals, newspapers and websites
of RBI, NABARD (National Bank for Agricultural and Rural Development) and Ministry of
Finance, Government of India (GoI).

Analysis of the Study

A Financial inclusion conference was organized by the Reserve Bank in Mumbai on April 2,
2015. The Prime Minister of India was the chief guest on the occasion. Other dignitaries who
attended the conference included the Governor of Maharashtra, the Finance Minister of India
and the Chief Minister of Maharashtra, apart from experts from the banking and finance
fraternity. The Prime Minister released the Concise History of Reserve Bank of India: 1935-
1981 at the function. The Prime Minister encouraged the Reserve Bank to prepare a roadmap
for achieving financial inclusion objectives by setting targets in a phased manner till the
centenary year of the establishment of the Reserve Bank. Panel discussions were held on the
following topics as part of the conference:
(i) Financial Inclusion - Let All Efforts Bloom;
(ii) Building the Business Case for Financial Inclusion - Whether BC Model is the
Way to go?
 (iii) Financial Inclusion - the Way Forward; and
(iv) The linkage between Financial Inclusion, Financial Literacy and Consumer
Protection.
Some of the key points which emerged from the discussions are:
Concerted efforts of the Government of India, theReserve Bank and banks are
necessary to further the financial inclusion agenda. The strategy to realize this goal
will comprise of a mix of conducive policy environment, use of innovative
channels/technology and optimal utilization of the BC model.
The risks associated with the BC model can be mitigatedby putting in place a secure
system, use of appropriate technology, effective supervision, efficient cash
management services and capacity building.
Raising the level of acceptance of technology bycustomers will require sustained
financial literacy initiatives on the part of bankers.
Customers awareness about their rights and duties is integral to developing a
conducive consumer protection environment. This will also necessitate banks to
develop strong internal grievance redressal mechanisms.

Economic resources of the country should be utilized for the well- being
of the poor. Then change will commence from this point.
Shri. Narendra Modi Honble Prime Minister of India.

Role of RBI in Financial Inclusion

RBI has been pursuing the goal of financial inclusion for a long time. RBIs financial
inclusion efforts can be traced back to the 1960s when the focus was on channelising of credit
to the neglected sectors of the economy and weaker sections of the population. While the
Government of India nationalised the banking operations of few commercial banks in two
tranches in 1969 and 1980; RBI also took initiatives like laying down priority sector lending
requirements for banks, Lead Bank Scheme, establishment of Regional Rural Banks (RRBs-
1975-76), Service Area Approach (1989), Self-Help Group-Bank Linkage Programme (1989-
90), setting up of Local Area Banks etc., all aimed at making available benefits of banking
services to the masses. Although these measures resulted in impressive gains in enhancing the
outreach of banking services and extent of credit to the population, there were certain
structural challenges which impeded the progress of financial inclusion.

On the supply side, absence of technology was a major impediment as it restricted expansion
of banking services to far-flung areas of the country comprising of 600 thousand plus
villages. In the absence of technology, developing a cost-effective delivery model also
remained a challenge. Since 2006, RBI has adopted a planned and structured approach to
address the issues of financial inclusion. RBIs approach has been to focus both on the
demand as well as on the supply side. This has in alarge way been possible due to the
availability of technology and its gradual adoption within the banking processes.

Institutionalization of the framework of Banking Correspondents (BCs) has been a major step
towards enhancing access of banking services. RBI advocated a combination of Brick and
Mortar structure with Mouse and Click technology for extending financial inclusion in
geographically dispersed areas. On the regulatory side, the banks were mandated to open at
least 25 per cent of their new branches in unbanked rural centers. Taking into account the
difficulties encountered by common people in meeting the Know Your Customer (KYC)
requirements for opening bank accounts, several measures were taken. For example, RBI
allowed banks to accept self certification for opening of basic service bank accounts. RBI has
encouraged banks to open Aadhaar Enabled Bank Accounts by linking Aadhaar numbers of
individuals, wherever available, with the Basic Savings Bank Accounts opened for them, so
that their credit histories can also be built up over time. Co-terminus with the above efforts,
RBI also 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 two phases of FIPs implemented over 2010-13 and 2013-16
were interspersed with the implementation of PMJDY by the Government of India during
2014-15, whereby the supply side efforts received an extra push.

Snapshot of Progress

i) The number of banking outlets in villages went up from 67,694 in March 2010 to
5,86,307 in March 2016 after RBI permitted appointment of BCs and laid out a
roadmap for spreading banking services in rural India through a mix of bank
branches and BC outlets. In addition, the number of urban locations covered through
BCs has also surged from 447 in March 2010 to 1, 02,552 in March 2016.

ii) The Basic Savings Bank Deposit Accounts (BSBDAs) have gone up from 73 million
in March 2010 to 469 million as on March 31, 2016. Under the PMJDY alone, until
June 1, 2016t, 220 mn accounts have been opened with an approximate balance of
`384 bn.

iii) There were 47.31 million small farm sector credit accounts and 11.3 million small
nonfarm sector credit accounts with an outstanding of `5130.7 billion and `1493.3
billion outstanding respectively as on March 31, 2016. The number of small farm and
non-farm sector credit accounts stood at 24.3 million and 1.4 mn respectively in
March 2010.

iv) The total number of transactions in BC-ICT accounts which were around 26 million
during 2010-11 has increased to 826.81 million as on March 31, 2016.
Chidambaram comments Our banks can be the best banks only when they take their
services to the remotest part of the country. We expect to have complete financial inclusion in
the next five years. Today, no banker worth his salt can succeed without financial inclusion.
The road is long but I believe it can be easily traversed.

Financial Inclusion in India

I. Financial Inclusion Plan (FIP)

The Reserve Bank of India has been encouraging banks to adopt a structured and planned
approach to financial inclusion with commitment at the highest levels by preparing board
approved financial inclusion plans. Out of 3,445 rural branches opened during 2014-15,
2,230 branches were opened in unbanked rural canters. Around 155 million basic savings
bank deposit accounts were added taking the total basic savings bank deposit accounts to
398 million. This includes 147 million accounts opened under PMJDY. With the addition
of 2.6 million small farm sector credits (KCCs) and 1.8 million small non farms sector
credits (GCCs), the total number and 9.2 million respectively.

Financial Inclusion Plan (Summary Progress of all Banks including RRBs)

Financial Inclusion Plan-Summary Progress of All Banks Including RRBs
Particulars Year ended Year ended Year ended Progress
March 2010 March 2014 Mar 2015 April 2014-
March 2015
1 2 3 4 5
Banking Outlets in Villages - Branches 33,378 46,126 49,571 3,445
Banking Outlets in Villages Branchless mode 34,316 337,678 504,142 166,464
Banking Outlets in Villages -Total 67,694 383,804 553,713 169,909
Urban Locations covered through BCs 447 60,730 96,847 36.117
Basic Savings Bank Deposit A/c through branches 60.2 126.0 210.3 84.3
(No. in million)
Basic Savings Bank Deposit A/c through branches 44.3 273.3 365.0 91.7
(Amt. in billion)
Basic Savings Bank Deposit A/c through BCs (No. in 13.3 116.9 187.8 70.9
million)
Basic Savings Bank Deposit A/c through BCs (Amt. in 10.7 39.0 74.6 35.6
billion)
BSBDAs Total (No. in million) 73.5 243.0 398.1 155.1
BSBDAs Total (Amt. in billion) 55 212.3 439.5 127.3
OD facility availed in BSBDAs (No. in million) 0.2 5.9 7.6 1.7
OD facility availed in BSBDAs (Amt. in billion) 0.1 16.0 19.9 3.9
KCCs (No. in million) 24.3 39.9 42.5 2.6
KCCs (Amt. in billion) 1,2401.1 3,684.5 4,382.3 697.8
GCC (No. in million) 1.4 7.4 9.2 1.8
GCC (Amt. in billion) 35.1 1,096.9 1,301.6 204.7
ICT A/Cs BC Transaction (No in million)* 26.5 328.6 477.0 477.0
ICT A/Cs BC Transaction (Amt. in billion)* 6.9 524.4 859.8 859.8
*: During the Financial Year
Source: RBI Annual Report 2015.

II. Overview and progress on financial inclusion

Financial inclusion is an important priority of the Government. 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.
Position of Households Availing Banking Services
Particular Total no. of No. of Percentage No. of Households Number Percentage
Households Households availing banking
availing services
 banking
services
Rural 1,38,271,559 4,16,39,949 30.1 16,78,26,730 9,13,69,805 54.4
Urban 5,36,92,376 2,65,90,693 49.5 7,88,65,937 5,34,44,983 67.8
Total 19,19,63,935 6,82,30,642 35.5 24,66,92,667 14,48,14,788 58.7
Source: RBI Annual Report

Number of Functioning Branches of Public Sector Banks-Population

Group Wise
Particular Rural Semi Urban Urban Metropolitan Total
31-03-2011 20658 16217 13450 12612 62937
31-03-2012 22379 17905 14322 13244 67850
31-03-2013 24243 19642 15055 13797 72737
31-03-2014 27547 21952 16319 14644 80462
31-03-2015 29634 23549 17387 15325 85895
Source: RBI Annual Report

Population Group Wise Number of Branches of Scheduled Commercial

Banks (SCBs)

As on Rural Semi Urban Urban Metropolitan Total

31-03-2011 33923 23089 17629 16255 90896
31-03-2012 36546 25834 18879 17274 98533
31-03-2013 39816 28546 19935 18092 106389
31-03-2014 45293 31530 21532 19275 117630
31-03-2015 48557 33766 23036 20498 125857
Source: RBI Annual Report

Bank Group and Population Group Wise Number of Functioning

Branches as on 31st March, 2015
Bank Group Rural Semi Urban Urban Metropolitan Total
SBI and its Associates 8029 6593 4304 3622 22548
Nationalized banks 21228 16428 12604 11325 61585
Other Public Sector 377 528 479 378 1762
Banks
Private Sector Banks 4302 6457 4521 4698 19978
Foreign Banks 8 12 57 247 324
Regional Rural Banks 14613 3748 1071 228 19660
Grand Total 48557 33766 23036 20498 125857
Source: RBI Annual Report

Number of ATMs of Public Sector Banks (PSBs)

As on Off site ATMs On site ATMs Total ATMs
31-03-2011 20032 30201 50233
31-03-2012 24181 34012 58193
31-03-2013 29411 40241 69652
31-03-2014 44504 65920 110424
31-03-2015 58763 69902 128665
30-06-2015 59245 71979 131224
Source: RBI Annual Report

Graphical Presentation:
 140000
120000
100000
80000
60000 Off site ATM s On site ATM s Total ATM s
40000
20000
0
31-03-2011 31-03-2012 31-03-2013 31-03-2014 31-03-2015

Number of ATMs of Scheduled Commercial Banks (SCBs)

As on Off site ATMs On site ATMs Total ATMs
31-03-2011 34377 41268 75645
31-03-2012 48141 47546 95686
31-03-2013 58254 55760 114014
31-03-2014 76676 83379 160055
31-03-2015 92191 89061 181252
30-06-2015 92735 91486 184221
Source: RBI Annual Report

III. Financial Literacy

The Reserve Banks efforts to expand financial literacy are channelled through banks. In
terms of current instructions, financial literacy centres (FLCs) and rural branches of banks are
required to conduct financial literacy camps at least once a month with focus on financially
excluded people. Additionally, banks are encouraged to conduct such camps in unbanked
locations. As at end March 2015, 1,181 FLCs were operational in the country, up from 942 as
at end March 2014. During the period April 2014 to March 2015, financial literacy camps
were conducted by 32,509 rural branches of banks and 1.4 million and 5.7 million
participants opened accounts in the camps organised by the FLCs and rural branches of
banks, respectively.
Activities Undertaken by Financial Literacy Centres
Particulars 2013-14 2014-15#
(April-March) (April-March)
1 2 3
No. of operational FLCs 942 1,181
No. of activities conducted* 56,985 84,089
Total no. of participants* 3,826,068 5,238,358
No. of participants opened accounts after attending the camps NA 1,442,546
No. of participants already having accounts while attending camps NA
2,890,204
*: Includes both outdoor and indoor activities. However, indoor activities have been discontinued w.e.f. April 2014.
NA: Not available.
#: Provisional.
Source: RBI Annual Report

Measures taken by RBI and GOI for Financial Inclusion

All the regulatory blockages have been removed by the RBI for achieving the financial
inclusion. The government of India has been taking efforts for inclusion like creation of State
Bank of India in 1955, nationalization of commercial banks in 1969 and 1980, initiating the
Lead Bank Scheme in 1970, establishing Regional Rural Banks (RRBs) in 1975, introducing
a Self-Help Group (SHG) - Bank Linkage Programme in 1992 and formulating the Kisan
Credit Card scheme in 2001. The measures taken to structure financial inclusive system by
Reserve bank of India and the Government of India since 2005 are as follows:
- Introduction of No Frill accounts
- The RBI has taken several steps to push up the financial inclusion drive by giving the
permission to banks to offer more products and have easier KYC (know-your-customer)
norms to open bank accounts under the Pradhan Mantri Jan Dhan Yojana by allowing
acceptance of only one of the documents - proof of address or proof of identity.
- Intermediaries like non government organizations, Self Help Groups (SHGs) and Micro
Finance Institutions (MFI) and other societal association as business facilitator.
- Business Facilitator and Business correspondent model.
- In the Union Budget 2007-08, the government announced the creation of two funds-
Financial Inclusion Fund and Financial Inclusion Technology Development Fund
- Project Financial Literacy, Financial Literacy and Credit Counseling.
- RBI Regional Director for New Delhi Deepak Singhal said "We are furthering financial
inclusion in a mission mode through a combination of strategies ranging from relaxation of
KYC regulatory guidelines, provision of new products and supportive measures to achieve
sustainable and scalable Financial Inclusion
- The regulations have been made with a motive of access of banking services to more than
6lakh villages and to make it compulsory for the banks to open 25 per cent of branches in
rural areas as the RBI will easily grant the license to the banks.
- The mobile banking may be expanded as a part of financial inclusion drive to target
7.5crore bank accounts by 2018
- All the banks are advised to open Basic Saving Bank Deposit (BSBD) accounts with
minimum common facilities such as no minimum balance, deposit and withdrawal of cash at
bank branch and ATMs, receipt/ credit of money through electronic payment channels,
facility of providing ATM card. - The two-phase financial inclusion programme has been
constructed by the government wherein an overdraft facility of Rs. 5,000 would be provided
to 15crore people by August, 2018
- The banks are also encouraged to offer a general-purpose credit card (GCC) facility at their
rural and semi-urban branches. The credit to the cardholder will be up to Rs. 25,000.

Conclusion
Financial inclusion is a strategy adopted by Reserve Bank of India (RBI) to achieve an
inclusive growth in the country. If it is properly implemented and executed in every part of
the country, then this can lift the standard of living of the majority of the poor people in the
country. Financial inclusion will be an important element in ensuring access and equity,
necessary building blocks for the sustainable growth of our country.
Dr. Y.V.Reddy, former Reserve Bank of India (RBI) Governor said,
Financial inclusion is not a matter of philosophy but can lead to a win-win situation for the
banks and the customers Treat financial inclusion as investment for business. Its the mass
movies that make money.

References

1. Annual Report of RBI.

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of Business and Management (IOSR-JBM), Volume 18, Issue 2 .Ver. I e-ISSN: 2278-
487X, p-ISSN: 2319-7668, PP 3744.
5. https://en.wikipedia.org/wiki/Financial_inclusion.
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1784.pp.29-35.
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BRICS Workshop on Financial Inclusion in Mumbai on September 19.