[Indian Economy] RBI prepares Roadmap for 20 years for Financial Inlcusion

What is Financial Inclusion

• Defination: 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 (according to the Committee on Financial Inclusion).

• The Government of India and the Reserve Bank of India have been making concerted efforts to promote financial inclusion as one of the important national objectives of the country. Some of the major efforts made in the last five decades include - nationalization of banks, building up of robust branch network of scheduled commercial banks, co-operatives and regional rural banks, introduction of mandated priority sector lending targets, lead bank scheme, formation of self-help groups, permitting BCs/BFs to be appointed by banks to provide door step delivery of banking services, zero balance BSBD accounts, etc. The fundamental objective of all these initiatives is to reach the large sections of the hitherto financially excluded Indian population.

• The essence of financial inclusion is to ensure delivery of financial services which include - bank accounts for savings and transactional purposes, low cost credit for productive, personal and other purposes, financial advisory services, insurance facilities (life and non-life)

The extent of Financial Inclusion/Sources of Financial Inclusion:

Financial Inclusion is based on the study from the five different sources like..

1. NSSO 59th Round Survey Results
2. Government of India Population Census 2011,
3. CRISIL-Inclusix
4. RBI Working Paper Series Study on ‘Financial Inclusion in India: A Case-study of West Bengal’
5. World Bank ‘Financial Access Survey’ Results

Results : NSSO

• 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

Financial Inclusion: RBI Policy Initiatives

1. Advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with minimum common facilities [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.]
2. Relaxed and simplified KYC norms to facilitate easy opening of bank accounts,
3. Simplified Branch Authorization Policy, to address the issue of uneven spread bank branches,
4. Compulsory Requirement of Opening Branches in Un-banked Villages, banks are directed to allocate at least 25% of the total number of branches
5. Opening of intermediate brick and mortar structure, for effective cash management, documentation, redressal of customer grievances and close supervision of BC operations
6. Public and private sector banks had been advised to submit board approved three year Financial Inclusion Plan (FIP) starting from April 2010.
7. Banks have been advised that their FIPs should be disaggregated and percolated down up to the branch level. This would ensure the involvement of all stakeholders in the financial inclusion efforts.
8. Revised guidelines on Financial Literacy Centres (FLCs), through conduct of outdoor Financial Literacy Camps at least once a month,
9. Banks have been advised to issue KCCs to small farmers for meeting their credit requirements
10. The total number of ATMs in rural India witnessed a CAGR of 30.6% during March 2010 to March 2013.
11. MSME sector which has large employment potential of 59.7 million persons over 26.1 million enterprises, is considered as an engine for economic growth and promoting financial inclusion in rural areas.
12. SHG-- This model helps in bringing more people under sustainable development in a cost effective manner within a short span of time.

In the NEWS: Prime Minister Narendra Modi on Thursday asked the Reserve Bank to prepare a 20-year road map for financial inclusion and nudged banks to be considerate in giving loans to the poor as also while making recoveries from them, especially farmers. RBI will be completing 100 years in 2035...it will be appropriate for the central bank to work on the theme of financial inclusion and prepare a road map for achieving it,

The other milestones for achieving financial inclusion could be 150th birth anniversary of Mahatma Gandhi in 2019, 75th year of Independence in 2022, 90th anniversary of RBI in 2025 and 100 years of RBI in 2035, the Prime Minister said. The Prime Minister also called upon the bankers to extend credit to resource rich eastern states.
Source: The Hindu