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Indian Journal of Commerce and management (IJOCAM) volume 2 issue 3 Dec-2014 , ISSN- 2348-4934(P), 2348-6325(O)

Financial Inclusion Initiatives And Practices Of Public Sector Banks In India

Kollu Srinivasa Rao
M.Com., NET

Research Scholar
Former Principal,
Lecturer in Commerce
Govt Degree College, Razole

Dr. J. Chandra Prasad

M.Com.,M.B.A., Ph. D.

Joint Research Director

DNR College,
Bhimavaram., W.G.District.

Abstract
The Economic stability and development of the country depends on its strengthened financial
system. A well structured financial system should be able to channelize the poor in to the
mainstream of the economy and access them to participate and involve actively in the economy.
The Indian economic planning emphasis is laid on Inclusive Growth since the initiation of
Eleventh Five Year Plan. The Financial Inclusion is an off shoot of the concept of the inclusive
growth. Despite of the tremendous work exercised by the banking industry for past four decades
after nationalization of banks in India. There is a large gap between the tasks and results to
inclusion of excluded sections of the society. The wide extent of financial exclusion in India is
visible in the form of high population per bank branch and low proportion of the population have
access to basic financial services. The present study is focus on the Financial Inclusion
Initiatives and its implementation of Public Sector Banks in India.
Key Words: Inclusive Growth, KYC, No-Frills, Credit Cards, PMJDY

Introduction
The Economic stability and development of the country depends on its strengthened financial
system. Today a large segment of people are excluded from the financial services in the developing
countries like India. A well structured financial system should be able to channelize the poor in to
the mainstream of the economy and access them to participate and involve actively in the economy.
Since India is constitutionally proclaimed as a welfare state. The economic system accordingly
runs on the hub of socialistic pattern with the underlying philosophy of uplifting the poor. In this
direction the Indian economic planning emphasis is laid on Inclusive Growth since the initiation
of Eleventh Five Year Plan. The Financial Inclusion is an off shoot of the concept of the inclusive
growth.
Financial Inclusion
Financial Inclusion implies delivery of banking services and credit at an affordable cost to the vast
sections of disadvantaged and low income groups. The various financial services include savings,
loans, insurance, payments, remittance facilities and financial counseling / advisory services by the
formal financial system. Despite of the tremendous work exercised by the banking industry for past
four decades after nationalization of banks in India. There is a large gap between the tasks and
results to inclusion of excluded sections of the society. As per the RBI Statistics 2011, almost half
of the country is unbanked. Only 55 per cent of the population has deposit accounts and 9 per cent
have credit accounts with banks. India has the highest number of households (145million) excluded
from Banking. There was only one bank branch per 14,000 people. Of six lakhs villages in India,
rural branches of SCBs including RRBs number is 33,495. Only a little less than 20 percent of the
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Indian Journal of Commerce and management (IJOCAM) volume 2 issue 3 Dec-2014 , ISSN- 2348-4934(P), 2348-6325(O)

population has any kind of life insurance and 9.6 percent of the population has nonlife insurance
coverage. Just 18 per cent had debit cards and less than 2 per cent had credit cards.
The history of financial inclusion in India is being initiated by the nationalization of banks in 1969
and 1980. Lead Bank Scheme, incorporation of Regional Rural Banks, - all these were initiatives
aimed at taking banking services to the masses. The brick and mortar infrastructure expanded the
number of bank branches from 8,000+ in 1969, when the first set of banks were nationalized, to
1,09,000+ today. Despite this wide network of bank branches spread across the country, banking
has still not reached a large section of the population. The extent of financial exclusion is
staggering. Out of the 6,00,000 habitations in the country, only about 33,000+ had a commercial
bank branch.
Cross Country Analysis
The progress of financial exclusion in India is found to be higher as compared with many
developed and some of the major emerging economies. The wide extent of financial exclusion in
India is visible in the form of high population per bank branch and low proportion of the
population have access to basic financial services like savings accounts, credit facilities, and
credit and debit cards.
Tabe-1: Select Indicators of Financial Inclusion Cross Country Analysis

S.No

Country

Number of
Bank
Branches

Number of
ATMs

Per 1000 KM

Number
of Bank Number
Branches of ATMs
Per 1 lakh

Bank
Deposits

Bank
Credit

as % to GDP

India

30.43

25.43

10.64

8.9

68.43

51.75

China

1428.98

2975.05

23.81

49.56

433.96

287.89

Brazil

7.93

20.55

46.15

119.63

53.26

40.28

Indonesia

8.23

15.91

8.52

16.47

43.36

34.25

Korea

79.07

NA

18.8

NA

80.82

90.65

Mauritius

104.93

210.84

21.29

42.78

170.7

77.82

Mexico

6.15

18.94

14.86

45.77

22.65

18.81

Philippines

16.29

35.75

8.07

17.7

41.93

21.39

South Africa

3.08

17.26

10.71

60.01

45.86

74.45

10

Sri Lanka

41.81

35.72

16.73

14.29

45.72

42.64

11

Thailand

12.14

83.8

11.29

77.95

78.79

95.37

12

Malaysia

6.32

33.98

10.49

56.43

130.82

104.23

13

UK

52.87

260.97

24.87

122.77

406.54

445.86

14

USA

9.58

NA

35.43

NA

57.78

46.83

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15

Switzerland

84.53

166.48

50.97

100.39

151.82

173.26

16

France

40.22

106.22

41.58

109.8

34.77

42.85

Source: Financial Access Survey, IMF; Figures in respect of UK are as on 2010

A birds eye view of the table clearly signifies that the position of India is not satisfactory in
terms of the select parameters like number of bank branches, number of ATMs, bank
deposits as well as bank credit. China is observed standing at the top with respect to almost
all the stated parameters followed by Mauritius and Switzerland and with respect to number
of branches and ATMs. United Kingdom, Mauritius and Switzerland with respect to bank
deposits. Switzerland, Malaysia, Thailand with respect to Bank Credit. The position of
India is at eighth place and tenth with respect to number of bank branches and ATMs per
1000 KM respectively and she is at the eighth and ninth place respectively with respect to
the bank deposits and bank credit as a percentage of Gross Domestic Product.
Expansion of Banking in India
Table-2: Expansion of Banking in India since Nationalization
(Figures in Nos)

Year

1969

2009

2010

2011

2012

2013

CARG
1969 2013

No. of Commercial
Banks

73

170

167

167

173

155

1.73

No. of Bank
Offices

8262

82,897

88,203

94,019

102377

109,811

6.06

Rural and semiurban branches

5172

50,935

53,551

57,167

62,061

68130

6.03

Population per
office

64000

15,000

14,000

13,000

13,000

12000

-3.73

Per capita Deposit

88

33,919

39,107

45,505

51,183

56380

15.82

Per capita Credit of

SCBs

68

24,617

28,431

34,187

38,874

44028

15.85

Source: Commercial Banks at a glance-RBI, Mumbai- different issues

The year 1969 is the landmark year of the nationalization of Indian Banking. It is evident from
the fact that the number of Commercial Banks in India which was 73 in 1969 went up to 155 by
2013 experiencing a growth rate of 1.73 percent. The number of bank offices stood at 109811 in
2013 as against 8262 in 1969 progressing at a growth rate of 6.06 percent. The similar trend of
6.03 percent growth rate is registered with regard to the rural and semi-urban bank offices which
increased from 5172 (1969) to 68130 (2013). During the period the per capita deposits and the
per capita credit of the schedule commercial banks experienced at the rightful growth rate of
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Indian Journal of Commerce and management (IJOCAM) volume 2 issue 3 Dec-2014 , ISSN- 2348-4934(P), 2348-6325(O)

15.82 percent and 15.85 percent. Last but not the least, the population per bank office which was
at a high of 64000 during 1969 dwindled down and stood at 12000 per office by 2013. The
analysis clearly shows that since nationalization, the Indian Banking expanded by leaps and
bounds in the direction of enfolding the rural and semi-urban areas with an underlying philosophy
of Inclusion. Both per capita deposit and per capita credit have expanded about 600 times.
Even accounting for inflation, this is a significant expansion.
Initiatives towards Financial Inclusion

The Reserve Bank of India (RBI) set up the Khan Commission in 2004 to look into financial
inclusion and the recommendations of the commission were incorporated into the mid-term review
of the policy (200506). In India, Financial Inclusion First Featured In 2005, when it was
introduced by K.C. Chakraborthy, the chairman of Indian Bank.
Mangalam became the first
village in India where all households were provided banking facilities.
No-Frills Accounts
In 2005-06, the RBI called upon Indian banks to design a No Frills Account, low minimum
balance maintenance account with simplified norms. As on June 2012, 1385 lakhs No-frills
accounts have been opened by banks with outstanding balance of Rs.12041 Crores. These figures,
respectively, were 734.5 lakhs and Rs 5502 Crores in March 2010. The number of No Frill
Accounts opened is increased from 734.5 lakhs as on March 2010 to 1820.6 lakhs in March 2013.
Relaxation on KYC Norms- A Boost to Inclusion
Know Your Customer (KYC) requirements for opening bank accounts were earlier relaxed for
small accounts in August 2005, simplifying procedure by stipulating that introduction by an
account holder who has been subjected to full KYC drill would suffice for opening such accounts or
the bank can take any evidence as to the identity and address of the customer to the satisfaction of
the bank.
General Purpose Credit Card (GCC)
As per the guidelines of the RBI the banks have been providing General purpose Credit Card
facility at their rural and semi urban branches. The credit facility extended under the Scheme is in
the nature of revolving credit. The GCC-holder is entitled to draw cash from the specified branch of
bank up to the limit sanctioned. Banks have flexibility in fixing the limit based on the assessment of
income and cash flow of the entire household.

Kisan Credit Cards

A Kisan Credit Card is also a credit card which is introduced with a special motto of provide
affordable credit for farmers in India. It was started by the Government of India, Reserve Bank of
India (RBI), and National Bank for Agricultural and Rural Development (NABARD) in 1998-99 to
help farmers access timely and adequate credit.
As per the recent guidelines of the RBI "The repayment period fixed by banks as per the anticipated
harvesting and marketing period for the crops for which a loan has been granted," Also KCC is
used for making mandatory crop insurance, a facility which was not available earlier. Up to March
2013, the total number of KCCs issued to farmers remained at 33.79 million with a total
outstanding credit of Rs. 2622.98 billion.
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ATM
There is a greater concentration of ATMs in urban areas than in rural areas. However, the number
and percentage of ATMs in rural areas has been on a steady rise in recent years. The percentage of
ATMs located in rural areas accounted for 28.4 percent of the total ATMs in the country at endMarch 2009, which increased to 32.7 percent at end-March 2010 (RBI, 2010). The penetration
of ATMs across the country increased in 2012-13 with the total number of ATMs
crossing 1,00,000, clocking a double digit growth during the year.
Mobile Banking
There were 273.54 million mobile subscribers in Rural India, as on March 31, 2011 (TRAI, 2011).
Thus, mobile phones could be a major instrument for rapid up scaling of financial inclusion. RBIs
operative guidelines on Mobile Banking issued in October 2008 were reviewed and relaxed in
December 2009 by enhancing the limits for mobile banking transactions up to INR 50,000 for both
ecommerce and money transfer transactions, and permitting the money transfer facility up to INR
5,000 from a bank account to beneficiaries not having a bank account (RBI, 2010). Mobile banking
presents banks with the lowest per-transaction cost.

Mobile Banking Vans

ICT-enabled Mobile Banking Vans (MBV) could provide efficient and cost-effective banking
services in the unbanked and remotest corners of the country. Bank of Baroda and Indian Bank
have introduced MBVs to provide banking services in the financially excluded regions. The MBVs
units have CBS connectivity to provide all banking services, including deposit and withdrawal of
money. The model has already been successfully tested by Bank of Baroda in Gujarat and Bihar.
Direct Benefit Transfer (DBT) Scheme
In order to facilitate smooth implementation of the Electronic Benefit Transfer scheme for
routing MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act)
wages, other social security benefits including proposed cash transfers with respect to
subsidies on kerosene, LPG and fertilizers. Guidelines were issued on November 30,
2011 to all scheduled commercial banks to ensure opening of Adhaar-enabled bank accounts
of all the beneficiaries including those residing in villages with less than 2,000 populations.
National Rural Livelihood Mission (NRLM)
The Ministry of Rural Development, Government of India has restructured the
Swarnajayanti Gram Swarozgar Yojana (SGSY) as the National Rural Livelihood Mission
(NRLM) with effect from April 1, 2013. NRLM is implemented through scheduled
commercial banks (including RRBs). To begin with, NRLM will ensure that at least one
member from each identified rural poor household, preferably a woman, is brought under
the SHG network in a time bound manner.
Licenses to New Banks in the Private Sector
As per an announcement made in the Union Budget 2010-11, the Reserve Bank of India
put out draft guidelines on licensing of new banks in the private sector on August 29, 2011
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Indian Journal of Commerce and management (IJOCAM) volume 2 issue 3 Dec-2014 , ISSN- 2348-4934(P), 2348-6325(O)

for public comments. The final guidelines were released on February 22, 2013 after
amendments to the Banking Regulation Act, 1949 were made in December 2012.
The Reserve Bank received 26 applications for new bank licenses. The applications are being
processed. A High Level Advisory Committee will screen the applicants. The committee will
make its recommendations to the Reserve Bank of India and the Reserve Banks decision in this
regard will be final.

Self Help Promotion Institutions (SHPI)

RRBs have not only provided financial services to the SHG-Bank Linkage Programme, but have
also played a significant role as SHPIs. As many as 104 RRBs (as on 31 March 2006) are also
functioning as SHPIs with grant assistance from NABARD. Non-availability of good NGOs is a
matter of concern especially in North-Eastern, Central and Eastern Regions. RRBs played a vital
role as SHPIs in such areas.

Bharatiya Mahila Bank Ltd.

In order to address gender related aspects of empowerment and financial inclusion, Union
Budget 2013-14 announced to set up Indias first Womens Bank as a public sector bank with
`10 billion as initial capital. As a follow up, the Reserve Bank gave license to the Bharatiya
Mahila Bank Ltd. on September 25, 2013. It is proposed to open at least 25 per cent of its
branches in unbanked rural centers (population up to 9,999 as per the latest census). It
will also observe the priority sector lending norms as applicable to the domestic banks.
Pradhan Mantri Jan-Dhan Yojna
Pradhan Mantri Jan-Dhan Yojna (PMJDY), an ambitious programme on Financial Inclusion to
cover about 7.5 crores unbanked households in the country was launched here by the Prime
Minister on 28th August, 2014 from Vigyan Bhawan. PMJDY was launched with a target of
bringing in more than 7.5 crores un-banked families into India's banking system by opening more
than 15 crore bank accounts (two bank accounts per household) to be completed by 26th January,
2015. The bank accounts opened under the scheme come with added benefits such as zero balance
facility with RuPay debit card, an accidental insurance cover of Rs 1 lakh to those who open
accounts by January 26, 2015, and a life insurance cover of Rs 30,000 over and above the
accidental cover of Rs 1 lakh.
SUGGESTIONS
Banking exclusion will require a holistic approach on the part of the banks in creating
awareness about financial products, education, and advice on money management, debt
counseling, savings and affordable credit.
Banks should give wide publicity to the facility of no frills account. Technology can be a
very valuable tool in providing access to banking products in remote areas.

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The use of IT also enables banks to handle the enormous increase in the volume of
transactions for millions of households for processing, credit scoring, credit record and
follow up.
An inclusive banking strategy requires a long-term commitment with matching human and
financial resources. Innovative approaches will necessarily require the disruption of
traditional ways of banking, and need leadership from the top to be implemented and
accepted.
Apart from formal banking institutions the role of the self-help group movement and
microfinance institutions (MFIs) is important to improve financial inclusion.
Moreover Financial Inclusion should be imbibed into the course curriculum in high schools
so that the students would understand the importance of financial inclusion for inclusive
growth in the economy which in turn would motivate them to automatically participate in
the financial system.
Banks need to redesign their business strategies to incorporate specific plans to promote
financial inclusion of low income group treating it both a business opportunity as well as a
corporate social responsibility.
References:
1. (www.rbi.org.in, www.Banknetindia.com, http://www.rbi.org.in/scripts/fun_urban.aspx)
2. ML Jhingan, Money, Banking, International trade and Public Finance 7th addition Page No
616, Vrinda Publications (p) Ltd.
3. Report on Financial Inclusion Committee headed by Dr. C.Rangarajan , RBI, 2008, Mumbai
4. Smt. Usha Thorat, Deputy Governor of the Reserve Bank of India at the 4 th Programme on
Human Development and State Finances jointly organized by College of Agricultural Banking,
Reserve Bank of India, UNDP and the Planning Commission, at CAB, Pune on January 16,
2006
5. Guidelines on KYC Norms in Circular No. RBI/ 2013-14/31 UBD.BPD. (PCB).MC.No.16
/12.05.001/2013-14 July 1, 2013 RBI, Mumbai
6. Dr K C Chakrabarty, Deputy Governor of the Reserve Bank of India, at the FICCI (Federation
of Indian Chambers of Commerce & Industry) UNDP (The United Nations Development
Programme) Seminar on Financial Inclusion: Partnership between Banks, MFIs and
Communities, New Delhi, 14 October 2011.
7. RBI Guidelines on KCC RBI/2012-13/162 RPCD.FSD.BC.No.23/05.05.09/2012-13 Dated August 7, 2012
8. Financial Inclusion in India Emerging Profitable Models Dr Debesh Roy Assistant General
Manager NABARD compendium 11:Layout 1 10/21/2011 5:47 PM Page 130 Bancon.
9.
Annual Report for 2011-12 Published Ministry of Finance Government of India, New Delhi,
2012)

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