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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

newspapers and websites of RBI. Rangarajan. easy transfer of money across India. 2.000/-. interest on deposit to be given. Other dignitaries who attended the conference included the Governor of Maharashtra. access to pension etc. The data used for the study have been collected from RBI bulletin. at an affordable cost in a fair and transparent manner by regulated mainstream institutional players”. apart from experts from the banking and finance fraternity. The Prime Minister of India was the chief guest on the occasion. Government of India (GoI).e. (ii) ‘Building the Business Case for Financial Inclusion . The Prime Minister released the Concise History of Reserve Bank of India: 1935- 1981 at the function.income segments of the society and provide the financial services at affordable costs i. the Finance Minister of India and the Chief Minister of Maharashtra. C. Objectives of the Study 1. annual reports of RBI. To evaluate the role of Reserve Bank of India (RBI) towards Financial Inclusion. 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. life insurance cover of Rs. 3. 30. These include not only banking products but also other financial services such as insurance and equity products”. Chairman: The Committee on Financial Sector Reforms: Financial Inclusion refers to universal access to a wide range of financial services at a reasonable cost. Research Methodology The present paper is based on secondary data. NABARD (National Bank for Agricultural and Rural Development) and Ministry of Finance. Panel discussions were held on the following topics as part of the conference: (i) Financial Inclusion . 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. 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. These include not only banking products but also other financial services such as insurance and equity products. various reputed journals. Dr. Raghuram G. Analysis of the Study A Financial inclusion conference was organized by the Reserve Bank in Mumbai on April 2. 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. Planning Commission Government of India committee on ‘financial sector reform’ mentions that “Financial inclusion. 2015. To list the various measures of Reserve Bank of India (RBI) and Government of India (GOI) with respect to Financial Inclusion.Let All Efforts Bloom’.Whether BC Model is the Way to go?’ . To analyze the present scenario of Financial Inclusion in Indian Economy. broadly defined refers to universal access to a wide range of financial services at a reasonable cost. no minimum balance requirement. Rajan.

being of the poor. 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. RBI’s 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. use of appropriate technology. Some of the key points which emerged from the discussions are:  Concerted efforts of the Government of India. – Shri. In the absence of technology. effective supervision. RBI’s approach has been to focus both on the . Since 2006. all aimed at making available benefits of banking services to the masses. Narendra Modi Hon’ble Prime Minister of India. and (iv) ‘The linkage between Financial Inclusion.the Way Forward’. Service Area Approach (1989).  Customers’ awareness about their rights and duties is integral to developing a conducive consumer protection environment. The strategy to realize this goal will comprise of a mix of conducive policy environment. Self-Help Group-Bank Linkage Programme (1989- 90). Although these measures resulted in impressive gains in enhancing the outreach of banking services and extent of credit to the population. RBI also took initiatives like laying down priority sector lending requirements for banks. Financial Literacy and Consumer Protection’. While the Government of India nationalised the banking operations of few commercial banks in two tranches in 1969 and 1980.  Raising the level of acceptance of technology bycustomers will require sustained financial literacy initiatives on the part of bankers.. Role of RBI in Financial Inclusion RBI has been pursuing the goal of financial inclusion for a long time. On the supply side.  The risks associated with the BC model can be mitigatedby putting in place a secure system. theReserve Bank and banks are necessary to further the financial inclusion agenda. efficient cash management services and capacity building. setting up of Local Area Banks etc. (iii) ‘Financial Inclusion . there were certain structural challenges which impeded the progress of financial inclusion. This will also necessitate banks to develop strong internal grievance redressal mechanisms. RBI has adopted a planned and structured approach to address the issues of financial inclusion. establishment of Regional Rural Banks (RRBs- 1975-76). Lead Bank Scheme. Then change will commence from this point. developing a cost-effective delivery model also remained a challenge. use of innovative channels/technology and optimal utilization of the BC model. Economic resources of the country should be utilized for the well.

wherever available. with the Basic Savings Bank Accounts opened for them.552 in March 2016. 02. the banks were mandated to open at least 25 per cent of their new branches in unbanked rural centers. Under the PMJDY alone.3 million and 1.7 billion and `1493. iv) The total number of transactions in BC-ICT accounts which were around 26 million during 2010-11 has increased to 826. Co-terminus with the above efforts. The number of small farm and non-farm sector credit accounts stood at 24. 2016. 2016. Taking into account the difficulties encountered by common people in meeting the ‘Know Your Customer (KYC)’ requirements for opening bank accounts.86. . 220 mn accounts have been opened with an approximate balance of `384 bn. 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). Snapshot of Progress i) The number of banking outlets in villages went up from 67. until June 1. RBI allowed banks to accept self certification for opening of basic service bank accounts. 2016t. several measures were taken. the number of urban locations covered through BCs has also surged from 447 in March 2010 to 1. For example. so that their credit histories can also be built up over time.694 in March 2010 to 5. iii) There were 47. This has in alarge way been possible due to the availability of technology and its gradual adoption within the banking processes.81 million as on March 31.demand as well as on the supply side. 2016. On the regulatory side. RBI advocated a combination of ‘Brick and Mortar’ structure with ‘Mouse and Click’ technology for extending financial inclusion in geographically dispersed areas.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. 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. In addition. Institutionalization of the framework of Banking Correspondents (BCs) has been a major step towards enhancing access of banking services.31 million small farm sector credit accounts and 11. whereby the supply side efforts received an extra push.4 mn respectively in March 2010.3 billion outstanding respectively as on March 31.3 million small nonfarm sector credit accounts with an outstanding of `5130. RBI has encouraged banks to open Aadhaar Enabled Bank Accounts by linking Aadhaar numbers of individuals. ii) The Basic Savings Bank Deposit Accounts (BSBDAs) have gone up from 73 million in March 2010 to 469 million as on March 31.

230 branches were opened in unbanked rural canters. in ₹ billion) Basic Savings Bank Deposit A/c through BCs (No.382.7 OD facility availed in BSBDAs (Amt. This includes 147 million accounts opened under PMJDY. in ₹ billion)* 6.8 70. 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 .316 337.3 (No.117 Basic Savings Bank Deposit A/c through branches 60. Out of 3.9 524. of No.8 million small non farms sector credits (GCCs).3 365. 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.9 42.3 273.9 3.2 million respectively.2 126.5 2.3 39. in 10. 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.694 383. the total number and 9.2 5.909 Urban Locations covered through BCs 447 60.0 477.142 166.1 3.2401.0 210.Branches 33.7 (Amt.6 477.847 36.Chidambaram comments “Our banks can be the best banks only when they take their services to the remotest part of the country.2 1.7 ICT A/Cs BC Transaction (No in million)* 26.9 7.3 OD facility availed in BSBDAs (No. in ₹ billion) 1.5 4.8 GCC (No. Overview and progress on financial inclusion Financial inclusion is an important priority of the Government.9 1. With the addition of 2.1 1.3 439.4 859. in million) 1.096. in ₹ billion) 55 212.5 243.6 million small farm sector credits (KCCs) and 1.6 204. in million) 73.1 155.378 46.8 GCC (Amt.9 KCCs (No.0 91.5 127.0 ICT A/Cs BC Transaction (Amt.0 398. We expect to have complete financial inclusion in the next five years.713 169. Today. of Percentage No.6 ₹ billion) BSBDAs Total (No.571 3.4 9.445 Banking Outlets in Villages – Branchless mode 34.445 rural branches opened during 2014-15. In addition it strives towards a more inclusive growth by making financing available to the poor in particular. in million) 0. no banker worth his salt can succeed without financial inclusion.3 84.8 *: During the Financial Year Source: RBI Annual Report 2015.3 697.6 KCCs (Amt.6 35.9 187.126 49.0 19.8 859. II.684.3 116.0 74.9 million) Basic Savings Bank Deposit A/c through BCs (Amt. in ₹ billion) 35.678 504. in 13.464 Banking Outlets in Villages -Total 67. in million) 24.730 96.5 328.4 7. Position of Households Availing Banking Services Particular Total no.1 16. in million) Basic Savings Bank Deposit A/c through branches 44. in ₹ billion) 0. The road is long but I believe it can be easily traversed. 2.301.1 BSBDAs Total (Amt.” Financial Inclusion in India I. Around 155 million basic savings bank deposit accounts were added taking the total basic savings bank deposit accounts to 398 million. of Households Number Percentage Households Households availing banking availing services .6 1.7 39.804 553.

34.7 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.730 9.937 5. banking services Rural 1.16. 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: .44.92.5 7.65.949 30.271.788 58.82.642 35.39.48.4 Urban 5.935 6.92.1 16.376 2.14.88.66.5 24.90.19.65.559 4.983 67.30.63.38.36.8 Total 19.693 49.78.805 54.26.13.667 14.69.

068 5.7 million participants opened accounts in the camps organised by the FLCs and rural branches of banks.f. During the period April 2014 to March 2015.826. Additionally. of participants* 3. However. 1.181 FLCs were operational in the country.204 *: Includes both outdoor and indoor activities. of operational FLCs 942 1. As at end March 2015.358 No.442. 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. NA: Not available.e. of participants already having accounts while attending camps NA 2.Bank Linkage Programme in 1992 and formulating the Kisan . respectively. #: Provisional.546 No. Activities Undertaken by Financial Literacy Centres Particulars 2013-14 2014-15# (April-March) (April-March) 1 2 3 No. 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. April 2014.181 No. Financial Literacy The Reserve Bank’s efforts to expand financial literacy are channelled through banks. 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. In terms of current instructions. introducing a Self-Help Group (SHG) . of participants opened accounts after attending the camps NA 1. establishing Regional Rural Banks (RRBs) in 1975.089 Total no. The government of India has been taking efforts for inclusion like creation of State Bank of India in 1955. financial literacy camps were conducted by 32. indoor activities have been discontinued w.985 84.509 rural branches of banks and 1. nationalization of commercial banks in 1969 and 1980.890. banks are encouraged to conduct such camps in unbanked locations.238. of activities conducted* 56.4 million and 5. up from 942 as at end March 2014. initiating the Lead Bank Scheme in 1970.

the government announced the creation of two funds- Financial Inclusion Fund and Financial Inclusion Technology Development Fund .Financial Inclusion in India: A Road Map towards Future Growth. M. 3.5crore bank accounts by 2018 .proof of address or proof of identity.Project Financial Literacy. The measures taken to structure financial inclusive system by Reserve bank of India and the Government of India since 2005 are as follows: .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 . facility of providing ATM card. Financial inclusion will be an important element in ensuring access and equity. . former Reserve Bank of India (RBI) Governor said. 25. CMA Dr.306. 298.Reddy. deposit and withdrawal of cash at bank branch and ATMs. pp. Sheik Mohamed and G. . . “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. Conclusion Financial inclusion is a strategy adopted by Reserve Bank of India (RBI) to achieve an inclusive growth in the country.000. . provision of new products and supportive measures to achieve sustainable and scalable Financial Inclusion” . 2.Business Facilitator and Business correspondent model. .000 would be provided to 15crore people by August. .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.Introduction of ‘No Frill accounts’ . then this can lift the standard of living of the majority of the poor people in the country. Y.The banks are also encouraged to offer a general-purpose credit card (GCC) facility at their rural and semi-urban branches. (2016). Financial Literacy and Credit Counseling. Reka. International Journal of Management.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.Intermediaries like non government organizations. 2018 .V.The mobile banking may be expanded as a part of financial inclusion drive to target 7. . It’s the mass movies that make money”.In the Union Budget 2007-08.All the banks are advised to open Basic Saving Bank Deposit (BSBD) accounts with minimum common facilities such as no minimum balance. 5. Self Help Groups (SHGs) and Micro Finance Institutions (MFI) and other societal association as business facilitator. Dr. Credit Delivery and Financial Inclusion Annual Report of the RBI 2015. 7(2). receipt/ credit of money through electronic payment channels. References 1. The credit to the cardholder will be up to Rs. If it is properly implemented and executed in every part of the country.Credit Card scheme in 2001. necessary building blocks for the sustainable growth of our country.The two-phase financial inclusion programme has been constructed by the government wherein an overdraft facility of Rs. Annual Report of RBI.

276) Vol.29-35. Report on Trend and Progress of Banking in India (2014-15). IOSR Journal of Business and Management (IOSR-JBM).Ver. 6. M.5.wikipedia. Address delivered by Deputy Governor. Shettar Rajeshwari. 7. Sarkar Arup K (2016).4. S. Reserve Bank of India at the BRICS Workshop on Financial Inclusion in Mumbai on September 19. (2016). Shri S. Volume 18.org/wiki/Financial_inclusion. 8. 5. PP 37–44.pp. Mundra (2016) Financial Inclusion in India – The Journey so far and the Way Ahead. Issue 2 . https://en.04 Issue-03 ISSN: 2321- 1784. I e-ISSN: 2278- 487X. Financial Inclusion: An Overview. p-ISSN: 2319-7668. Financial Inclusion in India. International Journal in Management and Social Science (Impact Factor. . Dr. Reserve Bank of India.