Chapter 1- BANKING IN INDIA

INTRODUCTION

Banking in India in the modern sense

originated in the last decades of the 18th century. The first banks were Bank of
Hindustan (1770-1829) and The General Bank of India, established 1786 and since
defunct.
The largest bank, and the oldest still in existence, is the State Bank of India, which
originated in the Bank of Calcutta in June 1806, which almost immediately became the
Bank of Bengal. This was one of the three presidency banks, the other two being the
Bank of Bombay and the Bank of Madras, all three of which were established under
charters from the British East India Company. The three banks merged in 1921 to form
the Imperial Bank of India, which, upon India's independence, became the State Bank
of India in 1955. For many years the presidency banks acted as quasi-central banks, as
did their successors, until the Reserve Bank of India was established in 1935.
In 1969 the Indian government nationalized all the major banks that it did not already
own and these have remained under government ownership. They are run under a
structure known as 'Profit-making public sector undertaking' (PSU) and are allowed to
compete and operate as commercial banks. The Indian banking sector is made up of
four types of banks, as well as the PSUs and the state banks; they have been joined
since the 1990s by new private commercial banks and a number of foreign banks.
Banking in India was generally fairly mature in terms of supply, product range and
reach-even though reach in rural India and to the poor still remains a challenge. The
government has developed initiatives to address this through the State Bank of India
expanding its branch network and through the and Rural Development with things like
microfinance.

Indian Banking Industry currently employees 1,175,149 employees and has a total of
109,811 branches in India and 171 branches abroad and manages an aggregate deposit
of 67504.54 billion (US$1.1 trillion or €820 billion) and bank credit of 52604.59
billion (US$880 billion or €640 billion). The net profit of the banks operating in India
was 1027.51 billion (US$17 billion or €12 billion) against a turnover of 9148.59
billion (US$150 billion or €110 billion) for the fiscal year 2012-13.

The East India Company laid the

foundation for modern banking by establishing three banks.
(a) Bank of Bengal (1809) (b) Bank of Bombay (1840) (c) Bank of
Madras (1842).These three banks were know as presidency banks.
During the 19th century beginning the swadeshi movement was
established and a number of banks were set up under Indian
management. These banks include Punjab National Bank (1895), The
Bank of India and The Canara Bank (1906), The Indian Bank (1907),
The Bank of Baroda (1908).Though they started operations they were
very weak and become bankrupt due to wrong policies. In 1920,
Imperial Bank of India act was passed and three presidency banks
were taken over and one bank called as Imperial Bank of India was
set up in 1921.The RBI act was passed in 1934 accordingly, RBI was
established in 1935.

THE MAIN FUNCTIONS OF RBI WERE:-

• To issue currency notes and coins.
• To regulate banking sector.
• Achieve monetary stability etc.
Initially, RBI was established as a private bank with a paid up capital
Rs.5 crores in 1949 the entire paid up capital of RBI was taken over
by central government. This process is called as “Nationalization of
RBI”.In 1955 SBI act was passed. It took over “Imperial Bank of
India. In 1959 SBI (subsidiary banks) Act was passed. The following
subsidiaries of SBI were setup 1) State Bank of Bikaner 2) State Bank
of Jaipur 3) State Bank of Indore 4) State Bank of Mysore 5) State
Bank of Patiala 6) State Bank of Hyderabad 7) State of Saurashtra
and State Bank of Travancore. In 1969, 14 major banks were
nationalized. Nationalization means takeover of capital of these banks
by the central government. Again, in 1980, 6 more banks were
nationalized.

These are some of the nationalized banks in India:-

 Chapter 2- FINANCIAL EXCLUSION
Introduction
Access to finance, especially by the poor and vulnerable groups, is an essential
requisite for employment, economic growth, poverty alleviation and social upliftment.
Further, financial inclusion will enable the poor and the rustics of our country to open
a bank account to save and invest, to borrow and to repay, to insure and to take part in
the credit. This will enable them to break the chain of poverty. Till 1960s, Indian banks
were more conservative and inward looking, concerned with their profits. Banking
services were greatly used by a segment of the people. Class banking was prevalent
during those days. Majority of the banks were private commercial banks, local oriented
and primarily serving the business community. They had limited range of activities.
Competition did not exist during those days. They basically concentrated on selling
their loans to those who are financially sound and are capable of providing security for
their borrowings. The banks tend to positively appropriate their liabilities for keeping
their funds safe and give modest interest on deposits. However, after the Nationalization
of 14 major commercial banks in 1969, Indian banks woke from their isolation, and
evaluated the rapidly changing environment. The slogan during the Bank
Nationalization was ‘transformation from class banking to mass banking’. The banking
industry in India has undergone drastic changes during the last two decades. Reforms
since the early nineties, has paved the way for the economic transformation of the
country.

Rural Banking Scenario

In India more than 70 per cent of households live in rural areas. Therefore, existence of
rural banks assumes a significant importance. A rural bank is one which serves a
population of less than 10,000. Since Nationalization, the lending to the select elite in
the urban areas gave way to lending to the rural masses. The policy makers recognized
the fact that the potential of rural India should not be under estimated. The banks have
to play a dual role in rural areas to institutionalize the rural savings for developmental
activities as a part of commercial banking. Then the help in the social upliftment of the
poor as a part of social banking. As at the end of March 1992, there were 60,528
branches of commercial banks (including RRBs) in the country, of which 35,275 (58.3
per cent) were in rural areas as against 22.3 per cent at the time of bank nationalization.
In spite of huge branch expansion in rural areas and developmental policies of the
Government it is to be noted that the commercial banks have not made systematic
efforts to squeeze the rural business. Often it is felt that the commercial banks have
started their branches in rural areas not to satisfy the rural asses but to satisfy the Govt.
Inadequate management and marketing competence in individual banks is the major
cause for the non-viability of rural banks. Analysis of the available statistics on rural
banks reveals that the rural deposits in the country shows a compound growth rate of
27.29 per cent during the 39 years period from 1969 to 2008. It is worth noting that the
number of rural branches will form 45 per cent of the total bank branches in the country.
The compound growth rate of rural credit of the country is 30.57 per cent during the 39
years from 1969 to 2008. A hardship in obtaining loans from the banks has paved the
way for the growth of private money lenders in rural areas especially in States like
Kerala.

Definition
Financial Exclusion: According to K.C.Chakrabarty “Financial Exclusion is the lack of
access by certain consumers to appropriate, low cost, fair and safe financial products
and services from main stream providers.”

There are three types of exclusions:

(a) People who do not have any access to a regulated financial system;
(b) People who have limited access to banks and other financial services; and
(c) Individuals who have inappropriate products. Mostly low income, unemployed and
illiterate people, women and disabled are excluded from the formal financial services.
Lack of Banking habits, high transaction cost, and lack of banking knowledge and
insufficiency of knowledge on banking products prevents the unbanked people from
knocking the door steps of banks. Financial exclusion means: No Savings, No
Insurance, No access to money advice, No affordable credit, No Bank account and No
assets. There are people who desire the use of financial services, but are denied access
to the same. In countries with a large rural population like India, Financial Exclusion
has a geographic dimension as well. Inaccessibility, distance and lack of proper
infrastructure hinder financial inclusion. Going by the available data on the number of
savings bank accounts and even assuming that one person has only one account, on an
all India basis less than 60 per cent of adult populations in the country have bank
accounts. To compound matters, there are regional disparities among different regions
of the country in this respect. In the rural parts of the country, where the farming
community is living, the farm house holds having bank accounts is showing a miserable
picture.
The unbanked population is higher in the North Eastern and Eastern Regions as
compared to other regions. Further the extent of credit inclusion is even lower at 14 per
cent of adult population. The financially excluded sections largely comprise marginal
farmers, landless labourers, self-employed and unorganized sector enterprises, ethnic
minorities, socially excluded groups, senior citizens and women. While there are
pockets of large excluded population in all parts of the country, the North-East, Eastern
and Central region contain most of the financially excluded population.
 Chapter 3- FINANCIAL INCLUSION
Introduction
Financial inclusion means provision of banking services at an affordable cost to the vast
sections of disadvantage and low income groups. It is a process of lending a tangible
financial support to the bottom of pyramid in the economy. These banking services
include access to saving, credit, insurance, payment and remittances facilities by the
financial institutions. Financial inclusion, of late, has become the business world in
academic research, public policy meetings and seminars drawing wider attention in
view of its important role in aiding economic development of the resource poor
developing economies. In the Indian scenario, the term ‘financial inclusion’ is popular
in financial circles, especially after the Reserve Bank of India (RBI) announced a series
of measures in its credit policy for 2006-07 to include many of the hitherto excluded
groups in the banking net.
Rangarajan Committee (2008) on financial inclusion stated that: “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.” The financial services include the entire gamut
of savings, loans, insurance, credit, payments, etc. The financial system is expected to
provide its function of transferring resources from surplus to deficit units, but both
deficit and surplus units are those with low incomes, poor background, etc. By
providing these services, the aim is to help them come out of poverty.
Indian Institute of Banking & Finance (IIBF) opines, “Financial inclusion is delivery
of banking services at an affordable cost (‘no frills’ accounts,) to the vast sections of
disadvantaged and low income group people.
A perusal of literature on finance and economic development reveals that the earlier
theories of development concentrated on labor, capital, institutions, etc., as the factors
for growth and development. There have been numerous researches analyzing how
financial systems help in developing economies. A great deal of consistency exists
among economists regarding financial development prompting economic growth.
Many theories have established that, financial development creates favorable
conditions for growth through either a supply leading or a demand-following channel.
According to Rajan and Zingales (2003), development of the financial system
contributes to economic growth.
Therefore, financial inclusion is means to provide access to financial services to all the
people in the fair transport and equitable manner at an affordable cost. Financial
inclusion is accepted as the policy due to following reasons:-
• It supports both eco-efficiency and equity.
• It will result in equitable distribution of economic growth.
• It will also lead to financial deepening to expand the domestic market for
enhanced consumption.

Definitions

1. “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 (The Committee on
Financial Inclusion, Chairman: Dr. C. Rangarajan).

2. 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 Figure.
3. 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) etc.

Why Financial Inclusion?

Financial inclusion broadens the resource base of the financial system by developing a
culture of savings among large segment of rural population and plays its own role in
the process of economic development. Further, by bringing low income groups within
the perimeter of formal banking sector; financial inclusion protects their financial
wealth and other resources in exigent circumstances. Financial inclusion also mitigates
the exploitation of vulnerable sections by the usurious money lenders by facilitating
easy access to formal credit.

The goals set for financial inclusion:-

• Every citizen of India will have a bank a/c.
• Every citizen of India will have a unique national identification number.
• Cash transactions will be replaced by 50% and will be replaced by electronic
fund transfer.
 • Banks can start branchless banking and using web mobile business
correspondence.

Micro finance and Self-help group

Micro finance:-

Micro financing means extending small loans to poor people for deployment of projects
that generates income, allowing them to care for themselves and their family.
Self-help group is a socially and economically homogeneous group of 10-15 people
who voluntarily come together to achieve common goals. It is a device to remove
poverty. It also meets the supply of loans, savings and other basic services to the poor
people. It is based on the principle of helping people so that they are able to help
themselves.

Self Help Group

The SHG movement started in 1992 with the initiative of NABARD as triggered a
complete social transformation in the same area or villages. Minimum 10 persons
particularly women in the same area or village can come forward to form a SHG. They
save in the banks in the name of SHG. They save regularly and the savings are utilized
for urgent needs of the members. All the members have to attend the meeting and
decisions are taken in the meeting the chairman of the SHG group is always a lady
member.
The banks provide loan to these SHG’s .With the help of SHG’s the women are
independent, confident and assertive. Only 18 million rupees have been generated. So
far World Bank says that 50% of people still live below poverty line and they borrow
from money lender.
1. The Demand draft for self-financing and its supply shows a major gap. SHG’s charge
higher rate of interest (12-36%).
2. Measuring the impact of micro finance is very complicated.
3. Micro lenders naturally choose to work in areas where the prospectus of success is
maximum. So million low income groups are still outside the system of micro finance.
4. The SHG are under staffed and lack sufficient capital. Due to this growth SHG is
restricted.

OBJECTIVES OF FINANCIAL INCLUSION

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. The main objective is to provide the benefit of vast format financial market
and protect them from exploitation of informal credit market, so that they can be
brought into the mainstream.

The following are the objectives of financial inclusion:-

1. Expansion of Banking Infrastructure: As per Census 2011, 58.7%
households are availing banking services in the country. There are 102,343 branches of
Scheduled Commercial Banks (SCBs) in the country, out of which 37,953 (37%) bank
branches are in the rural areas and 27,219 (26%) in semi-urban areas, constituting 63
per cent of the total numbers of branches in semi-urban and rural areas of the country.
However, a significant proportion of the households, especially in rural areas, are still
outside the formal fold of the banking system.
2. Creating a platform for inculcating the habit to save money– The
lower income category has been living under the constant shadow of financial duress
mainly because of the absence of savings. The absence of savings makes them a
vulnerable lot. Presence of banking services and products aims to provide a critical tool
to inculcate the habit to save. Capital formation in the country is also expected to be
boosted once financial inclusion measures materialize, as people move away from
traditional modes of parking their savings in land, buildings, bullion, etc.

3. Providing formal credit avenues– So far the unbanked population has been
vulnerably dependent of informal channels of credit like family, friends and
moneylenders. Availability of adequate and transparent credit from formal banking
channels shall allow the entrepreneurial spirit of the masses to increase outputs and
prosperity in the countryside. A classic example of what easy and affordable availability
of credit can do for the poor is the micro-finance sector.

4. Plug gaps and leaks in public subsidies and welfare programmes –

A considerable sum of money that is meant for the poorest of poor do not actually reach
them. While this money meanders through large system of government bureaucracy
much of it is widely believed to leak and is unable to reach the intended parties.
Government is therefore, pushing for direct cash transfers to beneficiaries through their
bank accounts rather than subsidizing products and making cash payments. This
laudable effort is expected to reduce government’s subsidy bill (as it shall save that part
of the subsidy that is leaked) and provide relief only to the real beneficiaries. All these
efforts require an efficient and affordable banking system that can reach out to all.
Therefore, there has been a push for financial inclusion.
 CHAPTER 4- STEPS TAKEN BY GOVERNMENT AND
RBI FOR FINANCIAL INCLUSION

Introduction:-
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.

MEASURES TAKEN BY GOVERNMENT

(a) Opening of Bank Branches: Government had issued detailed strategy and
guidelines on Financial Inclusion in October 2011, advising banks to open branches in
all habitations of 5,000 or more population in under-banked districts and 10,000 or more
population in other districts. Out of 3,925 such identified villages / habitations, branches
have been opened in 3,402 villages/ habitations (including 2,121 Ultra Small Branches)
by end of April, 2013.
(b) Each household to have at least one bank account: Banks have been
advised to ensure service area bank in rural areas and banks assigned the responsibility
in specific wards in urban area to ensure that every household has at least one bank
account.

(c) Business Correspondent Model: With the objective of ensuring greater

financial inclusion and increasing the outreach of the banking sector, banks were
permitted by RBI in 2006 to use the services of intermediaries in providing financial
and banking services through the use of Business Facilitators (BFs) and Business
Correspondents (BCs).
Business Correspondents are retail agents engaged by banks for providing banking
services at locations other than a bank branch/ATM. BCs and the BC Agents (BCAs)
represent the bank concerned and enable a bank to expand its outreach and offer limited
range of banking services at low cost, particularly where setting up a brick and mortar
branch is not viable. BCs as agents of the banks, thus, are an integral part of the business
strategy for achieving greater financial inclusion.
Banks had been permitted to engage individuals/ entities as BC like retired bank
employees, retired teachers, retired government employees, ex-servicemen, individual
owners of kirana / medical / fair price shops, individual Public Call Office (PCO)
operators, agents of Small Savings Schemes of Government of India/ Insurance
Companies etc. Further, since September 2010, RBI had permitted banks to engage „for
profit‟ companies registered under the Indian Companies Act, 1956, excluding Non-
Banking Financial Companies (NBFCs), as BCs in addition to the individuals/entities
permitted earlier. According to the data maintained by RBI, as in December, 2012, there
were over 1,52,000 BCs deployed by Banks.
During 2012-13, over 18.38 crore transactions valued at Rs.16533 crore had been
undertaken by BCs till December 2012.
(d) Swabhimaan Campaign: Under “Swabhimaan” - the Financial Inclusion
Campaign launched in February 2011, Banks had provided banking facilities by March,
2012 to over 74,000 habitations having population in excess of 2000 using various
models and technologies including branchless banking through Business
Correspondents Agents (BCAs).
Further, in terms of Finance Minister’s Budget Speech 2012-13, the “Swabhimaan”
campaign has been extended to habitations with population of more than 1000 in North
Eastern and hilly States and to habitations which have crossed population of 1600 as
per census 2001. About 40,000 such habitations have been identified to be covered
under the extended “Swabhimaan” campaign.

(e) Setting up of Ultra Small Branches (USBs): Considering the need for
close supervision and mentoring of the Business Correspondent Agents (BCAs) by the
respective banks and to ensure that a range of banking services are available to the
residents of such villages, Ultra Small Branches (USBs) are being set up in all villages
covered through BCAs under Financial Inclusion.
A USB would comprise of a small area of 100-200 sq. feet where the officer designated
by the bank would be available with a lap-top on pre-determined days. While the cash
services would be offered by the BCAs, the bank officer would offer other services,
undertake field verification and follow up the banking transactions. The periodicity and
duration of visits can be progressively enhanced depending upon business potential in
the area. A total of over 50,000 USBs have been set up in the country by March, 2013.

(f) Banking Facilities in Unbanked Blocks: All the 129 unbanked blocks (91
in North East States and 38 in other States) identified in the country in July 2009, had
been provided with banking facilities by March 2012, either through Brick and Mortar
Branch or Business Correspondents or Mobile van. As a next step it has been advised
to cover all those blocks with BCA and Ultra Small Branch which have so far been
covered by mobile van only.

(g) USSD Based Mobile Banking: The Department through National Payments
Corporation of India (NPCI) worked upon a “Common USSD Platform” for all Banks
and Telcos who wish to offer the facility of Mobile Banking using Unstructured
Supplementary Service Data (USSD) based Mobile Banking. The Department helped
NPCI to get a common USSD Code *99# for all Telcos. More than 20 Banks have
joined the National Uniform USSD Platform (NUUP) of NPCI and the product has been
launched by NPCI with BSNL and MTNL. Other Telcos are likely to join in the near
future.

MEASURES TAKEN BY RBI

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 (2005–06) and urged banks to review their existing practices to align them with
the objective of financial inclusion.
RBI also exhorted the banks and stressed the need to make available a basic banking
'no frills' account either with 'NIL' or very minimum balances as well as charges that
would make such accounts accessible to vast sections of the population of the many
schemes and programmes pushed forward by RBI the following need special mention.

1. Initiation of no-frills account– These accounts provide basic facilities of

deposit and withdrawal to accountholders makes banking affordable by cutting down
on extra frills that are no use for the lower section of the society. These accounts are
expected to provide a low-cost mode to access bank accounts. RBI also eased KYC
(Know Your customer) norms for opening of such accounts.
2. Banking service reaches homes through business correspondents–
The banking systems have started to adopt the business correspondent mechanism to
facilitate banking services in those areas where banks are unable to open brick and
mortar branches for cost considerations. Business Correspondents provide affordability
and easy accessibility to this unbanked population. Armed with suitable technology, the
business correspondents help in taking the banks to the doorsteps of rural households.

3. EBT – Electronic Benefits Transfer– To plug the leakages that are present
in transfer of payments through the various levels of bureaucracy, government has
begun the procedure of transferring payment directly to accounts of the beneficiaries.
This “human-less” transfer of payment is expected to provide better benefits and relief
to the beneficiaries while reducing government’s cost of transfer and monitoring. Once
the benefits starts to accrue to the masses, those who remain unbanked shall start
looking to enter the formal financial sector.

Financial Inclusion – RBI Policy Initiatives

• RBI has adopted a bank-led model for achieving financial inclusion and
removed all regulatory bottle necks in achieving greater financial inclusion in
the country. Further, for achieving the targeted goals, RBI has created
conducive regulatory environment and provided institutional support for banks
in accelerating their financial inclusion efforts. Advised all banks 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.

• Relaxed and simplified KYC norms to facilitate easy opening of bank accounts,
especially for small accounts with balances not exceeding Rs. 50,000 and
aggregate credits in the accounts not exceeding Rs.one lakh a year. Further,
banks are advised not to insist on introduction for opening bank accounts of
customers. In addition, banks are allowed to use Aadhar Card as a proof of both
identity and address.
• Simplified Branch Authorization Policy, to address the issue of uneven spread
bank branches, domestic SCBs are permitted to freely open branches in Tier 2
to Tier 6 centers with population of less than 1 lakh under general permission,
subject to reporting. In North-Eastern States and Sikkim domestic SCBs can
open branches without having any permission from RBI. With the objective of
further liberalizing, general permission to domestic scheduled commercial
banks (other than RRBs) for opening branches in Tier 1 centres, subject to
certain conditions.

• Compulsory Requirement of Opening Branches in Un-banked Villages, banks

are directed to allocate at least 25% of the total number of branches to be opened
during the year in un-banked (Tier 5 and Tier 6) rural centers.

• Opening of intermediate brick and mortar structure, for effective cash

management, documentation, redressal of customer grievances and close
supervision of BC operations, banks have been advised to open intermediate
structures between the present base branch and BC locations. This branch could
be in the form of a low cost simple brick and mortar structure consisting of
minimum infrastructure such core banking solution terminal linked to a pass
book printer and a safe for cash retention for operating larger customer
transactions.

• Public and private sector banks had been advised to submit board approved
three year Financial Inclusion Plan (FIP) starting from April 2010. These
policies aim at keeping self-set targets in respect of rural brick and mortar
branches opened, BCs employed, coverage of un-banked villages with
population above 2000 and as well as below 2000, BSBD accounts opened,
KCCs, GCCs issued and others. RBI has been monitoring these plans on a
monthly basis.
 • 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.
• In June 2012, revised guidelines on Financial Literacy Centres (FLCs).
Accordingly, it was advised that FLCs and all the rural branches of scheduled
commercial banks should scale up financial literacy efforts through conduct of
outdoor Financial Literacy Camps at least once a month, to facilitate financial
inclusion through provision of two essentials i.e. ‘Financial Literacy’ and easy
‘Financial Access’. Accordingly, 718 FLCs have been set up as at end of March
2013. A total of 2.2 million people have been educated through awareness
camps / choupals, seminars and lectures during April 2012 to March 2013.

Recent Measures
 • Licensing of New Banks: The present round of licensing new banks is
essentially aimed at giving further fillip to financial inclusion efforts in our
country. Innovative business models aimed at furthering financial inclusion
efforts would be looked into closely in processing applications for banking
license. Financial inclusion plan would be an important criterion for procuring
new bank licenses (Dr. D Subbarao).

• Discussion Paper on Banking Structure in India: The RBI has put

out a discussion paper in August 2013 on Banking Structure for public
comments. One of the main issues relates to “Differentiated Banking Licenses”.
The subject of licensing ‘small banks and financial inclusion’ has been
discussed therein.
A view will be taken by RBI after factoring in the comments/suggestions received from
the general public.

In this context, it needs to be mentioned that Urban Co-operative Banks (UCBs),

Regional Rural Banks (RRBs) and Local Area Banks (LABs) numbering 1606, 64, and
4 respectively are, in fact, Small Finance Banks operating in this country. These apart,
there is a 3- Tier rural co-operative structure with State Co-operative Central Banks
(SCCBs) at the apex, District Central Co-operative Banks(DCCBs) at the intermediary
level and Primary Agricultural Credit Societies (PACs) at the grass root level, which
number 31, 371 and 92,432 respectively.
Furthermore, we have around 12,225 NBFCs as on March 2013, this could be
conceptually construed as semi-banks undertaking predominantly credit/investment
activities.

CHAPTER 5- PROGRESS IN FINANCIAL INCLUSION

Progress of financial inclusion since the launch of financial inclusion plans clearly
indicates that banks are progressing in areas like opening of banking outlets, deploying
BCs, opening of BSBD accounts, grant of credit through KCCs and GCCs. Detailed
trends are furnished in the following charts.

Number of Branches Opened (including RRBs)

Due to RBI’s concerted efforts since 2005, the number of branches of Scheduled
Commercial Banks increased manifold from 68,681 in March 2006 to 1,02,343 in
March 2013, spread across length and breadth of the country. In rural areas, the number
of branches increased from 30,572 to 37,953 during March 2006 to March 2013. As
compared with rural areas, number of branches in semi-urban areas increased more
rapidly.

Villages Covered
The number of banking outlets in villages with population more than 2000 as well as
less than 2000 increased consistently since March 2010.

Total Bank Outlets (including RRBs):-

Total number of banking outlets in villages increased from 67,694 in March 2010 to 2,
68,454 in March 2013 (increased around 4 times during the period of three years). Of
total branches, banking outlets through BCs increased from 34,174 to 2,21,341 during
the same period (increased around 6.5 times).
BSBD Accounts Opened:-The number of BSBD accounts opened increased from
73.45 million in March 2010 to 182.06 million in March 2013.
Kisan Credit Cards (KCC) Issued:

Banks have been advised to issue KCCs to small farmers for meeting their credit
requirements. 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.

General Credit Cards (GCC) Issued:

Banks have been advised to introduce General Credit Card facility up to Rs. 25,000/-
at their rural and semi-urban branches. Up to March 2013, banks had provided credit
aggregating to Rs.76.34 billion in 3.63 million GCC accounts.
ICT Based Accounts - Through BCs:
In order to provide efficient and cost-effective banking services in the un-banked and
remote corners of the country, RBI directed commercial banks to provide ICT based
banking services – through BCs. These ICT enabled banking services have CBS
connectivity to provide all banking services including deposit and withdrawal of money
in the financially excluded regions.
The number of ICT-based transactions through BCs increased from 26.52 million in
March 2010 to 250.46 million in March 2013, while transactions amount increased
steadily from Rs.6.92 billion to Rs.233.88 billion during the same period.
Expansion of ATM Network:
The total number of ATMs in rural India witnessed a CAGR of 30.6% during March
2010 to March 2013. The number of rural ATMs increased from 5,196 in March 2010
to 11,564 in March 2013.

Financial Literacy Initiatives:

Financial education, financial inclusion and financial stability are three elements of an
integral strategy, as shown in the diagram below. While financial inclusion works from
supply side of providing access to various financial services, financial education feeds
the demand side by promoting awareness among the people regarding the needs and
benefits of financial services offered by banks and other institutions. Going forward,
these two strategies promote greater financial stability.

Financial Stability Development Council (FSDC) has explicit mandate to focus on

financial inclusion and financial literacy simultaneously.
RBI has issued revised guidelines on the Financial literacy Centres (FLC) Growth in
SHG-Bank Linkage
This model helps in bringing more people under sustainable development in a cost
effective manner within a short span of time. As on March 2011, there are around 7.46
million saving linked SHGs with aggregate savings of Rs.70.16 billion and 1.19 million
credit linked SHGs with credit of Rs. 145.57 billion (Source: NABARD, Status of
Microfinance in India).
Growth of MFIs:
Though RBI has adopted the bank-led model for achieving financial inclusion, certain
NBFCs which were supplementing financial inclusion efforts at the ground level,
specializing in micro credit have been recognized as a separate category of NBFCs as
NBFC-MFIs.
At present, around 30 MFIs have been approved by RBI. Their asset size has
progressively increased to reach Rs. 19,000 crore as at end Sept 2013.

Bank Credit to MSME:

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. MSMEs primarily depend on bank credit for their
operations.

Bank credit to MSME sector witnessed a CAGR of 31.4% during the period March
2006 to March 2012. Of total credit to MSME, public sector banks contributed the
major share of 76%, while private sector banks accounted for 20.2% and foreign banks
accounted for only 3.8% as on March 31, 2012.
Insurance Penetration in the Country
The total insurance (life and non-life) penetration, in terms of the ratio of insurance
premium as a percentage of GDP increased from 2.32 in 2000-01 to 5.10 in 2010-11.
The life insurance penetration as a percentage of GDP stood at 4.40 in 2010-11 while
the non-life insurance penetration remained at 0.71 during the same period12. In other
words, there is vast untapped potential as regards insurance penetration.

Financial Inclusion Initiatives – Private Corporates:

A few large private corporate have undertaken projects such as E-Choupal/ E- Sagar
(ITC), Haryali Kisan Bazaar (DCM), Project Shakti (HUL), etc. Reportedly, these
pioneering projects have brought about vast improvement in the lives of the participants
and set the tone for economic development in their command areas; which is a pre-
requisite for Financial Inclusion efforts to be undertaken by the banking system.
 CHAPTER 6- ISSUES AND CHALLENGES

ISSUES:

India currently faces several issues and challenges in the area of Financial Inclusion for
Inclusive growth. Salient among them are stated here below;

1. Spatial Distribution of Banking Services: Even though after often

emphasized policy intervention by the government and the concerted efforts of Reserve
Bank of India and the public sector banks there has been a significant increase in the
number of bank offices in the rural areas; but it is not in tune with the large population
living in the rural areas. For a population of 70% only 45% of bank offices provide the
financial services.
2. Regional Distribution of Banking Services: The analysis by the authors
brings to the fore that there has been uneven distribution of the banking services in
terms of population coverage per bank office in the six regions viz; Northern, North-
eastern, Eastern, Central, Western and Southern regions of the country.

3. Bank Branches: Bank branches are required to be increased as it has a direct

impact on the progress of financial inclusion. It is clearly established that as the bank
branches increase number of bank accounts also increase significantly.

4. Poverty levels: Poverty levels are having direct relationship with the progress of
financial inclusion. The authors have established in their study that as the poverty levels
decrease financial inclusion also increase. As such, there should be multi fold strategic
approach in such poverty dominated areas for financial inclusion.

5. SC/ST population: It is ascertained by the authors’ study that in the areas of

Scheduled Castes/Scheduled Tribes population the progress of Financial Inclusion is
slow which indicates that the efforts for Financial Inclusion has to be increased
significantly in such areas in order to bring in social and economic equity in the society.

6. Overcoming Bankers: Aversion for Financial Inclusion Even though no banker

openly expresses his aversion for the financial inclusion process, overtly it can be
noticed that they are averse to it in view of the cost aspects involved in opening of no
frill accounts.
1. Since independence, the Government had been dependent on its machinery first and
then, after nationalization, on banks to reach the poor. But government machinery
suffered all the demerits of bureaucracy and corruption and hence, failed miserably.
2. Banks also could not succeed in reaching the poor society because of many reasons.
First, most of the Indians Banks were in government hands till the late nineties their
employees were looking for a "salary", not for achieving the 'national target'.
3. Second, banks have to follow certain rules which sometimes create bottlenecks in
their targets of reaching the poor.
For example, no bank will give a cheque book of ATM facility to a poor man unless he
has a minimum of Rs. 1000 in his account; which means if a poor man opens a bank
account, he stills remains in the "stone age".
4.Financial literacy is very low in India. Forget about BPL people, even the educated
urban population is financially illiterate. Many college going students still cannot write
cheques and a major part of white collar working class people need consultants to fill
simple income tax returns.
5.Due to financial illiteracy, most of the people do not maintain proper records or
books of accounts. This leads proper records or books of accounts. This leads to
removing of these people from the financial services of the banks.
To sum up, banks need to redesign their business strategies to incorporate specific plans
to promote financial inclusion of low income groups treating it both a business
opportunity as well as a corporate social responsibility.

Challenges:

A degree of realism is necessary if finance is to benefit India’s poor

Inclusion is likely to top the agenda of Indian finance in 2014. Reserve Bank of India
(RBI) governor Raghuram Rajan has indicated that financial inclusion will be a key
priority. The central bank has constituted a committee headed by Nachiket Mor, which
is expected to submit its recommendations shortly. The move by RBI to devise a new
framework for issuing bank licences has also been greeted by calls to consider
alternative banking models that can target the needy more effectively.
While financial inclusion appears as a noble goal in itself, recent history shows that
efforts to drive financial inclusion can be counterproductive unless handled well.
The subprime mortgage crisis in the US that wreaked havoc on the global financial
system had its origins in the forced drive for inclusion. It led government-backed
agencies to lend to customers with limited ability to repay.
India’s microfinance crisis is another such example. The fact that microfinance
institutions (MFIs) operated in under-served areas led to regulatory forbearance in the
initial years, leading to excessive lending before the eventual bust.
The dangers of reckless credit expansion in the name of financial inclusion should serve
as a cautionary tale for policymakers today. Financial inclusion can be a worthy goal
only insofar as it helps reduce poverty levels sustainably. Given that the roots of poverty
often lie outside the realm of finance, easing access to credit without addressing real
economy constraints is unlikely to either boost growth or help fight poverty. Efforts to
drive greater financial inclusion can, in fact, end up harming rather than benefiting those
in whose name such efforts are launched: the poor and the vulnerable.
A recent report on financial inclusion by the World Bank shows that the impact of
financial inclusion strategies has been quite modest globally. While access to basic
financial services does help the poor, throwing easy credit at them rarely raises
prosperity in a sustainable way.
The history of the microfinance industry illustrates the limited potential of credit
interventions. Studies that assessed the impact of MFIs in recent years found very little
impact of microfinance loans on either the growth of microenterprises or on poverty
levels. In contrast, the so-called social banking model of yore, involving state-directed
credit interventions in developing countries such as India seemed to have had a greater
impact both in raising growth and in denting poverty.
The problem with such state-directed efforts, as India discovered, is that lending
becomes highly politicized. As a result, while such a model can help in mobilizing
savings, it adversely affects asset quality of state-owned banks, posing a threat to the
stability of the financial system.
There are thus no easy short-cuts to financial inclusion. Ambitions for financial
inclusion need to be tempered because the financial system can grow only as fast as the
rest of the economy. Given India’s income levels, it is not doing either much worse or
much better than its peers as far as key parameters of financial inclusion are concerned.
A cross-country survey by the World Bank shows that 7% of Indians reported taking a
loan from a financial institution in the past year and 11% reported saving at a formal
financial institution. These figures are roughly similar to the average of lower middle-
income countries. The proportion of persons taking formal financial loans is roughly
the same across the developing world but the proportion of savers is more skewed, with
richer developing countries such as China having a much larger ratio of savers.
Given the low proportion of people who save regularly, India must turn its attention to
access to savings.
A micro savings account offers the poor a viable alternative to the sundry agents of
shadowy financial institutions. It can also boost their ability to invest in their farms or
enterprises. In the Philippines, for instance, farmers using commitment savings
accounts, which involve relinquishing the use of the deposits for a certain period of
time, reported improved use of inputs and better crop sales, according to a recent study.
If well-designed inflation-indexed products are available, that can also help boost the
savings rate even while lowering gold and real estate investments.
To be sure, credit products can also benefit from innovations. But many of the problems
plaguing India’s credit markets lie outside the realm of finance. Better land titling
systems and digitization of land records, for instance, can open up access to credit much
more than any financial innovation can. It seems far safer and sensible to focus on
designing and delivering better savings products to the poor.
India’s ambition of financial inclusion can do with a dose of realism about what the
financial sector is capable of achieving.

Way forward
The current policy objective of inclusive growth with financial stability cannot be
achieved without ensuring universal financial inclusion. The banks alone will not be
able to achieve this unless an entire support system partners them in this mission. Only
the support of policymakers, regulators, governments, IT solution providers, media and
the public at large can bring about a decisive metamorphosis in journey towards
universal financial inclusion.
Financial Inclusion of the unbanked masses is expected to unleash the hugely untapped
potential of the sections of the society that constitute the bottom of the pyramid.
However, in pursuing the FI mission, the normal banking model has been found
wanting in terms of cost, scalability, convenience, reliability, flexibility and continuity.
To ensure that the banks give adequate attention to financial inclusion, they must view
this as a viable business proposition rather than as a corporate social responsibility or a
regulatory obligation. For the business to remain viable it would be important to focus
on increasing usage of existing banking infrastructure which would happen only if the
banks can offer an entire bouquet of products and services to the holders of the large
number of basic bank accounts opened during the last three years as also to the new
customers that the banks acquire. Moreover if the dream of universal and a meaningful
financial inclusion has to be turned into reality, then going forward, we would need to
focus on the following issues according to the RBI:
(a) Increasing Reach
• Ensuring coverage of all unbanked villages in next 3 years
• Emphasis on increasing rural branches
• Opening of bank accounts for all eligible individuals

(b) Increasing transactions

• Leveraging on DBT.
• Delivery of credit products through BCs.
• Hassle free Emergency credit (In built OD).

(c) HR Structure
• Banks to review HR policy in view of FI requirements.
• Examining appointing of a separate cadre of staff for cost optimization.

(d) Fine-tuning the BC Model

• Stabilizing the BC delivery model.
• Encouraging innovations in remittances model.
• Review of Cash Management for BC operations.

(e) Spreading Financial Literacy

• Implementing National Strategy for Financial Education.
• Creating Dedicated Website- Inclusion in School Curriculum.
• Organizing Financial Literacy Camps.
 CHAPTER 7- INITIATIVE TAKEN BY STATE BANK
OF INDIA FOR FINANCIAL INCLUSION

Introduction:
State Bank of India (SBI) is a multinational banking and financial services company
based in India. It is a government owned corporation with its headquarters in Mumbai,
Maharashtra. As of December 2017, it had assets of US$420 billion and 24,000
branches, including 157 foreign offices, making it the largest banking and financial
services company in India by assets.

The bank traces its ancestry to British India through the Imperial bank of India, to the
founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the
Indian Subcontinent. Bank of Madras merged into the other two presidency banks—
Bank of Calcutta and Bank of Bombay—to form the Imperial Bank of India, which in
turn became the State Bank of India. Government of India nationalised the Imperial
Bank of India in 1955, with Reserve Bank of India taking a 60% stake, and renamed it
the State Bank of India. In 2008, the government took over the stake held by the Reserve
Bank of India. SBI was ranked 285th in the fortune Global 500 biggest corporations for
the year 2012.

SBI provides a range of banking products through its network of branches in India and
overseas, including products aimed at non-resident Indians (NRIs). SBI has 14 regional
hubs and 57 Zonal Offices that are located at important cities throughout the country.

SBI is a regional banking behemoth and has 20% market share in deposits and loans
among Indian commercial banks.
The State Bank of India was named the 29th most reputed company in the world
according to Forbes2009 rankings and was the only bank featured in the "top 10 brands
of India" list in an annual survey conducted by Brand finance and The Economics
Times of India 2010.

Vision:-
"To Become the Bank of choice for Corporates, Medium Business and Upmarket
Retail Customers and Developmental Banking for Small Business, Mass Market And
Rural Markets."

Mission:-

"To provide superior, proactive banking service to niche markets globally, while
providing cost effective, respective, responsive service to others in our role as a
development bank, and in doing so, meet the requirement of our stakeholders."

Quality Policy:-
"We, at Bank of India, are committed to become the bank of choice by providing
SUPERIOR, PRO-ACTIVE, STATE-OF-THE-ART Banking services with an attitude
of care and concern for the customers and patrons."

Initiative taken by State Bank of India:

Srie sahaj e-Village Limited, a subsidiary of Srei Infrastructure Finance Limited, has
joined hands with the State Bank of India (SBI), today to ensure financial inclusion of
rural areas by offering SBI Banking services through Sahaj Rural Development
Foundation (SRDF) through its Common Service Centres (CSCs) that Sahaj is setting
up in the states of West Bengal, Bihar, Assam, Uttar Pradesh, Orissa and Tamil Nadu.
Through this initiative, Sahaj will bring the biggest bank of the country to the doorstep
of rural people.
Srei Sahaj is committed to the task of eliminating the rural-urban divide and to make it
happen, it has joined hands with State Bank of India to assist in financial inclusion by
helping the rural population to enter the formal financial system by extending to them
SBI banking services. Sahaj will offer its technology platform and its network of CSCs
to the State Bank of India for Banking Correspondent SRDF. Sahaj will also provide
other services like Insurance, Mutual Funds and other financial products including
mobilization of deposits/micro deposits outreach directly through its channel within the
laid down guidelines by the Reserve Bank of India, IRDA, SEBI and other regulatory
body or authority.
SRDF is a Banking Correspondent of SBI under the Banking Correspondent model. An
overwhelming 61% of the rural Indian population is unbanked. The proportion of
unbanked population is higher in the poorer regions of the country, and is the worst in
the North-Eastern and Eastern regions. Access to affordable financial services -
especially credit and insurance - enlarges livelihood opportunities and empowers the
poor to take charge of their lives. Financial Inclusion is both a crucial link and a
substantial first step towards achieving inclusive growth. The liberalized, increasingly
global, market driven economy of India today, has failed to facilitate inclusive growth.
In recognition of this, the government and the Reserve Bank of India, have initiated
steps to create enabling conditions for inclusive growth.

Welcoming the partnership between Sahaj and SBI, Dr Sabahat Azim, Chief Executive,
Srei-Sahaj e-Village said, “We are much more than a business. Our mission is to bring
to rural India, what Urban India takes for granted. Sahaj’s mission is to help transform
rural India. This partnership with SBI will hopefully bring succor to millions who
cannot access credit and who have never been able to make it to the system. A poor
farmer with a bank account and credit history can access much needed capital and
receive disbursements from the Government directly, without intermediaries. This
partnership has the potential to give economic freedom to the common man of the
village. The immense support of the Government will make this entire process very
viable.”
 CHAPTER 8-INITIATIVE TAKEN BY ICICI BANK

Introduction
ICICI Bank is an Indian multinational banking and company headquartered in
Mumbai. As of 2014 it is the second largest bank in India in terms of assets and market
capitalization. It offers a wide range of banking products and financial services for
corporate and retail customers through a variety of delivery channels and specialized
subsidiaries in the areas of investment banking, life, non-life insurance, venture capital
and asset management. The Bank has a network of 4,850 branches and 14,404 ATMs
in India, and has a presence in 19 countries including india.
ICICI Bank is one of the Big Four banks of India, along with State Bank of India,
Punjab National Bank and Bank of Baroda. The bank has subsidiaries in the United
Kingdom, Russia, and Canada; branches in United States, Singapore, Bahrain, Hong
Kong, Sri Lanka, Qatar and Dubai International Finance Centre; and representative
offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia
and Indonesia. The company's UK subsidiary has also established branches in Belgium
and Germany. In March 2013, Operation Red Spider showed high-ranking officials and
some employees of ICICI Bank involved in money laundering. After a government
inquiry, ICICI Bank suspended 18 employees and faced penalties from the India in
relation to the activity.

“To be the leading provider of financial service in India and a global player”.
 • We will leverage over people, technology, speed and financial capital to, be the
banker of first choice for our customers by delivering high quality, world class
products and services.
• Expand the frontires of our business globally.
• Maintain high standards of goverance and ethics.
• Create value for our stakeholders.

ICICI Bank’s promotion strategy for financial inclusion

Focus on Underserved Segments:

ICICI Bank has taken up specific initiatives to ramp up financial literacy as well as
intermediation to the underserved and under banked segments in both rural and urban
areas.

Customers’ Financial Behaviour

In the absence of a formal Credit Bureau, extending financial service to low income
segments becomes a challenge. To overcome this challenge, ICICI Bank’s financial
intermediation models, both through the microfinance institutions and business
correspondents have been designed to build a repository of information with regard to
financial behavior of the customers through Financial Information Network and
Operations Limited (FINO).

ICICI Bank’s Financial Intermediation Models:

With focus on low-income segments, ICICI Bank has come
up with innovative delivery channels:
Microfinance
ICICI Bank works closely with MFIs and NGOs to adapt its
products to suit consumer needs. Two innovative models
have helped achieve scale in serving the low-income
household:
a) Partnership Model being implemented with NGOs
and MFIs:
ICICI Bank forges an alliance with existing MFIs wherein
the MFI undertakes the promotional role of identifying,
training and promoting the micro-finance clients and the
ICICI Bank finances the clients directly on the
recommendation of the MFI, so the customer and portfolio
resides in the Bank’s book.
b) Securitisation of Portfolios of MFIs:
ICICI Bank buys out portfolios from MFIs. The MFI
continues to service the clients and acts as the collection
agent. Here again, the MFI shares the credit risk with the
Bank. A variant of the securitisation model is ‘on-tap
securitisation’, wherein the MFI receives an advance
purchase consideration to create a portfolio of loans that
could then be periodically sold to ICICI Bank. The guiding
principles on the basis of which these models have evolved
have been to separate the MFI’s balance sheet risk from its
operational risk, and leveraging the core competencies of a
Bank (financial strength) and an MFI (social mobilization,
client management) to achieve scale.
Technology:
The Bank has been actively looking at technology solutions
to scale up the microfinance portfolio. Further, the Bank
has been considering adopting a 'Core Banking System'
(CBS) for managing the loan portfolio generated under the
partnership model. In this regard, the Bank has found an
able partner in FINO to provide technology solutions to the
micro finance sector. The technology solution comprises of
core banking and smart card systems. In light of the
technology solutions available through FINO, the Bank has
designed a new process for delivering loans under the
partnership model. Some of the key aspects where a strong
technology platform will add value to the micro finance
operations include reduction in transaction cost; better data
management and reporting capacities and capability to
interface with multiple peripherals, etc. This will also enable
enhanced disclosure and transparency in the operations of
MFIs, setting a platform for robust securitisation / buyout
opportunities to meet the priority sector lending objectives
of the regulator.

Business Correspondent:
In line with the RBI guidelines ICICI Bank employs Business
Correspondent (BC) model to extend financial services,
especially the much-needed savings services to rural
customers. In the pilot stage, the transactions by BC are
being done with the help of an 'e-Passbook' and an
Authentication Device (AD). The e-Passbook can display
and store the customer KYC information, customer account
details and the transactions in each account. It also has a
unique feature of biometric authentication by the way of
fingerprints, thereby mitigating the risk related to PIN
(Personal Identification
Number) in the rural scenario. ADs provide Customer
interface with user-friendly menu options, enabling
transactions. An authorized operator is enrolled by
capturing the fingerprints of all the 10 fingers to mitigate
fraud risk, can operate each AD. The transaction is recorded
on the AD, which at specific intervals would be uploaded
and updated in the Bank's system through a normal
telephone line, which is a widely available infrastructure
even in remote rural areas. Further connectivity through
GSM and CDA would also be made possible to ensure that
the transaction details are updated in the Bank’s system at
higher frequency.

How does this Align with the Overall Rural &

Agriculture Strategy of ICICI Bank?
ICICI Bank has adopted inclusive banking strategy to
provide financial intermediation to farmers, traders and
processors as well as the underserved segments. The
elements on which the Bank’s rural strategy is based are
multiple products that meet customer requirements,
offered through technology-based channels.
Multiple products:
ICICI Bank offers a complete suite of products and services
to meet the individual financial requirements of customer
segments. Savings, investments and insurance products
are made available to its rural and Agriculture customer
base. The Bank also offers microfinance services to low-
income households and crop loans, farm equipment loans,
commodity based loans to farmers.
Hybrid channels:
ICICI Bank employs delivery channels backed by
technological innovations to achieve scale and outreach in
a sustainable manner. The Bank’s channel architecture
includes branch and non-branch channels. Branches act as
a business hub providing banking services on the one hand,
while facilitating the fulfilment of products that have been
sourced by the business facilitators and business
correspondents. Non-branch channels are of two types,
business facilitators and business correspondents. Business
facilitators, referred to as ‘Vikas Sahyogis’, are outsourced
channels that generate business opportunities for the Bank.
Network of Vikas Sahyogis has been set to act as referral
or sourcing agents for loans, insurance and investment
products such as mutual funds. These centres are operated
by local people with existing relationship with the Bank’s
customer segments. Vikas Sahyogis include Agriculture
input dealers, tractor dealers, automobile dealers and
diesel dealers.

CHAPTER 9-CONCLUSION

Financial Inclusion means and includes delivery of financial

services at an affordable cost to the vast sections of the
disadvantaged and low income group in a given society.
Financial inclusion will succeed once the hindrance in the
process is removed. Financial inclusion has, in reality, far
reaching positive consequences which can help resource
poor people to access the formal financial services in order
to pull themselves out of poverty. The focus on the common
man in India is more often ignored especially in the process
of economic development. Indeed, with the process of
financial inclusion, the attempt should be to lift the resource
poor from poverty through coordinated action amongst the
banks. Financial Inclusion is both a crucial link and a
substantial first step towards achieving inclusive growth.
Thus, financial inclusion broadens the resource base of the
financial system by developing a culture of savings among
large segment of rural population and plays its own role in
the process of economic development.

CHAPTER 10-
RECOMMENDATIONS

Financial Inclusion as a Policy Priority

Financial inclusion is an increasing priority for developing
countries. Accordingly, financial inclusion must be
continued as a policy priority for India in order to bring in
the vast unbanked rural people into the process of speedier
economic development.

Strategize the Provision of Bank Credit

Need is felt to strategize the provision of bank credit to the
rural farmer households. Majority of the marginal farmer
households are not at all covered by formal finance. As
such, public sector banks and the cooperative banks in the
rural areas have to be sensitized about the need for
provision of timely and cheaper credit to these segments.
RBI in consultation with NABARD should come out with a
comprehensive strategy for revitalizing the quiescent rural
credit mechanism.

Cover the Poor

It is imminent to encompass the tenant farmers, oral
lessees, and share croppers, marginal farmers with small
uneconomical land holdings, agricultural laborers, rural
artisans and people involved in making handicrafts, and
also majority of weavers in the handloom sector.

Extensive Use of Cooperatives

A large number of Primary Agricultural Cooperative
Societies (PACS) and primary cooperatives located in rural
areas are not functioning effectively. Many of such
organizations are in such districts where the DCCBs are
defunct or moribund. Such PACS could provide valuable
services to their members if they get access to a
commercial bank. In view of these, there is a need to
revitalize these cooperatives as per the Vaidyanathan
Committee recommendations and use them extensively for
financial inclusion in the rural areas.

Procedural/Documentation Changes
It is inevitable on the part of the regulators to find out an
easy way of procuring the documents for opening of bank
accounts and availing loans. The present guidelines are
more tedious and result in huge costs for the poor in
accessing the banks for any kind of services.

Proactive Role of Government

State governments should be asked by the center to play a
proactive role in facilitating financial inclusion. Issuance of
official identity documents for opening bank accounts,
creating awareness, involving district and block level
functionaries in the entire process, meeting cost of cards
and other devices for pilot studies/projects, and
undertaking financial literacy drives are some of the steps
that have been taken up by the state and district
administration.

A Role for Rural Post Offices

Post offices in rural areas can be asked to provide their
services in accelerating the financial inclusion activity. The
Indian postman’s intimate knowledge of the local
population and the enormous trust that he commands can
be of good use in the process of financial inclusion.

Effective Use of ITS Solutions

The use of Information Technology (IT) enables banks to
handle the enormously increasing volumes of transactions
involving application processing, credit scoring, credit
record and follow up. Further, the use of IT solutions for
providing banking facilities at the doorstep holds the
potential for achieving scalability of the financial inclusion
initiatives.
Adequate Publicity for the Project of Financial Inclusion
In a huge country like India, there needs to be widespread
publicity for popularizing the concept and its benefits to the
common man. In this direction, a comprehensive approach
has to be developed involving all the concerned at all levels
to impress upon the need for financial inclusion for
accelerating the economic growth in the country.

BIBLIOGRAPHY

WEBSITES

www.rbi.org

www.wikipedia.com

www.investopidea.com

www.scribd.com

www.icici.com

SEARCH ENGINES
www.google.com

www.yahoo.com

www.mammas.com

www.shodhganga.com