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Financial Inclusion in India

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 FINANCIAL INCLUSION IN INDIA: RECENT
INITIATIVES AND ASSESSMENT

B. N. Anantha Swamy, J. S. Moses,

P. S. S. Vidyasagar, N. Arun Vishnu Kumar and S. Suraj*

I. Introduction

The Indian economy has emerged as the second fastest growing economy
in the world from the decades of low growth rates since independence with the
reforms initiated in the early 90s. There has been a significant improvement in
most of the macro-economic and human development indicators. The evolution
of Indian financial sector in general and the banking sector in particular have
had a remarkable history. However, still a significantly high proportion of the
population does not have access to even basic financial services, such as a
savings bank account. This raises many questions: What is the level of financial
inclusion/exclusion? Why a large section of the Indian population does not
access or are not able to access basic financial services? How do we measure
the extent of financial inclusion? What are the constraining factors in achieving
financial inclusion? Is full financial inclusion achievable? What have been the
initiatives taken by India and other countries to achieve financial inclusion
and what has been their impact? What are the challenges that lie ahead? These
are some of the questions that this paper attempts to answer.

In this backdrop, this paper discusses various issues relating to financial

inclusion in India. Section II focuses on the conceptual framework, benefits
and indicators of financial inclusion. Some of the Initiatives for financial
inclusion undertaken in other countries and lessons to be drawn for India are
covered in Section III. Section IV would cover recent initiatives taken by the

* Prepared by Dr B.N. Anantha Swamy, Director, Shri J.S. Moses, Assistant Adviser, Shri P.S.S. Vidyasagar,
Assistant Adviser, Shri N. Arun Vishnu Kumar, Research Officer and Shri S. Suraj, Research Officer.

RBI Staff Studies 1

Reserve Bank of India, the Government of India, State Governments and the
banks towards financial inclusion. This section would also deal with the status
of financial inclusion in terms of various indicators. An assessment of the
impact of recent initiatives and also certain issues and challenges in
implementation of financial inclusion initiatives are discussed in Section V.
Concluding observations are made in section VI.

II. Financial Inclusion: Concept, Definition and Benefits

Financial inclusion means providing access to affordable financial services
such as savings, loan, remittance and insurance to those who do not have access
or have limited access to such services. Financial inclusion enlarges
opportunities for livelihood, while providing access to the payments system.
Financial inclusion is considered as an important tool for achieving inclusive
growth.

A review of literature suggests that there is no universally accepted

definition of financial inclusion. The Committee on Financial Inclusion
(Chairman: C.Rangarajan) examined the definitional aspects of financial
inclusion. The Committee noted that there is a growing divide, with an increased
range of personal finance options for a segment of high and upper middle
income population and a significantly large section of population who lack
access to most basic banking services. These people, particularly, those living
on low income, can not access mainstream financial products such as bank
accounts, credit, remittances, payment services, etc. The Committee felt that
merely having a bank account or indebtedness may not be a good indicator of
financial inclusion.

The ideal definition in the view of the Committee should take into account,
people who want to access financial services, but are denied the same. As this
aspect would raise the issue of credit worthiness and bankability, it is also
necessary to dwell upon what could be done to make the claimants of
institutional credit bankable or creditworthy. As such, financial products or

2 RBI Staff Studies

delivery systems should be in tune with expectations and absorptive capacity
of the intended clientele.

In the light of the above, the Committee defined financial inclusion 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.” Financial inclusion in the Indian context
implies the provision of affordable financial services, viz., access to payments
and remittance facilities, savings, loans and insurance services by the formal
financial system to those who tend to be excluded (Government of India, 2008).
According to the Committee, it may include a basic no-frill account, a savings
product suited to the pattern of cash flows of a poor household, money transfer
facilities, small loans or overdrafts for productive, personal and other purposes,
insurance, etc. The Committee observed that while financial inclusion in the
narrow sense may be achieved to some extent by offering any one of these
services, the objective of comprehensive financial inclusion would be to provide
a holistic set of services encompassing all the above.

It is argued that in the context of risk and vulnerability of poorer sections

of population, dynamic definition of financial inclusion would need to cover
several aspects that include range of products and services, affordable and
competitive prices, awareness of products and prices, simple and convenient
process of delivery and the attitude of the concerned staff (Arunachalam,
2008).

Since the objective is to include those who are financially excluded, the
concept of financial inclusion, sometimes, is described in terms of financial
exclusion. Leyshon and Thrift (1995) defined financial exclusion as “those
processes that prevent poor and disadvantaged social groups from gaining access
to the financial system. It has important implications for uneven development
because it amplifies geographical differences in levels of income and economic
development.”

RBI Staff Studies 3

 It is, however, important to note that apart from the supply side factors,
demand side factors, such as lower income and/or asset holdings also have a
significant bearing on the extent of financial inclusion. Owing to difficulties
in accessing formal sources of credit, poor individuals and small and micro
enterprises usually rely on their personal savings or internal resources to invest
in health, education, housing, and entrepreneurial activities to make use of
growth opportunities (World Bank, 2008).

Elements of Financial Inclusion

Financial inclusion has two elements: good financial decision-making

capability (the demand side of the equation) and access to suitable products
and services (the supply side).

Good financial decision-making requires:

● Financial literacy, or a basic understanding of financial concepts

● Financial capability, or the ability and motivation to plan finances, seek

out information and advice and apply these to personal circumstances.
Financial capability is increasingly important, as the range of financial
products becomes more complex. The need for financial education is
continuous as market and personal circumstances change.

Poor financial decision-making can also affect those who do not have
low incomes. However, the people most affected are those who will suffer a
greater loss of welfare because of poor decisions.

Implications of Financial Exclusion

A vast segment of the population in India remains financially excluded.

Financial exclusion is a current policy concern because it creates certain
financial problems in the following ways:

4 RBI Staff Studies

● Exclusion from affordable loans leaves people who need to borrow money
with no option other than to borrow at very high interest rates.

● A lack of insurance and savings makes families vulnerable to financial

crises following unexpected events such as burglary or flooding.
● Exclusion keeps away people from cheap and secure formal payments
and remittance facilities.
● Financial exclusion can be both a cause and consequence of poverty.
People having low incomes may have difficulty opening bank accounts,
getting low cost loans or building up savings. Those who do not have
bank accounts have to use more expensive forms of credit such as doorstep
lenders or informal sources like moneylenders. This increases their risk
of falling into debt and poverty.

Financial exclusion is thus the inability, difficulty or reluctance to access

appropriate or so-called mainstream financial services. The reduction of
financial exclusion should be a priority for the government because it can lead
to social exclusion. Even if a country has an innovative and diverse financial
services sector, people living there may be financially excluded. Financial
exclusion or lack of access to appropriate financial products and services can
arise for a variety of often inter-linked reasons as follows:
● Exclusion due to inappropriate or excessively high charges: interest rates
for doorstep lenders and other alternative credit products may be high
and lead to a long term cycle of over indebtedness
● Exclusion due to disability or illiteracy: disabled people might find it
difficult to access bank premises, or find it difficult to read marketing
material
● Exclusion due to low incomes
● Locational exclusion: lack of access in the person’s locality to appropriate
financial services

RBI Staff Studies 5

Financial Inclusion: Benefits

Financial inclusion offers several benefits. Apart from the safety of money
and additional income by way of interest receipts, it promotes thrift and develops
the culture of saving. This also facilitates access to variety of financial products.
In the absence of such facility, people may keep their savings in various informal
forms such as cash at home or deposit with relatives/moneylenders. More
importantly, this enables more efficient payment mechanism. For the financial
institution, it strengthens the resource base. The economy benefits as resources
become available for efficient intermediation and allocation. For the regulator,
it facilitates monitoring and transparency, when transactions are undertaken
through banking channels. Financial exclusion could lead to two adverse
consequences – (a) exposure to higher interest rates charged by informal sources
of finance; and (b) the inability of customers to service the loans or repay
them, leading to debt trap (Mohan, 2006).

Measurement

It is observed that there is no single comprehensive measure that can be

used to measure the extent of financial inclusion. Various indicators of financial
inclusion are used in literature. These include number of savings bank accounts,
number of bank deposit and credit accounts per thousand population, population
covered per branch, etc. However, none of the indicators provide a complete
picture of the extent of financial inclusion in view of the qualitative aspects of
financial inclusion. However, these indicators provide some indications of the
trends in financial inclusion.

III. International Experience

Despite the broad international consensus regarding the importance of

access to finance as a crucial poverty alleviation tool, the problem of financial
exclusion persists. While one estimate says that globally over two billion people
are currently excluded from access to financial services (United Nations, 2006),

6 RBI Staff Studies

another says that 3 billion people around the world are affected by financial
inclusion (Sinha and Subramanian, 2007). The situation is worse in most least
developed countries (LDCs), where more than 90 per cent of the population is
excluded from access to the formal financial system (United Nations, 2006).
However, this problem is not confined only to developing countries.

Even in advanced countries, financial exclusion is found although its

magnitude is not very significant. In developed countries, the nature of the
problem is to include a smaller section of the population who are outside the
banking net. The nature of the problem is unique in each country though the
ultimate objective is to provide basic financial services to all. In developing
and underdeveloped countries, the nature of exclusion is very different because
majority of the population in these countries do not have access to basic financial
services at an affordable cost.

A variety of schemes have been designed and implemented across the

world to tackle financial exclusion. Many countries have enacted legislation
providing for universal right to a bank account or precise nature of banking
services required to be offered. Canada has free encashment of government
cheques even for non-customers. In Sweden, banks are not allowed to refuse
to open a savings or deposit account under the Banking Business Act of 1987.
In France, the Banking Act of 1984 first recognized the principle of the right
to a bank account. The U S federal government introduced the Community
Reinvestment Act in 1997, partly in response to a concern about bank branch
closures in low-income neighbourhoods. Under this legislation, which has been
modified several times subsequently, federal bank regulatory agencies rate
banks on their efforts and effectiveness at serving low-income communities.

The number of adults in the UK without a bank account fell from 2.8
million in the financial year 2002-03 to 2 million in 2005-06. Despite this
progress, there are people who cannot take full advantage of bank accounts
and other financial services. In U.K., the Financial Inclusion Task Force was

RBI Staff Studies 7

constituted in 2002, which mainly looks at three priority areas namely access
to banking, access to affordable credit and access to free face to face money
advice. The government also allotted £ 120 million to the Fund For Financial
Inclusion over three years. Basic bank no frills accounts have also been
introduced. An enhanced legislative environment for credit unions has been
established, accompanied by tighter regulations to ensure greater protection
for investors. A Post Office Card Account (POCA) has been created for those
who are unable or unwilling to access a basic bank account. The concept of a
Savings Gateway has been piloted. This offers those, on low-income
employment, £ 1 from the state for every £ 1 they invest, up to a maximum of
£ 25 per month. In addition, the Community Finance Learning Initiatives
(CFLIs) were also introduced with a view to promoting basic financial literacy
among housing association tenants. The SAFE (Services against Financial
Exclusion) was launched in 2002. It provides financial information and education,
promotes access to basic bank accounts and to the Savings Gateway, which is a
Government pilot savings scheme. The UK Government published its strategy
in its report “Promoting Financial Inclusion” in 2004.

Voluntary charters and codes of practice, developed by the banks themselves

through their trade associations to make provision for ‘life-line’ or ‘basic’ bank
accounts are the most common response to financial exclusion. In many cases,
these developments have been prompted and encouraged by the governments
concerned to increase social inclusion. The earliest of these voluntary charters
was introduced in France in 1992 and was developed by the French Bankers’
Association. It committed banks to opening an affordable account with facilities
such as a cash card, free access to a cash machine network, bank statements and
a negotiable number of cheques. In Belgium, a voluntary code of practice was
introduced in July 1997 by the Belgian Bankers Association following a report
commissioned by the Ministry for Economic Affairs. This code provides for
basic banking services for people with modest incomes who lack a bank account.
At a minimum, this ‘call deposit account’ offers three basic types of transactions:

8 RBI Staff Studies

money transfers, deposits and withdrawals and bank statements – although
individual banks may opt to offer other services if they wish. Up to three
transactions a month can be made at a cost of less than 10 Euros per year. Some
banks permit withdrawals using a cash card at a cash machine. All transactions
are real time and overdrafts are not allowed.

In Germany, a voluntary code was introduced by the German Bankers

Association in 1996. This makes a provision for an ‘Everyman’ current account,
offering basic banking transactions, but without an overdraft facility.

Banks in various countries have extended basic savings accounts similar

to ‘no frills’ accounts in India, though with different names, with a view to
making financial services accessible to the common man. For example, South
Africa has ‘Mzansi’ account which is a low cost card-based savings account
with easy accessibility. Mexico has a microfinance program called ‘PATMIR’
where savings take precedence over credit.

In Netherlands, the national action plan set for social inclusion indirectly
fights against financial exclusion. According to the Euro barometer data, 99
per cent of the Dutch population has access to banking services. The government
has encouraged banks associations to develop voluntary charters to tackle
financial exclusion, mainly through promises to offer basic bank accounts.
Since 2001, there exists a voluntary code that states that a bank may not refuse
to open a bank account to any customer and is backed up with legislation.
Further, since welfare payments are automated, any individual receiving any
social benefit needs to open a bank account.

The financial inclusion programmes being implemented in various

countries focus on provision of a broader range of services, such as debit-
cum-ATM cards, IT enabled financial inclusion products, etc., (UK, South
Africa, Brazil), payment of subsidy to the bank opening the account (USA,
Belgium), legal redressal mechanism (Belgium), tax exemptions (France), etc.
(Report on Currency and Finance, 2006-08).

RBI Staff Studies 9

 International experiences reveal that financial inclusion is no less
important than social inclusion. Financial exclusion is often a symptom of
poverty as well as a cause. Financial capability of individuals definitely
contributes to financial stability of a nation. Therefore, the strategy of financial
inclusion as an important and integral component of the financial sector signifies
the choice of appropriate model for the financial entities towards a social
responsibility cause in terms of its effectiveness and viabilities.

IV. Financial Inclusion in India: Initiatives, Status and Issues

IV.1 Initiatives under Financial Inclusion

The Reserve Bank of India has been concerned about the non-availability
of banking facilities to significant segment of the population, especially the
under-privileged and weaker sections of the society. Several initiatives have
been taken over time such as the nationalisation of banks in 1969, prescription
of priority sector targets, lending to weaker sections at concessional rates,
initiation of the lead bank scheme, introduction of SHG-bank linkage
programme in the early 1990s, Kisan Credit Cards (KCCs) for providing credit
to farmers, etc. Since April 2005, focused attention towards greater financial
inclusion has been accorded in all policy endeavors including those of the RBI.

The broad strategy for financial inclusion in India in recent years

comprises the following elements: (i) advising banks to open a basic banking
‘no frills’ account with simplified know-your-customer (KYC) procedures
although with certain restrictions on the maximum balances, number of
transactions per annum/quarter, etc, (ii) advising banks to provide simplified
general credit card facilities (without insisting on security, purpose or end use
for credit up to Rs. 25,000), (ii) permitting banks to utilize the services of non-
Governmental organizations (NGO), micro-finance institutions, retired bank /
government employees, ex-service men etc, as business facilitators and business
correspondents (BCs); (iii) focusing on a decentralised strategy by using

10 RBI Staff Studies

existing arrangements such as State Level Bankers’ Committee (SLBC) and
strengthening local institutions such as co-operatives and RRBs; (iv) using
technology for furthering financial inclusion; and (vi) emphasis on financial
literacy and credit counseling. The banks have been asked to make available
all printed material in English, Hindi as also the concerned regional language.

To begin with, National Pilot Project of Financial Inclusion in the Union

Territory of Puducherry was undertaken and completed in Puducherry in 2006
with the coordinated efforts of banks, the Reserve Bank as well as the
Government of Puducherry. Following successful implementation in
Puducherry, all the State Level Bankers Committees (SLBCs) were advised
to identify one or more districts in their respective states for 100 per cent
financial inclusion and the responsibility of opening accounts for all
households which doesn’t have a bank account is given to all the banks in
the area. The progress in implementation is continuously monitored by the
Reserve Bank of India.

In order to examine the issue of financial exclusion, the Government of

India constituted the Committee on Financial Inclusion with Dr.C. Rangarajan
as the Chairman. The Committee in its report submitted in 2008 made several
recommendations covering various aspects of financial inclusion.

The major recommendations of the Committee include:

● Launching of a National Rural Financial Inclusion Plan (NRFIP) in

mission mode with a clear target to provide access to comprehensive
financial services, including credit, to at least 50 per cent (say 55.77
million) of the financially excluded rural cultivator/non-cultivator
households, by 2012 through rural/semi-urban branches of Commercial
Banks and Regional Rural Banks. The remaining households have to be
covered by 2015. For the purpose, a National Mission on Financial
Inclusion (NaMFI) is proposed to be constituted comprising
representatives from all stakeholders to aim at achieving universal

RBI Staff Studies 11

 financial inclusion within a specific time frame. This is being implemented
in various states. Banks have been urged to cover a minimum of 250 new
cultivator and non-cultivator households per branch per annum.

● Constitution of two funds with NABARD – the Financial Inclusion

Promotion & Development Fund (FIPF) and the Financial Inclusion
Technology Fund (FITF) with an initial corpus of Rs. 500 crore each, to
be contributed by GoI / RBI / NABARD. The FIPF will focus on areas
like, “Farmers’ Service Centres”, “Promoting Rural Entrepreneurship”,
“Self-Help Groups and their Federations”, “Developing Human Resources
of Banks”, “Promotion of Resource Centres” and “Capacity Building of
Business Facilitators and Correspondents”, while the FITF will focus on
funding of low-cost technology solutions.

● Deepening the outreach of microfinance programme through financing

of Self Help Groups (SHG) / Joint Liability Groups (JLGs) and setting
up of a risk mitigation mechanism for lending to small marginal farmers/
share croppers/tenant farmers through JLGs.

● Use of Primary Agricultural Cooperative Societies (PACSs) as Business

Facilitators and Correspondents.

● Micro finance – Non Banking Finance Companies (MF-NBFCs) could

be permitted to provide thrift, credit, micro-insurance, remittances and
other financial services up to a specified amount to the poor in rural,
semi-urban and urban areas. Such MF-NBFCs may also be recognized
as Business Correspondents of banks for providing only savings and
remittance services and also act as micro insurance agents.

● Opening of specialised microfinance branches / cells in potential urban

centers for exclusively catering to microfinance and SHG - bank linkages
requirements of the urban poor and provision in the NABARD Act, 1981
permitting NABARD to provide micro finance services to the urban poor.

12 RBI Staff Studies

 The Reserve Bank of India constituted a Committee on Financial Sector
Plan for North Eastern Region (NER) in January 2006 under the chairmanship
of Smt. Usha Thorat, Deputy Governor, Reserve Bank. In its report, the
Committee recognized that the main factors that impede banking and financial
development in the region are topography of the region, sparse settlements of
population, infrastructural bottlenecks such as transport, communication and
power, low level of commercialisation, lack of entrepreneurship, law and order
conditions in some parts of the NER, land tenure system especially in hilly areas,
development strategy based on grants rather than loans, low network of branches,
lack of simple customized and flexible financial products to suit the needs of the
local population, poor loan recovery experience, lack of awareness of banking
services, inadequate payment systems, etc. Thus, in its recommendations, the
Committee stressed upon the need for improving the infrastructure, creating a
favourable investment climate, focusing on a few sectors of strategic advantage
for development, encouraging a favourable credit culture, and a massive
awareness campaign in the region for promoting financial inclusion.

Some of the major recommendations of the Committee are as follows:

(a) Banks may draw up plans to provide at least 50 new households per branch
each month for the next four years with a deposit account, (b) Over a period of
time, the bank may offer small overdrafts or General Credit Cards (GCC) against
such accounts and other products, (c) The Committee has suggested that existing
branches of commercial banks, Regional Rural Banks and cooperative banks
have more recourse to bank/SHG linkage programme, business correspondent/
business facilitator model as also extensive use of Information Technology
(IT) based solutions which facilitate offsite banking, (d) Banks may link up
with insurance companies for providing insurance products suitable to the NER,
and (e) an automatic approval scheme for any bank desirous of opening branches
in unbanked areas in the region.

Further, the Committee, inter alia, made the following recommendations

for enhancing the efficiency of the payment system in the region: (a)

RBI Staff Studies 13

computerisation of the remaining noncomputerised Clearing Houses in the
North East to be completed within six months, (b) Opening of clearing houses
in the five districts without such a facility and having five or more banks, (c)
All the bank branches in NER with commercial transactions to be Real Time
Gross Settlement System (RTGS) enabled within six months, (d) A plan for
implementing smart card/mobile based solutions on an open standard platform
to be accessed by all banks to be prepared by IDRBT and a pilot project in a
suitable area may be tested within six months.

Similarly, in certain less developed states, such as, Bihar, Chhatisgarh,

Jharkhand, Himachal Pradesh and Uttarkhand, Working Groups constituted
by the Reserve Bank have made certain recommendations for promoting
financial inclusion. The recommendations are under implementation.

The Government of India and the State Governments are also promoting
financial inclusion through various means, such as making payments to
pensioners, beneficiaries of the National Rural Employment Guarantee
Programme (NREGP) through bank accounts. In the budget for 2009-10, a
provision of Rs.39,000 crore has been made for implementing NREGA scheme.
The objective is to provide employment opportunities to about 4.5 crore
households during 2009-10. In some States, the State Government is also
partnering with the banks in promoting IT-based financial inclusion by bearing
a part of the costs involved.

The Union budget for 2009-10 emphasizing significance of financial

inclusion noted that “For a country like ours with significant sections of
unbanked population and regions, financial inclusion is vital for sustaining
long term equitable development”. In order to address the issue of unbanked
areas, a sub-committee of State level Bankers’ Committee will identify
unbanked areas and formulate an action plan for providing banking facilities
to all these areas in the next three years. A provision of Rs.100 crore has also
been made in then budget towards one time grant in aid to ensure provision of

14 RBI Staff Studies

at least one centre/point of sales for banking services in each of the unbanked
blocks in the country.

As part of their strategy for promoting financial inclusion, banks too

have adopted different measures/models in different parts of the country
depending on the availability of supporting infrastructure. While it started with
the non-technology based traditional model using BCs/BFs, many banks have
recently moved towards adoption of technology-based models for delivering
basic banking services in unbanked and underbanked areas. There are also
instances where banks have adopted villages under ‘Debt Swapping’ and make
it money-lender free. Under this, credit is extended to indebted members of
SHGs as also to other farmers to repay loans from non-institutional sources.

Financial Literacy and Financial Inclusion

The importance of financial literacy and financial counseling as an

essential component of financial inclusion is also recognized. Considering that
lack of awareness is a major factor for financial exclusion, the Reserve Bank
is taking a number of measures towards financial literacy and credit counseling.
The Reserve Bank has undertaken a project titled “Project Financial Literacy”
to disseminate information regarding the central bank and general banking
concepts to various target groups with the help, among others, of banks, local
government machinery, schools and colleges through presentations, pamphlets,
brochures, films, as also through the Reserve Bank’s website. A “Financial
Education” site link on the RBI web site has been created mainly aimed at
teaching basics of banking, finance and central banking to children in different
age groups. The comic books format has been used to explain complexities of
banking, finance and central banking in a simple and interesting way to children.
The Reserve Bank has advised the SLBC convener banks to set up on a pilot
basis, a financial literacy-cum-counseling centre in any one district and based
on the experience gained to set up such centers in other districts. Following
this, many banks have set up financial literacy-cum-counseling center in select

RBI Staff Studies 15

districts. The RBI has also prepared a Model Scheme for Financial Literacy
and Credit Counseling Centres.

Some non-banking initiatives have also been taken in various parts of

the country to promote financial literacy. The project on financial counseling
service for poor self-employed women in India known as Project Tomorrow
was started in Gujarat by Self Employed Womens’ Association (SEWA). The
purpose was to develop and test a financial counseling curriculum to help
participants manage money productively, plan ways to increase assets, address
life cycle events and manage risks. Through this project, SEWA has set up a
training unit and training delivery system and is developing tools and procedures
to monitor the counseling work. SEWA is now providing financial counseling
to its clients through a weekly course. The goal of the Project Tomorrow
Financial Education Program is to build the capacity of SEWA members in
urban and rural areas to be better financial planners.

Technological Initiatives for Financial Inclusion

In the process of achieving financial inclusion, technology has been

accorded an important role. The required outreach into interior unbanked areas
with low operational costs is considered possible only with the use of
appropriate technology. Technology enhances access to financial services in a
cost-effective manner and over time with increasing volumes, leads to more
affordability. Keeping this in view, the banks have taken initiatives to install
ATMs in rural and semi urban areas. However, as the customers covered under
financial inclusion project are mostly not familiar with the use of this
technology, they may not be in a position to make full use of the same. In order
to address this, many banks have installed biometric ATMs in rural areas. The
challenge lies in making the technologies friendlier to the illiterate clients from
the poor segments of society, who are normally excluded from the financial
system. Some of the initiatives, which are currently under way on an
experimental basis, are worth mentioning:

16 RBI Staff Studies

● ATMs with operating instructions in vernacular language facilitating the
access for the poor people with reading ability

● ATMs with voice recognition for the illiterates for transactions relating
to savings, credit and payment services

● Biometric enabled ATMs to bring more illiterate poor to the banking

fold

● Mobile teller / low cost ATMs in the remote areas

● Kiosk banking using internet facility.

The Finance Minister, in the Union Budget speech for 2007-08 announced
the constitution of FIPF and FITF with an overall corpus of Rs. 500 crore each
with initial funding to be contributed by the Central Government, Reserve
Bank of India and the National Bank for Agriculture and Rural Development.
The objectives of the FIPF is to support “developmental and promotional
activities” with a view to securing greater financial inclusion, particularly
among weaker sections, low-income groups and in backward regions/hitherto
unbanked areas. The objectives of the FITF is to enhance investment in
Information Communication Technology (ICT) aimed at promoting financial
inclusion, stimulate the transfer of research and technology in financial
inclusion, increase the technological absorption capacity of financial service
providers/users and encourage an environment of innovation and co-operation
among stakeholders. The setting up of these funds would ensure access to
timely and adequate credit and financial services by vulnerable groups such as
weaker sections and low-income groups at an affordable cost.

Business Correspondent and Business Facilitator Models

For the successful implementation of financial inclusion project, an

important constraint factor is the distance between the bank branch and the
customer’s location. In view of the long distances to be traveled for conducting

RBI Staff Studies 17

banking transactions, opportunity cost of the same would be quite high for
the customers located in remote places. In order to address this problem, the
Reserve Bank has permitted banks to utilize the services of non-governmental
organizations and micro-finance institutions (other than NBFCs) as
intermediaries in providing financial and banking services through the use
of Business Correspondent (BC) and Business Facilitator Models. The banks
have also been permitted to engage retired bank employees, ex-servicemen
and retired government employees as BCs. The BC model allows banks to
do cash in and cash out transactions at a location much closer to the rural
population.

Microfinance and Financial Inclusion

Microfinance programmes are intended to reach the poor segments of

society who lack access to financial services. The predominant micro finance
programme, namely, the Self-Help Group (SHG) bank linkage programme has
demonstrated across the country its effectiveness in linking banks with the
excluded category of poor segments of the population. In this process, the role
of non-Government organizations (NGOs) is quite significant in providing the
last mile connectivity as enablers and catalysts between the SHGs / Village
level co-operatives and the banks.

IV.2 Status of Financial Inclusion

While provision of financial services to the financially excluded sections

of the population has no doubt improved as a result of various policy initiatives,
accurate assessment of the impact of the policy initiatives has been constrained
by non-availability of relevant and consistent data. Further, there is no single
measure to reflect accurate assessment of financial inclusion which includes a
variety of financial services. However, various indicators, such as (i) the
population per bank branch, (ii) the number of savings accounts opened by
banks per 100 persons/adults, (iii) the number of savings accounts opened by

18 RBI Staff Studies

post offices, (iv) the number of households availing banking services (v)
insurance penetration, etc. are used to assess the extent of financial inclusion.
Based on the available data, following findings emerge:

(a) Number of persons per bank office

Following the nationalisation of banks in 1969, the branch network of

SCBs expanded rapidly from nearly 8,262 in June 1969 to 77,773 in March
2008. As a result, the population served per bank branch declined significantly
from more than 60 thousand in 1969 to less than 14 thousand in 1991. It has
gone up slightly since then (Chart 1).

Region-wise analysis shows a significant decline in the population per

bank branch between 1972 and 1991. However, between 1991 and 2008, except
for the southern region, there was a marginal increase in the population per
bank branch in all the other regions (Annex 1). Further, there is wide variation
amongst the regions with regard to this indicator ranging from 11 thousand per
bank office in the southern region to more than 20 thousand in the North-
eastern region.

RBI Staff Studies 19

 State-wise analysis also showed significant decline in the population per
bank branch between 1972 and 1991 in almost all the States. Further, there
was wide diversity among the States in the coverage of banking ranging from
4,142 per bank office in Goa (December 2008) to more than 33 thousand persons
per bank office in Manipur (Table 1). In terms of geographical coverage, only
5.2 per cent of the villages have a bank branch (Chakrabarty, 2009).

(b) Number of Savings Bank Accounts

The number of savings bank (SB) accounts with scheduled commercial

banks across the country significantly increased from about 23.6 million in
1972 to 253 million accounts in 1991 and to 373 million as at end-March
2007. The number of SB accounts per 100 persons at the all-India level, rose
significantly from 4.3 in 1972 to 29.9 in 1991 and further to 33 in 2007. Region-
wise analysis also shows an increase in this ratio over the same period in all
the regions of the country (Annex 2). The number of SB accounts per 100
persons was the highest in the case of southern region (43.8) in 2007, while

Table 1: Number of Persons per Bank Office (December 2008)

Number of persons Number of Name of States
per bank office States/UTs
1 2 3
Below 5,000 2 Chandigarh and Goa
5,000 - 10,000 7 Delhi, Himachal Pradesh, Punjab, Sikkim, Uttarakhand,
Kerala, Lakshadweep, and Puducherry.
10,000 - 15,000 12 Andhra Pradesh, Andaman and Nicobar Islands, Dadra and
Nagar Haveli, Daman and Diu, Gujarat, Haryana, Jammu and
Kashmir, Karnataka, Meghalaya, Mizoram, Tamil Nadu.
15,000 - 20,000 8 Arunachal Pradesh, Jharkhand, Madhya Pradesh, Maharastra,
Orissa, Rajasthan, Tripura, West Bengal.
20,000 and above 6 Assam, Bihar, Chattisgarh, Manipur, Nagaland, Uttar
Pradesh

Source : Reserve Bank of India, Quarterly Statistics on Deposits and Credit with Scheduled Commercial
Banks, December 2008.
the north-eastern states had the least number of savings accounts per 100 persons
at 21.2.
Amongst the States, there was an increase in the SB accounts in all the States
between 1972 and 1991. Some States, however, witnessed a decline in the number
of SB accounts per 100 persons between 1991 and 2007, namely Punjab, Manipur,
Meghalaya, Mizoram, Nagaland, Tripura, Bihar, West Bengal, and Maharastra.
While Bihar, Chattisgarh, Nagaland and Manipur had the least number of SB
accounts per 100 persons, Goa and Chandigarh performed better (Table 2).

(c) Savings Accounts with the Postal Department

The number of accounts opened by the postal department under various

savings scheme was nearly 160 million as at end-March 2005, of which 60.3
million accounts were the Savings Bank Accounts (Government of India, 2007).
The total number of accounts increased to about 174 million as at end-March
2007, with 64.3 million Savings Bank Accounts. The number of savings
schemes accounts with the post offices in India grew at about 9 per cent between

Table 2: Number of Savings Bank Accounts with SCBs (March 2007)

Number of SB Accounts Number of Name of States
per 100 perssons States/UTs
1 2 3
Below 20 4 Nagaland, Manipur, Bihar and Chattisgarh.
20-30 11 Arunachal Pradesh, Assam, Jharkhand, Madhya Pradesh,
Meghalaya, Mizoram, Orissa, Rajasthan, Sikkim,
Tripura, West Bengal
30-40 6 Andhra Pradesh, Andaman and Nicobar Islands, Gujarat,
Jammu and Kashmir, Maharastra, Uttar Pradesh.
40-50 8 Dadar and Nagar Haveli, Daman and Diu, Haryana,
Himachal Pradesh, Karnataka, Lakshadweep, Tamil Nadu,
Uttarakhand.
50 – 100 3 Kerala, Puducherry and Punjab
100 and above 2 Chandigarh and Goa
Source: Reserve Bank of India, Banking Statistical Returns of SCBs.

RBI Staff Studies 21

2005 and 2007. Over the same period, the amount of savings/investments in
these schemes grew by nearly 31 per cent.

The number of savings bank account with the Post Offices (including
senior citizens accounts) showed wide variation among the States with 5 states
(Andhra Pradesh, Uttar Pradesh Himachal Pradesh, Tamil Nadu, Uttarakhand)
having more than 7 accounts per 100 persons, while 2 states including
Maharashtra had less than 3 accounts per 100 persons (Table 3).

(d) Invest India Incomes and Savings Survey 2007

According to the Invest India Incomes and Savings Survey 2007, the
proportion of population having a bank account increased with the increase in
the level of income. The survey also indicated that around 45 per cent of
respondents had a savings account with a bank.

(e) Max New York Life and NCAER Survey

According to the survey conducted by Max New York Life and NCAER
at the all-India level, 66 per cent of households own accounts in a financial
institution (NCAER, 2008).

Table 3: Number of Post Office Savings Bank Accounts

(end-December 2007)
Number of SB Accounts plus Number of Name of States
Senior Citizens Accounts States
per 100 persons
1 2 3
Below 3 2 Chhatisgarh, Maharastra
3-5 7 Assam, Bihar, Gujarat, Karnataka, Madhya
Pradesh, North-East Region, Rajasthan.
5-7 7 Delhi, Haryana, Jammu and kashmir, Kerala,
Orissa, Punjab, West Bengal
7-9 2 Andhra Pradesh, Uttar Pradesh,
Above 9 3 Himachal Pradesh, Tamil Nadu, Uttarakhand
Source: Government of India, India Post.

22 RBI Staff Studies

(f) Census 2001
In terms of the coverage, the 2001 Census of India is considered most
comprehensive. The Census enumerated the number of households availing
banking services (including post office accounts). The Census observed that
only about 36 per cent of the total households in India were availing banking
services. Moreover, there were wide differences among the States in the level
of access of banking services (Table 4). The smaller States/Union Territories
had a better coverage and the north-eastern States had lower banking coverage.

(g) Number of Loan Accounts with Commercial Banks

The number of loan accounts increased from about 4.3 million in 1972 to
61.9 million in 1991 and further to 94.4 million in 2007. The number of total
credit accounts per 100 persons/adults at the all-India level, which is one of
the indicators of the expansion of credit delivery services, increased from 0.8

Table 4: Distribution of States by percentages of households

availing banking services
Proportion of Households Number of Name of States
availing banking services States
(per cent)
1 2 3
Below 20 2 Manipur and Nagaland
20-30 10 Assam, Meghalaya, Bihar, Tamil Nadu,
Chhattisgarh, Orissa, Tripura, Madhya Pradesh,
Rajasthan and Sikkim
30-40 9 Jharkhand, Dadra and Nagar Haveli, Andhra
Pradesh, Puducherry, Mizoram, Jammu and Kash-
mir, West Bengal, Arunachal Pradesh, and Gujarat
40-50 6 Karnataka, Uttar Pradesh, Haryana, Daman and
Diu, Maharashtra and Punjab
50-60 5 Delhi, Kerala, Lakshadweep, Himachal Pradesh,
Uttaranchal
60 and above 3 Andaman & Nicobar Islands, Chandigarh, and
Goa
Source: Government of India, Census 2001.

RBI Staff Studies 23

in 1972 to 7.3 in 1991. However, the ratio marginally declined from 7.3 in
1991 to 7.0 in 2005, and thereafter rose to 8.3 in 2007. At the disaggregated
level also, credit accounts per 100 persons/adults in both the rural and urban
areas improved between 2001 and 2007.

Region-wise analysis shows an increase in the number of total credit

accounts per 100 persons/adults in all the regions between 1972 and 1991.
However, between 1991 and 2007, the ratio declined in the case of the eastern
and the central region. In 2007, the ratio was the highest in the case of southern
region (16.8) followed by western region at 11.0. The ratio was the least for
the north eastern states at 4.3 credit accounts per 100 persons (Annex Table 3).

State-wise analysis showed similar results with all the Southern states,
Maharastra, Goa, Chandigarh and Delhi showing better bank credit penetration
with the number of credit accounts per 100 persons being higher than the
national average in 2007, while the north-eastern, central and northern States
showed low bank penetration (Table 5).

Table 5: Number of Credit Accounts with SCBs (March 2007)

Number of Credit Number of Name of States
Accounts per 100 States
persons
1 2 3
Below 5 14 Andaman and Nicobar Islands, Arunachal Pradesh, Assam,
Bihar, Chattisgarh, Dadra and Nagar Haveli, Daman and
Diu, Jammu and Kashmir, Jharkhand, Madhya Pradesh,
Manipur, Nagaland, Uttar Pradesh, and West Bengal.
5-10 12 Gujarat, Haryana, Himachal Pradesh, Lakshadweep,
Mizoram, Meghalaya, Orissa, Punjab, Rajasthan, Sikkim,
Tripura, Uttarakhand.
10-15 6 Andhra Pradesh, Delhi, Goa, Karnataka, Maharastra,
Puducherry.
15-20 1 Kerala.
20 and above 2 Chandigarh, Tamil Nadu
Source: Reserve Bank of India, Banking Statistical Returns of SCBs.

24 RBI Staff Studies

(h) NSSO Survey

As per the NSSO data, in 2003-04 45.9 million farmer households in

the country (51.4 per cent) did not access credit, either from institutional or
non-institutional sources. Further, of the indebted farm households, 56 per
cent had access to formal credit sources. Regional analyses show that
exclusion is most acute in central, Eastern and North-Eastern regions. In the
case of Southern Region, 59 per cent of the indebted households had access
to formal sources.

(i) Basic Statistical Returns

Data based on BSR returns compiled by Reserve bank of India showed

critical exclusion in terms of credit in 256 districts with a credit gap of 95 per
cent and above.

(j) Self-Help Groups and Bank Linkage

The SHG-Bank Linkage programme has made good progress in recent

years. The number of SHGs financed by banks was 2.9 million at end-March
2007 with outstanding bank loan amounting to Rs. 12,366 crore. As at end-
March 2006, about 54 per cent of the SHGs linked to banks were located in the
Southern region, which was lower than its share of 71 per cent in 2001. The
share of Eastern region has been increasing in recent years.

(k) Kisan Credit Cards

With regard to Kisan Credit Cards (KCC), about 8.5 million cards were
issued during 2007-08. This includes 4.6 million cards issued by commercial
banks, 2.1 million cards by cooperative banks, and nearly 1.8 million cards by
RRBs. A state-wise analysis shows that Uttar Pradesh had the highest number
of cards issued at 1.43 million, followed by Andhra Pradesh (1.2 million) and
Maharashtra (0.88). Cumulatively till 2007-08, 76 million KCCs have been
issued since 1998-99.

RBI Staff Studies 25

(l) Life Insurance Penetration
The total number of life insurance policies (individual single premium)
was about 3.41 million in November 2007 (IRDA, 2008) amounting to about
3.1 policies per thousand persons. The insurance penetration (insurance
premium as percentage of GDP) at 3.14 per cent was relatively higher as
compared to several emerging market economies, but significantly lower than
that in advanced economies.

Overall Number of Savings and Loan Accounts

As a result of various initiatives towards financial inclusion by all concerned,
significant improvement has been noticed in terms of certain measurable indicators
of financial inclusion. The savings accounts with different institutions (SCBs, RRBs,
UCBs, PACS and post offices) has shown an increase from 487 million in 2002 to
610 million in 2007. The savings account per adult increased from 72 in 2002 to
82 in 2007. The total number of credit accounts taking into account all institutions
(SCBs, RRBs, PACS, UCBs and Self-Help Groups) is estimated at 187 million as
at end-March 2007. The total number of credit accounts per 100 adults (taking into
account all formal sources) which had declined from 20 in 1993 to 18 in 2002,
increased to 25 in 2007 (Report on Currency and Finance, 2006-08).

The banks have responded well to the Reserve Bank’s recent initiatives.
Now, focused policy attention is being accorded to the implementation of
financial inclusion. The SLBCs have reported 100 per cent financial inclusion
in 155 districts across 19 states and 6 union territories. Kerala, Himachal
Pradesh, Haryana, Uttarakhand, Andaman, Chandigarh, Karnataka, Puducherry,
Goa and Lakshdweep have been reported to be fully covered having achieved
100 per cent financial inclusion. A total number of more than 3.3 crore no-frills
accounts have been opened as at end-March 2009.

Index of Financial Inclusion

While the importance of financial inclusion is widely recognized, the
literature lacks a comprehensive measure that can be used to measure the extent

26 RBI Staff Studies

of financial inclusion across economies. In a recent paper by ICRIER, attempt
has been made to construct an index of financial inclusion (IFI). The index is
an amalgamation of three aspects of financial inclusion; penetration of the
banking system, its availability to users and the size of bank credit and deposits
relative to the GDP indicates usage. Based on the 3 dimensional indexes, Spain
ranks the highest, followed by Austria, Belgium, Denmark, Switzerland and
Malta. These are the only five countries which belong to the high IFI group
with IFI values of 0.5 or more. According to the above study, India ranks way
below on an index of financial inclusion, indicating that there are opportunities
for innovative business models. Among the 55 countries, India ranks 29th with
an IFI value of 0.166 (ICRIER, 2008). In terms of 2-dimensional IFI (excluding
penetration), nine OECD countries - Spain, Canada, Portugal, Germany, Austria,
Switzerland, Belgium, Netherlands and Denmark - form the group of high IFI
countries while 22 countries including United Kingdom (17th rank), Sweden
(19th), United States (21st), Japan (22nd), Mauritius (25th), Norway (26th)
and Korea (31st) have IFI values in the medium range. India occupied 50th
position among 100 countries.

V. Key Issues and Challenges in Financial Inclusion

Financial inclusion has been accorded significant importance in recent

policy endeavors. As discussed earlier, the Reserve Bank of India, commercial
and co-operative banks, Central and State Governments have taken several
initiatives. In terms of certain measurable indicators, there has been, no doubt,
significant improvement in achieving financial inclusion. Notwithstanding the
developments in this regard, there are several issues and challenges in effective
implementation of financial inclusion that need to be addressed in order to
ensure that the objectives of financial inclusion are fulfilled.

While following the initiatives towards financial inclusion, millions of

new accounts have been opened, the crucial question is to what extent the
individual, the concerned bank, financial system have benefited from this. What

RBI Staff Studies 27

is important is to realize all the benefits of financial inclusion as stated in the
earlier sections. If not, while financial inclusion exists, it is only in the books
of the bank without imparting any benefit to the account holder. In order to
assess the impact of financial inclusion, the Reserve Bank had requested the
external agencies to undertake evaluation studies attempting post financial
inclusion developments in select districts. These studies have been undertaken
in 27 select districts in 9 states by different agencies. Based on the findings of
these studies and field level enquiries, the following issues have been identified.
(i) Actual vis-a-vis declared extent of financial inclusion: The State Level
Bankers Committees (SLBCs) have declared several districts as 100 per
cent financially included. However, the position of actual financial
inclusion was found to be less than 100 per cent in many districts.
(ii) Difficulties in opening no-frill accounts: Field level investigations show
that there are several problems in implementing financial inclusion at the
branch level. The members of the public experienced difficulties in
opening ‘no frills’ account due to several reasons. The branches had not
received instructions from their controlling offices to open ‘no frills’
account. The branches insisted minimum balance of varying amounts
and additional identity proofs. Banks have also reported certain problems
such as inadequate staff strength, crowding of premises, etc, if zero balance
accounts were opened. The branches are reluctant to open the accounts
under the notion that these new accounts would not be profitable. There
was an apprehension that banks would be compelled to extend credit to
all these new account holders in future before they exhibit sufficient saving
potential
(iii) Unwillingness to open bank account: In order identify the extent of
households which are willing to have a bank account, bank branches
were asked to undertake surveys in their respective areas. It was found
that in certain areas, many households were not willing to have a bank
account due to several reasons. This was attributed to long distances to

28 RBI Staff Studies

 be traveled to the branch, low income and savings potential, implying
opportunity costs (especially in terms of income foregone) for the
beneficiary concerned, lack of awareness, etc. The easy access and door-
step delivery were some of the important reasons for maintaining
financial relationship with money lenders/chit funds etc. Even in cases
where an individual showed interest to open a bank account,
documentation requirements and minimum balance requirements were
cited as major impediments for opening the account. The reported high
proportion of unwillingness in certain areas has also been attributed to
improper household surveys undertaken by banks to identify willing
households.

(iv) Zero balance and dormant accounts: A number of no frill accounts were
found to have zero balance. This shows that the account holders have no
savings potential due to low income levels. A large number of accounts
are reported to have remained dormant with almost nil transactions. The
real success of the financial inclusion project would need to be measured
by the actual usage of the newly opened no frills accounts. These stated
benefits of financial inclusion in the forms of creation of savings channel,
safety of money, interest receipts, etc, loses relevance when accounts
have zero balance. Thus, there are many structural problems constraining
the success of financial inclusion project. However, the decision of some
state governments to credit payments relating to NREGS and other
schemes to the bank accounts is a welcome measure and would reduce
the dormancy.

(v) Lack of awareness: An important reason for remaining financially

excluded is lack of awareness about the financial services. In this regard,
financial literacy projects announced by the RBI and other banks could
be useful. While the banks have set up 110 credit counseling centres,
certain problems regarding the functioning of these centres have been
noticed. A review of their functioning by the Reserve Bank showed that

RBI Staff Studies 29

 in several cases these centres were not performing the intended role and
were promoting the bank’s products. Further, in many centres these were
manned by the bank staff, who acted as counselors, in addition to their
other duties, thereby leading to conflict of interest. Further, no formal
input in financial management was provided to the counselors. In order
to clarify the concept and the expectations from these centres, a Model
Scheme for Financial Literacy and Credit Counselling Centres have been
prepared and communicated to banks by the Reserve Bank recently.

(vi) Infrastructural constraints: The financial inclusion project if completed

would result on millions of new deposit accounts and loan accounts.
Appropriate servicing of such accounts would lead to immense pressure
on the infrastructural capacity of the banking system. This would require
additional investment on physical infrastructure as well as expenditure
on additional man power requirement. At least in the initial years,
transactions cost for servicing the small accounts may not be viable for
the banks. According to a study pertaining to Cuddalore district in Tamil
Nadu, at current levels of transaction and average balances, no frills will
break even the maintenance cost, but not the account opening costs.

(vii) High transactions costs: An important constraining factor is the very

high transaction costs for both the banks and the clients. For the banks
large number of small value accounts implies very high transactions costs.
For the customers, time taken the visit the branch and complete the
transactions, would imply loss of income for the same period in addition
to traveling expenses.

(viii) Issues in lending: Another important issue is when the scheme was
finalized it was expected that the banks will offer credit facilities to the
rural poor. The banks are reluctant to provide overdraft and credit facilities
to the no frill account holders. They are also insisting on collateral for
extending the loan.

30 RBI Staff Studies

VI. Concluding Observations

Financial inclusion plays an important role in achieving inclusive growth.

Several initiatives have been taken by the Reserve Bank, commercial banks,
Central and State governments to promote financial inclusion. Notwithstanding
this, the extent of financial exclusion continues to be significant. While in an
economy like India with huge regional disparities in development ensuring
complete financial inclusion is not an easy task, it is important to consider
several aspects in order to successfully implement financial inclusion project
and ensure intended benefits to all the concerned.

The opening of no-frill accounts should not be considered as completion

of financial inclusion project. It should be considered as the beginning. The
banks should not hesitate in extending credit wherever required. With regard
to dormancy of account, all government payments, including payments under
NREGA, pensions, etc, could be routed through banking channels. This would
inculcate banking habits among financially included. Further, initiatives to
provide some credit facility would encourage people to make use of the available
banking services. This would also deter the poorer sections to approach money
lenders and other informal and high cost sources for financial assistance.

For sustaining financial inclusion, financial literacy becomes a very critical

component. In several cases, customers may not be aware of the usefulness of
banking accounts and the type of services that they are entitled. This is the
main reason for unwillingness to have a bank account. There is, therefore, a
need to simultaneously focus on the financial literacy part besides the delivery/
access issues. All the concerned institutions should be associated with financial
literacy initiatives. At the same time, more and more of vernacular language
would be useful.

One of the important factors coming in the way of financial inclusion is

the location of the bank and distance to be covered to complete banking
transactions. Longer the distance, higher would be the opportunity cost. In

RBI Staff Studies 31

order to address these banks would need to adopt business facilitator model in
a bigger way. This would facilitate banking transactions in the place of residence
of the customer. Use of appropriate technology would facilitate reduction on
costs involved in this.

Regional imbalances in the financial inclusion process is an area of

concern and there is a need for the process to be more broad-based. The
successful implementation of financial inclusion projects would necessitate a
flexible approach by banks, developments of suitable products, simple lending
procedures, especially for small loans, expanding financial literacy and use of
appropriate technology, so that the financially included segment of population
is discouraged to access informal and high cost sources for their financial
requirements. All these warrant coordinated efforts by all the concerned
institutions.

32 RBI Staff Studies

References

Arunachalam, Ramesh S. 2008. Scoping Paper on Financial Inclusion, UNDP.

Chakrabarty, K.C, Pushing Financial Inclusion – Issues, Challenges and Way
Forward, Presentation made at 20th SKOCH Summit 2009, Mumbai on July
17, 2009.
Conroy, John D; Financial inclusion: A new microfinance initiative for APEC,
The APEC Business Advisory Council , The Foundation For Development
Cooperation, January 2008.
Country Report, Netherlands: Study on financial services provision and
prevention of financial exclusion.
Financial Inclusion in the UK: Review of Policy and Practice: Lavinia Mitton,
University of Kent, July 2008
Financial Inclusion: Credit, Savings, Advice and Insurance – Twelfth Report
of Session 2005-06, London, 16 November, 2006
Financial Stability and Payment Systems Report 2006, Bank Negara Malaysia.
Government of India. 2001, Census of India, 2001.
____ 2007. Book of Information. Department of Posts.
____ 2008. Report of the Committee on Financial Inclusion in India (Chairman
Dr. C. Rangarajan). January.
IIMS. 2007. Invest India Incomes and Savings Survey. Invest India Market
Solutions (IIMS dataworks). www.iimsdataworks.com.
IRDA. 2008. “Getting Better and Better.” IRDA Journal. Insurance Regulatory
and Development Authority, January. www.irdaindia.org
Leyshon, A. and N. Thrift. 1995. “Geographies of Financial Exclusion:
Financial Abandonment in Britain and the United States.” Transactions of the
Institute of British Geographers, New Series, 20: 312–41.

RBI Staff Studies 33

ICRIER, Index of Financial Inclusion, Working Paper 215, ICRIER, 2008

Mohan, Rakesh. 2006. “Economic Growth, Financial Deepening and Financial

Inclusion.” RBI Bulletin, November.

NCAER. 2008. “How India Earns, Spends, and Saves.” Results from The Max
New York Life-NCAER India Financial Protection Survey. www.ncaer.org

Reserve Bank of India.2008. Report on Currency and Finance, 2006-08.

Sinha, Janmejaya ; Subramanian, Arvind: Boston Consulting Group Report

,The next Billion Consumers: A road map for expanding financial Inclusion In
India, November 2007

Srinivasan, N. 2007. “Policy Issues and Role of banking System in Financial

Inclusion.”, Economic and Political Weekly, July, 28¨3091-3095

Treasury Committee, UK, Twelth Report of Session 2005–06, Financial

Inclusion: Credit Savings, Advice and Insurance, HC 848-1.

United Nations. 2006. Advisors Group on Inclusive Financial Sectors, United

Nations. www.uncdf.org

United Nations. 2006. Advisors Group on Inclusive Financial Sectors, United

Nations. www.uncdf.org

World Bank. 2008. Finance for All – Policy and Pitfalls in Expanding Access.
The World Bank, Washington, D.C.

34 RBI Staff Studies

 Annex 1: Number of Persons per Bank Office
Number of Bank Offices Number of persons
per bank office
S.No. State\UT Dec-72 Mar-91 Dec-08 Dec-72 Mar-91 Dec-08
1 2 3 4 5 9 10 11
Northern Region 2396 9426 13361 25773.5 11001.9 11380.8
1 Haryana 321 1280 2103 31266.1 12862.5 11303.9
2 Himachal Pr. 122 736 929 28364.2 7025.6 7050.6
3 J&K 128 786 944 36067.4 9820.2 13099.6
4 Punjab 721 2178 3172 18794.8 9312.2 8383.0
5 Rajasthan 637 3105 3853 40448.7 14172.6 16776.8
6 Chandigarh 37 137 251 6952.7 4686.2 4235.1
7 Delhi 430 1204 2109 9455.1 7824.5 8096.7
North-Eastern Region 202 1870 2078 96942.0 16870.2 20678.1
8 Arunachal Pr. 5 68 75 93502.2 12714.1 16000.0
9 Assam 152 1236 1345 96218.1 18134.6 22252.0
10 Manipur 7 84 79 153250.4 21870.8 33253.2
11 Meghalaya 17 158 194 59511.7 11232.8 13072.2
12 Mizoram 1 73 92 332390.0 9448.7 10652.2
13 Nagaland 6 71 83 86074.8 17035.9 26349.4
14 Tripura 14 180 210 111167.3 15317.8 16714.3
Eastern Region 1625 11362 13171 75652.3 16440.7 19179.0
15 Bihar 574 4906 3777 98176.6 17605.9 24840.6
16 Jharkhand 1675 N.A N.A 17916.4
17 Orissa 217 2103 2620 101127.3 15054.6 15228.6
18 Sikkim 29 71 N.A 14015.8 8366.2
19 West Bengal 830 4303 4991 53388.0 15821.0 17605.5
20 A & N islands 4 21 37 28783.3 13364.8 11108.1
Central Region 2171 13005 15539 59878.2 15785.7 18875.9
21 Chattisgarh 1180 N.A N.A 20039.0
22 Madhya Pradesh 728 4414 3853 57217.2 14993.5 17980.5
23 Uttar Pradesh 1443 8591 9438 61220.7 16192.8 20225.8
24 Uttarakhand 1068 N.A N.A 8892.3
Western Region 3223 9526 11852 24233.5 12770.9 13953.8
25 Goa 127 263 393 6754.1 4447.9 4142.5
26 Gujarat 1297 3471 4214 20584.0 11901.3 13385.9
27 Maharashtra 1795 5775 7205 28084.8 13668.8 14836.1
28 Dadra & Nagar Haveli 4 7 22 18535.0 19782.4 11909.1
29 Daman & Diu 10 18 N.A 10100.0 10444.4
Southern Region 5033 16535 21749 26992.2 11932.4 11097.1
30 Andhra Pradesh 1047 4703 6296 41549.9 14141.6 13052.7
31 Karnataka 1422 4407 5645 20604.1 10205.9 10168.1
32 Kerala 947 2912 3980 22542.1 9992.6 8601.0
33 Tamil Nadu 1588 4434 5706 25944.1 12597.9 11636.2
34 Lakshadweep 4 8 10 7952.5 6463.4 6900.0
35 Puducherry 25 71 112 18868.3 11377.3 9589.3
All-India 14650 61724 77750 37417.1 13711.1 14761.1
Notes: 1. Population for 2008 is the projected population.
2. N.A. - Not Available.
Sources: 1. Reserve Bank of India.
2. Census of India.

RBI Staff Studies 35

 Annex 2: Number of Savings Bank Accounts per 100 persons
Total Number of SB Number of SB Accounts
Accounts (in thousands) per 100 persons
S.No. State\UT Dec-72 Mar-91 Mar-07 Dec-72 Mar-91 Mar-07
1 2 3 4 5 9 10 11
Nothern Region 3745.6 41450.0 61906.2 6.1 40.0 41.5
1 Haryana 410.3 5896.0 9892.6 4.1 35.8 42.3
2 Himachal Pr. 116.7 2118.0 2810.9 3.4 41.0 43.3
3 J&K 150.1 2256.0 3910.7 3.3 29.2 32.7
4 Punjab 1108.6 12022.0 15352.8 8.2 59.3 58.4
5 Rajasthan 637.9 8600.0 15145.3 2.5 19.5 23.8
6 Chandigarh 95.6 864.0 1262.2 37.1 134.6 121.7
7 Delhi 1226.5 9694.0 13531.6 30.2 102.9 81.7
North-Eastern Region 254.7 5608.0 8995.5 1.3 17.8 21.2
8 Arunachal Pr. 1.8 192.0 282.9 0.4 22.2 23.9
9 Assam 181.0 3793.0 6528.2 1.2 16.9 22.2
10 Manipur 7.3 221.0 299.8 0.7 12.0 11.6
11 Meghalaya 21.4 465.0 558.2 2.1 26.2 22.3
12 Mizoram 0.5 142.0 190.3 0.2 20.6 19.7
13 Nagaland 4.3 223.0 273.1 0.8 18.4 12.6
14 Tripura 38.4 572.0 863.0 2.5 20.7 24.9
Eastern Region 3611.9 40693.0 58067.2 2.9 21.8 23.3
15 Bihar 808.6 15453.0 15732.5 1.4 17.9 17.0
16 Jharkhand 7599.6 25.7
17 Orissa 169.7 4976.0 9240.0 0.8 15.7 23.4
18 Sikkim 63.0 175.2 0.0 15.5 29.8
19 West Bengal 2627.6 20100.0 25163.4 5.9 29.5 29.0
20 A & N islands 6.0 101.0 156.5 5.2 36.0 38.8
Central Region 2763.2 48958.0 78824.7 2.1 23.8 27.4
21 Chattisgarh 4337.9 N.A. N.A. 18.7
22 Madhya Pradesh 674.9 13847.0 14635.3 1.6 20.9 21.5
23 Uttar Pradesh 2088.4 35111.0 55857.5 2.4 25.2 29.8
24 Uttarakhand 3994.0 N.A. N.A. 42.7
Western Region 6399.2 43232.0 61114.7 8.2 35.5 37.5
25 Goa 264.1 1263.0 1793.0 30.8 108.0 113.4
26 Gujarat 2097.1 12315.0 20561.9 7.9 29.8 37.0
27 Maharashtra 4036.5 29583.0 38543.0 8.0 37.5 36.5
28 Dadra & Nagar Haveli 1.5 21.0 116.4 2.1 15.2 45.6
29 Daman & Diu 50.0 100.5 0.0 49.5 54.9
Southern Region 6840.8 73094.0 104602.6 5.0 37.0 43.8
30 Andhra Pradesh 1284.4 17792.0 31995.5 3.0 26.8 39.3
31 Karnataka 2307.7 19160.0 25035.4 7.9 42.6 44.1
32 Kerala 1077.9 13903.0 18013.7 5.0 47.8 53.1
33 Tamil Nadu 2135.9 21836.0 28813.4 5.2 39.1 43.8
34 Lakshadweep 2.5 15.0 31.5 7.8 29.0 46.9
35 Puducherry 32.4 388.0 713.2 6.9 48.0 67.4
All-India 23615.5 253035.0 373511.0 4.3 29.9 33.0
Notes: 1. Population for 2008 is the projected population
2. N.A. - Not Available.
Sources: 1. Reserve Bank of India.
2. Census of India.

36 RBI Staff Studies

 Annex 3: Number of Loan Accounts per 100 persons
Total Number of Loan Number of Loan Accounts
Accounts (in thousands) per 100 persons
S.No. State\UT Dec-72 Mar-91 Mar-07 Dec-72 Mar-91 Mar-07
1 2 3 4 5 9 10 11
Nothern Region 242.5 6630.5 10292.3 0.4 6.4 6.9
1 Haryana 33.2 1267.7 1462.9 0.3 7.7 6.2
2 Himachal Pr. 3.3 347.4 465.0 0.1 6.7 7.2
3 J&K 8.1 280.4 537.4 0.2 3.6 4.5
4 Punjab 60.4 1668.2 2051.7 0.4 8.2 7.8
5 Rajasthan 66.0 2242.3 3210.8 0.3 5.1 5.1
6 Chandigarh 3.8 89.8 234.2 1.5 14.0 22.6
7 Delhi 67.8 734.7 2330.3 1.7 7.8 14.1
North-Eastern Region 19.3 1370.5 1796.3 0.1 4.3 4.2
8 Arunachal Pr. 0.0 13.0 47.2 0.0 1.5 4.0
9 Assam 15.7 827.1 1151.4 0.1 3.7 3.9
10 Manipur 0.9 40.7 74.0 0.1 2.2 2.9
11 Meghalaya 1.3 76.0 127.5 0.1 4.3 5.1
12 Mizoram 0.0 16.8 48.2 0.0 2.4 5.0
13 Nagaland 0.3 35.0 73.1 0.1 2.9 3.4
14 Tripura 1.0 361.9 275.0 0.1 13.1 7.9
Eastern Region 241.1 12412.1 11656.0 0.2 6.6 4.7
15 Bihar 60.1 5020.2 3249.6 0.1 5.8 3.5
16 Jharkhand 1280.1 4.3
17 Orissa 36.8 3126.9 3007.2 0.2 9.9 7.6
18 Sikkim 22.9 40.5 0.0 5.6 6.9
19 West Bengal 144.0 4228.1 4060.2 0.3 6.2 4.7
20 A & N islands 0.2 14.1 18.5 0.2 5.0 4.6
Central Region 242.1 11366.9 12727.9 0.2 5.5 4.4
21 Chattisgarh 888.8 N.A. N.A. 3.8
22 Madhya Pradesh 87.1 3699.3 2865.1 0.2 5.6 4.2
23 Uttar Pradesh 155.0 7667.6 8325.5 0.2 5.5 4.4
24 Uttarakhand 648.5 N.A. N.A. 6.9
Western Region 577.4 6909.4 17865.8 0.7 5.7 11.0
25 Goa 21.2 154.3 176.3 2.5 13.2 11.2
26 Gujarat 182.1 2165.9 2934.4 0.7 5.2 5.3
27 Maharashtra 374.0 4580.0 14740.3 0.7 5.8 14.0
28 Dadra & Nagar Haveli 0.1 4.3 9.6 0.2 3.1 3.8
29 Daman & Diu 4.9 5.2 0.0 4.9 2.8
Southern Region 3017.9 23257.3 40103.8 2.2 11.8 16.8
30 Andhra Pradesh 474.6 7385.3 11111.4 1.1 11.1 13.7
31 Karnataka 572.7 5294.5 8120.4 2.0 11.8 14.3
32 Kerala 979.8 4232.1 5194.3 4.6 14.5 15.3
33 Tamil Nadu 965.1 6228.9 15503.2 2.3 11.2 23.5
34 Lakshadweep 0.2 1.8 3.7 0.6 3.5 5.5
35 Puducherry 25.3 114.7 170.9 5.4 14.2 16.2
All-India 4340.2 61946.8 94442.0 0.8 7.3 8.3
Notes: 1. Population for 2008 is the projected population.
2. N.A. - Not Available.
Sources: 1. Reserve Bank of India.
2. Census of India.

RBI Staff Studies 37

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