INCLUSIVE GROWTH THROUGH

FINANCIAL INCLUSION & INITIATIVE BY

RBI
IBS HYDERABAD, OVERVIEW OF BANKING
SUBMITTED TO: PROF. S.C BIHARI
SUBMITTED BY: MADHUSUDAN MOHAPATRA
ENROLLMENT NO: 09BSHYD0419, SEC - F
DATE OF SUBMISSION: 09TH AUGUST, 2010
CONTENT PAGE NO.

INTRODUCTION ………………………………………………………………… 02
THE SIZE OF FINANCIAL EXCLUSION….……………………………………. 04
FINANCIAL INCLUSION…………………………………………..……………. 05
FINANCIAL INCLUSION IN INDIAN SCENARIO ………………………......... 15
RBI AND FINANCIAL INCLUSION…………………………………………….. 18
THE EXTENT OF FINANCIAL INCLUSION IN INDIA ………………………. 20
INCLUSIVE GROWTH…………………………………………………………… 24
SUGGESTION ON FINANCIAL INCLUSION…….……………………………. 27
CONCLUSION…….…………………………….…….………………………….. 27
REFERENCES…………………………………………………………………….. 28

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INTRODUCTION

The World is moving at an amazing pace. Globalization has enabled the rise of global trade
leading to wealth generation in developed as well as developing countries. Wealth can be created
in any part of the world with a single click of the mouse. Developing nations, like India have
immensely benefited from the globalizing economy. Wealth has been pouring into the country as
investments (both direct and institutional). Wealth has been also generated by Indian companies
from global trade. This has directly affected the lives of many citizens in our country. For many,
there has been a dramatic increase in the disposable income. The savings, consumption and
investment patterns have changed in the past few years. This has meant that there has been an
increase in demand for many financial services from different financial firms.
The market has responded to the soaring demand with making attractive offers and services for
the customers at affordable rates. The liberalization of the economy in the 1990s has brought in
new players into the field. This has not only brought in some much needed fresh air to the
stagnant financial sector but also competition for the same market space which was relatively
unknown in the financial sector till then. Since then, there have been progressive reforms in the
financial sector allowing for better and easier facilities and options to the consumer. An
increasing financially aware middle class have realized the importance of financial services.
Banks have streamlined and rationalized themselves to meet up with the changing demands of
the people. Banks have become partners in growth for many offering them a safer and secure
future.
However, not all the reforms in the financial services sector have still been able to bring in the
other half of India’s population who are un-banked. There are many reasons that percolated into
the lower strata of the society. It is easy to blame the capitalist are obvious for this kind of
financial exclusion. The new surge in the economy has not yet growth for this sort of income
disparities; however, the inefficiencies and the inadequacies of the government and its policies
are equally at fault for lack of reduction in poverty. Even after 60 years of Indian independence,
1/3 of our population is still illiterate (let alone financially literate) and at least 26% of the
population still lives under the poverty line. There are many statistics, which goes on to prove
that for a developing nation India has to go a long way. Most of the unbanked financially
excluded population of India lives in rural areas; nevertheless there is also a significant amount
of urban population of India who face the same situation even with easy access to banks. Many
of the financially excluded in these areas are illiterates earning a meager income just enough to
sustain their daily needs. For such people banking remains an unknown phenomena or an elitist
affair. It is easier for them to keep their money at their house or with some money lenders and
easily make easier purchase rather than to follow cumbersome process at banks. A lot of the
financially excluded populations are at the mercy of money lenders or pawn shop owners. They
should be made part of the formal banking structure so that they could also have the benefits that
the others enjoy. By making them financially inclusive we are making their financial position
less volatile. At the same time we are treating them at par with other members of the population
so that they wouldn’t be denied of access to a basic service such as banking.

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Background:
Nationalisation of banks in India in 1969 and 1980 marked a paradigm shift in the focus of
banking from class banking to mass banking. The multi agency approach consists of co-
operatives, regional Rural banks (RRBs), commercial banks, Non Banking Financial Institution
etc. has played a key role in catering to the credit needs of the rural population. Most of these
agencies have been acting not merely as financial intermediaries but also playing a key
developmental role. In the post nationalisation era, launching of SHG – bank linkage
programme in 1992 and its success as one of the largest micro credit programmes in the world
could be considered as a land mark programme can be regarded as the most potent initiative
since independence for delivering financial services to the poor in a sustainable manner.

Despite such large scale deepening and widening of formal as also informal credit delivery
system, it is estimated that 45.9 million farmer households in the country (51.4%) out of total of
89.3 million households don not access credit , either from institutional or non-institutional
sources. Further despite the vast network of branches, only 27% of total farm households are
indebted to formal sources (or which one third also borrows from informal sources). One of the
benchmarks employed to access the degree of reach of financial services to the population of the
country, is the quantum of deposit accounts (current and savings) held as a ratio to the adult
population. In the Indian context, taking into the census of 2001 (ignoring the incremental
growth of the population thereafter), the ratio of deposit accounts (data available as on March 31,
2004) to the total adult population was only 59%. Within the country, there is a wide variation
across states. For instance, the ratio for the state of Kerala is as high as 89% while Bihar is
marked by a low coverage of 33%. In the North Eastern States like Nagaland and Manipur, the
coverage was a meager 21% and 27%, respectively. Northern Region, comprising the states of
Haryana, Chandigarh and Delhi, has a high coverage ratio of 84%. Compared to the developed
world, the coverage of our financial services is quite low. For instance, as per a recent survey
commissioned by British Bankers' Association, 92 to 94% of the population of UK has either
current or savings bank account.

THE SIZE OF FINANCIAL EXCLUSION

• The statistics on financial exclusion in India are disheartening. Out of the 600,000 habitations
in the country, only about 30,000, or just 5 percent, have a commercial bank branch. Just
about 40 per cent of the population across the country have bank accounts, and this ratio is
much lower in the north-east of the country. The proportion of people having any kind of life
insurance cover is as low as 10 per cent, and the proportion having non-life insurance is an
abysmally low 0.6 per cent. People having debit cards comprise only 13 per cent and those
having credit cards a marginal 2 per cent.

• These statistics, staggering as they are, do not convey the true extent of financial exclusion.
Even where bank accounts are claimed to have been opened, verification has shown that a
significant portion of these accounts are dormant. Very few conduct any banking transactions
and even fewer receive any credit. Millions of people across the country are thereby denied
the opportunity to harness their earning capacity and entrepreneurial talent, and are
condemned to marginalization and poverty.

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• But there is a brighter side to the story. Ultimately, it is a question of mindset, and it is only
the change in mindset of all concerned stakeholders that can make financial inclusion a
reality.

FINANCIAL INCLUSION

What is Financial Inclusion?

Financial Inclusion is extension of basic banking facilities to all sections of the societies in the
Country by the banks (commercial, co-operatives and urban banks), particularly to the unbanked
pockets and to the neglected, poorer, interior and rural areas, at an affordable cost.
Financial inclusion doesn’t merely mean access to credit for the poor but also other financial
services such as insurance. Financial inclusion allows the state to have easier access to its
citizens with an inclusive population such as the govt. could reduce the transaction cost of
payments like pensions or unemployment benefits. It could prove a boon in a situation such as
natural disaster, a financially included population means the government will have fewer
headaches in ensuring that all the people get the benefits. It allows for more transparency leading
to curtailing corruption and bureaucratic barriers in reaching out to the poor and weaker section.
Unrestrained access to public goods and services is the sine qua non for an open and efficient
society. Banking services are in the nature of public good, it is essential that availability of
banking and payment services to the entire population without discrimination is the prime
objective of the public policy.

Present Scenario of Financial Inclusion:

Financial inclusion, in the sense of extending banking products at an affordable cost to the vast
sections of disadvantaged and low income groups, is not new to India. For more than three
decades after nationalization of major commercial banks in 1969, Indian banking has shown
tremendous growth in volume and outreach resulting in increase in the total number of branches
of scheduled commercial banks from 8,321 in the year 1969 to 68,681 as at the end of March
2006 and reduction of the average population per branch office from 64,000 to 16,000 during the
same period. Public sector banks were in the forefront of reaching out to sections that were once
neglected and designing new, innovative loan products for agriculture and small-scale industries
sectors is an outstanding example in this regard.

There are, however, concerns that banks have still not been able to reach a vast segment of the
population and provide them with basic banking services. Growth has also not been uniform
across all the regions/ States of the country and there still continue to be wide gaps in the
availability of banking services in the rural areas. While from the policy angle none of the earlier
measures aimed at broad basing their clientele has been withdrawn, the banks might be laying
somewhat less emphasis on inclusive practices in view of the thrust on profitability.

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Institutions and Financial Inclusion:
Financial Institutions, both large and small have an important role to play in financial inclusion.
With their organized structure and effective management larger financial institutions could act as
mentors for small financial services firm by ensuring a strong financial backing.
1. Commercial Banks: Commercial banks could act as an important part of the process to
achieve full financial inclusion. Especially with simplified savings bank accounts (including no-
frills account), relaxed KYC procedures, primary sector lending and even microfinance.
2. Cooperative Banks: The Urban and Rural cooperative banks could cater to populations that
are generally neglected by the commercial banks. Their position allows them to reach out to the
people far easier than the more formal commercial banks. Since they are operated by the
members of the banks themselves, there would be more involvement from the people of such
cooperatives.
3. Regional Rural Banks: Through priority sector lending, KCCs and GCCS the RRBs could
ensure a steady flow of credit to the rural poor especially the marginal farmers. The RRBs like
the commercial banks can deal with the agencies like NGOs who are interested in helping out the
poor and the weaker sections.
4. Non-Banking Financial Companies (NBFCs): The NBFCs could include both large and
small financial firms which provide financial services. They could offer specific financial
products to the poor and low income people such as micro-insurance, micro-credit, etc. The
NBFCs could create financial awareness among the people by not only offering alternative
financial services but also spreading financial literacy by providing financial advices.

5. Micro Finance Institutions (MFIS): Micro Finance Institutions or MFIs are created with the
specific aim of extending financial services to the poor and the weaker sections of the
populations. A MFI could be independent or as in most cases are promoted by NGOs,
government agencies, NBFCs, commercial banks and other institutions. Micro Finance
Institutions have so far been the most successful at ensuring basic financial services to the
unbanked sections of the populations. Along with the SHG movement, the MFIs has enabled the
wealth generation in many underdeveloped rural as well as neglected urban areas in India.

6. Post Office Savings Bank: These along with their extensive network could offer wide variety
of small and micro financial services to the people. The Post Office Savings bank could utilize
their staff to deliver door-to-door service to the people.

7. Non-Governmental Organizations (NGOS): NGOs could provide financial assistance to the

poor and the weaker sections through NGO promoted MFIs or by providing financial advice.
NGOs working the poor and the economically deprived can more closely analyze their spending
patterns and credit requirements. Commercial banks and other large financial agencies can work
closely with NGOs to ensure that the dealings with the poor and the weaker sections turn out to
be a fruitful activity not only for the people but also for the lending agencies.

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The objective of Financial Inclusion:
• The access to various mainstream financial services e.g. savings bank accounts, credit,
insurance payments, remittance and financial and credit advisory services.

• The main objective is to provide the benefits of vast formal financial market and protect them
exploitation of informal credit market so that they can brought into main stream.

Importance of Financial Inclusion:

Despite witnessing substantial progress in financial sector reforms in India, it is disheartening to
note that nearly half of the rural households even today do not have any access to any source of funds-
institutional or otherwise. Hardly one-fourth of the rural households are assisted by banks. Hence the
major task before banks is to bring most of those excluded, i.e. 75% of the rural households, under
banking fold. But the task is not so easy since they are illiterate, poor and unorganized. They are also
spread far and wide. What is needed is to improve their living standards by initiating new/increased
economic activities with the help of banks, NGO’s and local developmental agencies. To start with, it
is necessary to develop a fair understanding of their profile. In addition, their perception about the
bank and its services needs to be understood.

So there is a need for the formal financial system to look at increasing financial literacy and financial
counseling to focus on financial inclusion and distress amongst farmers. Indian banks and financial
market players should actively look at promoting such programs as a part of their corporate social
responsibility. Banks should conduct full day programs for their clientele including farmers for
counseling small borrowers for making aware on the implications of the loan, how interest is
calculated, and so on, so that they are totally aware of its features. There is a clearly a lot requires to
be done in this area. It is important simply because it is a necessary condition for generating and
sustaining equitable growth. There are few, if any, instances of an economy transiting from an
agrarian system to a post-industrial modern society without broad-based financial inclusion. As
people having comfortable access to financial services, we all know from personal experience
that economic opportunity is strongly intertwined with financial access. Such access is especially
powerful for the poor as it provides them opportunities to build savings make investments and
avail credit. Importantly, access to financial services also helps the poor insure themselves
against income shocks and equips them to meet emergencies such as illness, death in the family
or loss of employment.

Scope of Financial Inclusion:

The scope of financial inclusion can be expanded in two ways.

• Through state-driven intervention by way of statutory enactments ( for instance the US

example, the Community Reinvestment Act and making it a statutory right to have bank
account in France).
• Through voluntary effort by the banking community itself for evolving various strategies to
bring within the ambit of the banking sector the large strata of society.

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When bankers do not give the desired attention to certain areas, the regulators have to step in to
remedy the situation. This is the reason why Reserve Bank of India is placing a lot of emphasis
on financial inclusion. In India the focus of the financial inclusion at present is confined to
ensuring a bare minimum access to a savings bank account without frills, to all. Internationally,
the financial exclusion has been viewed in a much wider perspective. Having a current account /
saving account on its own, is not regarded as an accurate indicator of financial inclusion. There
could be multiple levels of financial inclusion and exclusion. At one extreme, it is possible to
identify the ‘super-included’, i.e., those customers who are actively and persistently courted by
the financial services industry, and who have at their disposal a wide range of financial services
and products. At the other extreme, we may have the financially excluded, who are denied access
to even the most basic of financial products. In between are those who use the banking services
only for deposits and withdrawals of money. But these persons may have only restricted access
to the financial system, and may not enjoy the flexibility of access offered to more affluent
customers.

Viable Business Model of Financial Inclusion:

How can we make financial inclusion workable? Contrary to common perception, financial
inclusion is a potentially viable business proposition. Take the success story of Dharavi, a
bustling industrial-slum in Mumbai. Wikipedia reports that Dharavi exports goods worth $500 -
$650 million every year. Ironically, even though Dharavi is situated right in the heart of
Mumbai, the most banked city in the country, and adjoins the Bandra - Kurla Complex,
Mumbai’s financial district, it did not have a commercial bank branch for a long time,
notwithstanding its celebrated entrepreneurial spirit and export performance. The first
commercial bank branch was opened in February 2007. In just three years, the bank registered
business in excess of ` 44 crore. Enthused by this success, one more bank has opened a branch
in Dharavi and many more are eager to do so. There are now 9 ATMs in Dharavi, all of them
being actively used.

Modalities of Financial Inclusion:

1. Microfinance and Financial Inclusion: Provision of micro finance through Self Help
Groups (SHGs) since the early nineties through the SHG- Bank linkage Programme and the
emergence of Non-Governmental Organizations (NGOs) as facilitators have been major
developments in the field of rural finance. The strategy of linking SHGs to banks, initially
through savings and later through loan products, has been able to ensure financial inclusion of
the hitherto excluded sections of the society to a certain extent. Cumulatively, the number of
SHGs linked to banks aggregated over 2.2 million as at the end of March 2006, which translates
into an estimated 33 million poor families brought within the fold of formal banking services. It
is important to note that about ninety per cent of the groups linked with banks are exclusive
women's groups.

There are several micro finance institutions (MFIs) which normally have the organizational form
of societies, trusts, cooperatives, non-banking financial companies (NBFCs) and not-for-profit
companies set up under Section 25 of the Companies Act, 1956, which supplement the efforts of

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banks in providing financial services to the poor. The experience of the formal banking system
partnering with such MFIs has been quite encouraging in several places.

2. Role of Lead Banks: The mechanics of financial inclusion would largely depend on the
profile of the excluded population, as also the institutional framework available for the purpose.
In the context of the multi-agency approach to rural banking in India, financial inclusion could
involve several steps and the role of the coordination mechanism in the form of the Lead Bank in
the district or the convenor of the State Level Bankers Committee (SLBC) at the state level
assumes critical importance. The policy announcement of the Reserve Bank has envisaged an
active role for the convener banks of the SLBCs in all states, who have been given the
responsibility of reaching 100 per cent financial inclusion in at least one district in their area of
operation. Illustratively, the convenor of the SLBC has to undertake the following steps for
ensuring financial inclusion in the pilot areas in the state:

Step 1: Allocation of villages to the banks in the area

Step 2: Undertaking village/ household surveys involving banks/ NGOs/ SHGs etc.
Step 3: Assessment of the need for financial products
Step 4: Preparation of Action Plan in terms of targets for different products, e.g. opening of no-
frills accounts, issue of Kisan Credit Cards and General Credit Cards, offering overdraft facilities
in no-frills accounts, setting up of SHGs, providing micro-insurance, etc.
Step 5: Review and evaluation

Based on experience gained, other areas in the state may be covered in a time bound manner. On
a priority basis, the districts covered under the National Rural Employment Guarantee
Programme may also be taken up for financial inclusion, in particular, opening of "no-frills"
accounts which would facilitate credit of drafts issued in favour of the beneficiaries, and
formation of SHGs to support micro-enterprise-linked livelihoods on a sustainable basis.

3. Basic "No Frills" Bank Accounts: At the first stage, there is a need for lowering the entry
barriers to the banking system and simplifying procedures. Thanks to developments in micro
finance, one of the myths held earlier by the banking system that the poor cannot save, has been
demolished. Experience has shown that the poor can and do save, may be by way of thrift, and
all they need is an appropriate product and access to the banking system. Holding a savings
product to a substantial extent reduces financial exclusion. Moreover, the act of saving, however
little it may be, reinforces longer-term thinking and a sense of responsibility for one’s future.

Keeping in view the need for the banking system to take urgent steps to bring about financial
inclusion in the country, the Reserve Bank of India, in the Mid- Term Review of the Annual
Policy for the year 2005-06, exhorted banks to make available a basic banking ‘no frills’ account
either with nil or very low balances as well as charges that would make such accounts accessible
to vast sections of the population. The nature and number of transactions in such accounts would
be restricted and would be made known to customers in advance in a transparent manner.
Several banks, both in the public and private sectors, have responded positively to this measure
and devised no- frills accounts for the lower income groups.

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Although such basic bank accounts are generally considered unprofitable, provision of such
deposit accounts has been accepted the world over as a stepping stone to financial inclusion. In a
somewhat different way, this requires bank branches to be aware of the surrounding areas in
which they work and promotes a more outward-looking, customer-centric model to work
alongside their usual profit-driven model. A basic 'no frill' account is just the beginning of a
relationship and can pave the way to the customer availing of a variety of savings products and
loan products for consumption, housing etc. The account can be used for sanctioning small
overdraft facilities and making small value remittances at low cost. The same banking account
can also be used by State Governments to provide social security services like health and
calamity insurance under various schemes for the disadvantaged. Having such social security
cover makes the financing of such persons less risky from the bank’s point of view and they can
be financed for various purposes. Further, holders of the no-frills accounts who would be
beneficiaries of the Employment Guarantee Scheme of the Government of India can also be
customers of banks over a longer time horizon.
4. General Credit Cards (GCC): It is almost a cliché that rural credit should adhere to the
basic requirements of timeliness, adequacy and hassle- free delivery, apart from taking care of
the financial needs of the customer in a holistic manner, including consumption credit. To
address these issues, several 'credit card' schemes have been devised and implemented by banks
over the past. Such schemes have the flexibility of use and they fulfill the above requirements to
a substantial extent. But all these schemes have so far been activity-specific, i.e. for farmers,
artisans etc. The latest in the line is the General Credit Card (GCC) which does not target any
specific functional group, but has the potential to address the credit needs of persons with small
means having some income-generating activity, without bothering so much about the nature of
the activity. Banks have flexibility in fixing the limit based on the assessment of income and
cash flow of the entire household. The borrowers are eligible for availing the credit facilities
provided under GCC as per their requirement without any insistence on security and the purpose
or end-use of the credit. To provide an incentive to banks for issuing the GCCs, fifty per cent of
credit outstanding under GCC up to ` 25, 000 has been made eligible for being treated as
indirect agricultural finance under the priority sector lending. While several banks have put in
place schemes for issuing GCCs, the progress will have to be accelerated. As done earlier in the
case of Kisan Credit Card Scheme, issue of GCC too can be made part of the corporate plans of
all banks.

5. Microinsurance: More than credit, the poor need access to some form of insurance, as they
are the most vulnerable to various types of risk to both life and property. They need suitably
designed schemes offering health, life or property insurance: limited protection at a somewhat
low contribution. It is heartening to know that insurance companies are coming up with schemes
aimed at poorer sections of the population and designed to help them cover themselves
collectively against risks, the delivery channels being banks, NGOs and SHGs working in rural
areas. There is also a possibility of providing some kind of micro insurance to holders of the
General Credit Cards, on the lines of the personal accident insurance cover available to Kisan
Credit Card holders.

6. Financial Education: Financial inclusion mean the capacity to have familiarity with and
understanding of financial market products, especially rewards and risks in order to make
informed choices. Viewed from this standpoint, financial education primarily relates to

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personal financial education to enable individuals’ to take effective actions to improve
overall well-being and avoid distress in matters that are financial.

People have been responsible for managing their own finance on a day to day basis spend on a
holiday or save for new furniture; how much to put aside for a child’s education or to set them in
life- but recent development have made financial education awareness increasingly important for
financial well being. For one thing, the growing sophistication of financial markets means
consumers are not just choosing between interest rates on two different bank loans or savings
plans, but are rather being offered a variety of complex financial instrument for borrowing and
saving with a large range of options. At the same instrument for borrowing and saving with the
large range of options. At the same time, the responsibility and risk for financial decisions that
will have a major impact on an individual’s future life, notably pensions are shifted increasingly
to workers and away from government and employers. As life expectancy is increasing, the
pension question is particularly important as individuals will be enjoying longest period of
retirement. One of the major hindrances in the way of delivery of financial services to the poor is
the lack of basic knowledge and lack of awareness of the products and services available. In fact,
education is a great facilitator. The delivery of financial education would include :

(i) Increasing knowledge of financial matters,

(ii) Developing understanding of financial products and
(iii) Building skills in financial management

One of the pioneers in promoting the concept of financial inclusion, the United Kingdom, has
established a Financial Inclusion Task Force, which has emphasized 'access to free face-to-face
money advice' as an important component of financial inclusion, apart from access to banking
and access to affordable credit. A Financial Inclusion Fund has also been established there to
promote financial inclusion.

Poverty is a well-known problem in most developing countries. But what is needed is

development of mechanisms that ensure that poverty is not exacerbated by lack of access to
financial services. People need information and advice when they get into debt. Such
information and guidance can best be delivered by appropriate mechanisms and if such effective
mechanisms are put in place, they in turn would reinforce the demand for credit.

Some banks have on their own take steps to provide such education, as in the case of the Debt
Counseling Cells recently set up by some banks. However, any large scale delivery of financial
education has to leverage on the presence of other agencies, such as private entities, non-
governmental organizations, civil society organizations, outlets of the corporate sector etc., apart
from Government initiatives. The use of information technology (IT) offers a lot of promise in
providing financial literacy and education and experience in several parts of the country through
the use of kiosks, mobile vans, etc. has shown to what extent IT can be leveraged to provide
information on various products and services, production processes and markets for the products.
While provision of connectivity for facilitating communication services in rural areas is still an
issue, recent developments in wireless technology holds out a lot of promise for evolving an IT-
based information dissemination system.

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Benefits of Financial Inclusion:
Financial inclusion has many benefits. Following are some of the benefits summed up.

• It paves the way for establishment of an account relationship which helps the poor to avail
a variety of savings products and loan products for housing, consumption, etc.
• An inclusive financial system facilitates efficient allocation of productive resources and
thus can potentially reduce the cost of capital.
• This also enables the customer to remit funds at low cost. The government can utilize such
bank accounts for social security services like health and calamity insurance under various
schemes for disadvantaged. From the bank’s point of view, having such social security cover
makes the financing of such persons less risky. Reduced risk means more flow of funds at
better rates.
• Access to appropriate financial services can significantly improve the day-to-day
management of finances. For example, bills for daily utilities (municipality, water, electricity,
telephone) can be more easily paid by using cheques or through internet banking, rather than
standing in the queue in the offices of the service.
• Transfer of money can be done more safely and easily by using the cheque, demand draft
or through internet banking.
• A bank account also provides a passport to a range of other financial products and
services such as short term credit facilities, overdraft facilities and credit card. Further, a
number of other financial products, such as insurance and pension products, necessarily require
the access to a bank account.
• Lastly, the Employment Guarantee Scheme of the Government which is being rolled out
in200 districts in the country would bring in large number of people through their savings
accounts into the banking system.

Tools of Financial Inclusion and the methods to achieve them:

To address the issue of financial exclusion in a holistic manner, it is essential to ensure that a range
of financial services is available to every individual.
These services are:
• A no-frills banking account for making and receiving payments,
• A savings product suited to the pattern of cash flows of a poor household,
• Money transfer facilities, small loans and overdrafts for productive.
• Personal and other purposes and micro-insurance (life and non-life).

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Meeting the needs:
To bring about highly inclusive financial system, it is highly necessary that the current financial
products are appropriate to the needs of low income households. Followings are some of the
major points that are necessary to find out the success of the products.
Reducing barriers to access:
Widening access requires overcoming the barriers presented by risk assessment as well as
improving physical access. Using intermediaries to deliver financial products can over come the
problems of physical access. Telephone and computer based services, however, are unlikely to
reinforce financial exclusion as many excluded households lack these facilities.
Product Design:
The requirements of people without financial products are not unrealistic. For day to day
management they require a simple account which would allow them to retain tight control over
their money. It should offer basic money transfer facilities, including a facility for spreading the
cost of bills. Products offering long term financial security should be simple and transparent so
that users know where they are and the cost associated with the regulation compliance are low.
They should be based on regular and automatic savings; so that products can be retained even
during times of hardship and give restricted access to the money saved. To reduce the likelihood
of the people cashing in on the long term savings plans because of short term needs for cash,
long term savings products could be used as collateral for small loans.
The key issue for home contents insurance is affordability and, in particular, options for
spreading the cost of premiums across the years. Wider availability of simple cheaper products
such as indemnity insurance or catastrophe only policies could also widen access.

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More over short term credit facility should also be offered. Small, one-off, fixed term loans
rather than on going credit commitments such as credit cards, or over drafts, fixed, automatic
repayments and the use of technology in the distribution of loans and collections of repayments,
which could reduce costs and therefore allow lower interest rates than from currently available
money lenders.
Delivery systems:
People on the margins of financial services want to deal with organizations which are financially
secure, trustworthy and understand their needs. It is not, however, necessary for the same
organization to both provide the product and deliver it to the customer. Indeed, experience shows
that the use of intermediaries offers many advantages. For example, many local authorities run
insure with rent schemes for tenants wanting home contents policies, which they are able to offer
at a substantial saving on similar policies bought direct or through a broker. The Post Office is
also exploring a similar role as financial service intermediary, as are a small number of credit
unions and housing associations. New technology offers some opportunities for product delivery
at the end of the market. Electronic cards and electronic money transmissions are likely to be the
most acceptable.

Encouraging take-up:
Knowledge of and about financial products is remarkably low among households that are
without them. This is compounded by marketing policies which reinforce the belief that financial
services are 'not for the poor'. Measures to encourage take-up must, therefore, tackle the
widespread mistrust which such households have of many financial providers, particularly those
which are geographically remote. Use of trusted intermediaries could overcome these barriers.
Targeted marketing and delivery of new products as they become available would also increase
take-up. Equally, the language and cultural barriers faced by some potential users need to be
taken into account. There is also a need for an independent information and advice service. Lack
of knowledge and experience of financial products renders some households especially
vulnerable le to mis-selling, as well as deterring them from taking up financial services.

Inclusive Growth through Financial Inclusion & Initiative by RBI Page 14

FINANCIAL INCLUSION IN INDIAN SCENARIO

Indian banking system has exhibited tremendous growth in extending its reach, coverage &
delivery of financial products to the mass ever since 1881. The All India Rural Survey committee in
1954 recommended the creation of a state sponsored bank to promote rural penetration. Accordingly,
SBI was established in 1955. Another step in this direction was taken in 1969 when 14 major
commercial banks were nationalized followed by six more in 1980. This strengthened the concept of
socialistic & welfare state stature of the country. Lead bank scheme was launched in 1970 to increase
banking penetration with special focus on the districts. The emergence of RRBs in 1976 blended the
skills of commercial banks with the grass root presence of the co-operative banks helped the mass to
access to institutional credit. NABARD established in 1982 regulated institutional credit for
agriculture & rural development. The rationale for creating Regional Rural Banks was also to take
the banking services to poor people. The branches of commercial banks and the RRBs have
increased from 8321 in the year 1969 to 68,282 branches as at the end of March 2005. The
average population per branch office has decreased from 64,000 to 16,000 during the same
period. However, there are certain under banked states such as Bihar, Orissa, Rajasthan Uttar
Pradesh, Chhattisgarh, Jharkhand, West Bengal and a large number of North-Eastern states,
where the average population per branch office continues to be quite high compared to the
national average. As you would be aware, the new branch authorization policy of Reserve Bank
encourages banks to open branches in these under banked states and the under banked areas in
other states. The new policy also places a lot of emphasis on the efforts made by the bank to
achieve, inter alia, financial inclusion and other policy objectives. Talwar committee & Goiporia
committee in the early eighties have made many recommendations to improve the customer services
in India. In order to further financial inclusion, the Government and the Reserve Bank are
pursuing several initiatives.

• In India, Financial Inclusion (FI) was also the economic model adopted by Pradhanmantri
Chanakya during the reign of Raja Chandragupta of Maurya dynasty, as Chanakya was
advocating for use of Kansya Pana instead of accepting Barter System for settlement of
transactions. In recent times efforts for implementation of Financial Inclusion, Inclusive
Growth and Project Financial Literacy launched by RBI started with Honorable Finance
Minister declaring a corpus fund of ` 500 crores in the Financial Statement in Parliament in
February, 2005. Government of India has set-up two funds – the Financial Inclusion Fund for
meeting the costs of developmental and promotional interventions towards financial inclusion,
and the Financial Inclusion Technology Fund for meeting the costs of technology adoption.

• Road Map set by RBI for the banks, presently is opening of an Adult Account for every
household in India by March 2012 for every population of 2000 strength in an area.

• In Odisha, 27 districts out of 30 districts excepting Malkangiri, Nowrangpur and Jharasuguda

in Sate Level Banker’s Committee.

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• Steps taken by banks are threefold-Block, District and State level for urban and rural areas.
Usually banks open a “No-Frills A/C” (with zero balance or a minimum balance) for the
unbanked households. At the lowest level (Block), the process begins with getting the data
from State Government for opening of “No-Frills A/C” by the banks. The cost of color photos
required for opening such accounts is borne by the bank concerned in respect of urban/rural
poor(BPL) and for easier processing of the account opening liberalized KYC (Know Your
Customer) is applied. In such cases the prospective customer is to be introduced by another
account holder, who had undergone KYC drill and is having transaction with the bank for last
6 months. The liberalized norms for the introducer is ` 50,000/ as balance in all accounts a
year or `1 lakh as credit balance in all accounts. For the FIPs to succeed - scalable technology
solutions should be in place; the RRBs should also be core-banking enabled; business
correspondent model coupled with biometric technology needs to be deployed; performance
criteria of staff should include achievement of financial inclusion targets and connectivity
issues need to be sorted out by service providers.

• Presently from July 2009 to March 2010,RBI in it’s Platinum Jubilee Celebration(Outreach
Programmes for remote areas),RBI has instructed all banks to extend credit vide” No-Frills
A/C” through issuance of Smart Card, Kisan Credit Card, General Credit Card etc. The said
account is only said to be included financially, when credit is extended. In terms of inclusion,
persons having Postal S.B A/C, members of Self Help Group, account holders of Cooperative
banks, are accepted as being financially included. The declaration of 100% FI is subject to
verification of actual by external agencies like ISI, NCAER and the likes of it. The declaration
of 100% FI is announced in Banking Forums like BLBC(Block level Bankers
Committee),DCC(District Consultative Committee) and SLBC(State Level).The convener of
such Committee is a member bank(Lead Bank of block, district and the State) and RBI is
represented through Lead District Officer(LDO) under Lead Bank Scheme of RBI.

• The RRBs have been advised to allow limited overdraft facilities in no-frill accounts without
any collateral. The idea was that provision of such overdraft facilities provides a ready source
of funding to the account holders who are thereby inducted to open such accounts.

• Banks also have been advised to provide a General Purpose Credit Card (GCC) at their rural
& semi urban branches. From this revolving card system the customer can withdraw money to
a limited amount from the concerned branch.

• Bhumeeheen credit card facility has been arranged apart from Kisan credit cards for the rural
& semi urban tenant farmers, landless labourers whereby they can be allowed hassle free
credit limit up to ` 0.25 lakh per person.

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• Special Agricultural branches have been opened by the PSBs to meet the financial needs fore
agricultural & allied activities.

• On the behest of the RBI, SHG & bank linkage programme has been initiated which has been
a major micro finance programme in the country.

• The micro finance and self help groups are also playing great role in proving financial
services to a large mass of people in the rural and semi urban areas. Looking at the
profitability side of providing newer financial products the private sector organization is also
entering into the market.

• Reliance Capital, the financial services arm of Anil Dhirubhai Ambani Group, has funded two
microfinance institutions in Gujarat - MAS Financial Services and Vardan Trust. The Soros
Economic Development Fund (SEDF), Omidyar Network, and Google.org hosts a ‘Small to
Medium Enterprise Investment Company’ with an initial corpus of $17 million targeted at
“Missing Middle” between microfinance and commercial capital markets in India.
Hyderabad-based SKS Microfinance has attracted investors like Vinod Khosla, Sequoia
Capital India, SIDBI and Units, among others.

• To extend the spread of Financial Inclusion(FI) efforts, RBI in it’s Outreach Programmes in
remote areas not accessible in terms of available conveyance had held along the length and
breadth of the country from July 2009 to March 2010 to create awareness among citizens
about the need for having a bank account, sensitized the population through Financial Literacy
drives focusing on target groups like school and college going children, women, rural and
urban poor, defence personnel and senior citizens, while celebrating its Platinum Jubilee
Celebrations(PJC). In such Programmes, Top Management of RBI (Governor, Deputy
Governor, EDs etc) attend to have greater effect on the local population. Financial Education
Series (Pictorial) books in vernacular medium are distributed , Quiz Programme among
school/college going children of the locality are held and Senior Officers of RBI speak in a
public meeting regarding essential banking services usually rendered by the banks and its
benefits. In Odisha 9 such programmes were held during the period.

• In terms of its recent Road Map, RBI has to spread essential banking services in remote areas,
where even brick and mortar office is not possible and also not cost effective. In such areas,
RBI recommends for appointing Banking Correspondents(BC) and Banking Facilitators(BF)
in terms of H.R.Khan Committee Report,2005.In such cases BCs carrying Cash from the
nearby bank branch and operate in the said area through IT enabled hand held devices like
Simputers, mobiles and other such hand held devices. The BCs hire tech services from Tech

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 firms for this service. In Odisha, SBI is extending such BC services through “Zero Mass”
(BC) with “A Little World” as its Tech partner in Gajapati district in Odisha for instance.

• To improve banking penetration in the north-east, Reserve Bank has asked State Governments
and banks to identify centers where there is need for setting up branches that are full-fledged,
offer forex facilities, handle government business and meet currency needs. RBI will then
fund the capital and running costs for five years, provided the State Government concerned is
willing to make available the premises and put in place appropriate security arrangements.

• We are all aware of Aadhar the Unique Identification Number (UID) Project of Government
of India, headed by Nandan Nilekani. Although the main aim of UID is to provide a unique
ID number for everyone in the country, Aadhar will be powerful instrumentalities for helping
the poor establish their identity to meet the banks’ KYC norms. This will reduce cash and
non-cash transaction costs both to the banks and to the potential customers. The UID is
another powerful illustration of harnessing technology for the benefit of the poor.

• Every domestic commercial bank - public and private sector - to prepare its own Financial
Inclusion Plan (FIP) and have it approved by its Board. The aim in this respect is two fold.
First, each bank should have ownership of its FIP. Second each bank to build on its
comparative advantage. The banks needs to be innovative and entrepreneurial and try out their
own models and experiments consistent with their business models.

RBI AND FINANCIAL INCLUSION

As the central bank of the country, the Reserve bank of India has taken steps to ensure financial
inclusion in the country. It has tried to make banking more attractive to citizens by allowing for
easier transactions with banks. In 2004 RBI appointed an internal group to look into ways to
improve Financial Inclusion in the country. It came out with a report in 2005 (Khan Committee)
and subsequently RBI issued a circular in 2006 allowing the use of intermediaries for providing
banking and financial services. Through such policies the RBI has tried to improve Financial
Inclusion. Financial Inclusion offers immense potential not only for banks but for other
businesses. Through an integrated approach the businesses, the NGOs, the government agencies
as well as the banks can be partners in growth. RBI has realized that a push is needed to kick
start the financial inclusion process. Some of the steps taken by RBI include the directive to
banks to offer No-frills account, easier KYC norms, offering GCC cards to the poor, better
customer services, promoting the use of IT and intermediaries, and asking SLBCs and UTLBCs
to start a campaign to promote financial inclusion on a pilot basis. So far the campaign for 100%
financial inclusion has been said to be a success with many states now reaching near-total
financial inclusion.

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Policy initiatives by Reserve Bank of India:

Keeping in view the tremendous scope for improving financial coverage, the RBI as a proactive
measure, has taken several initiatives to promote financial inclusion:

• No-frills Accounts: The RBI in its annual policy statement for the year 2005-06 and also in
the mid term review of the policy (2005-06), exhorted the banks, with a view to achieving
greater financial inclusion, 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. The nature and number of transactions in such accounts would
be restricted and made known of transaction in such accounts would be restricted and made
known to customers in advance in a transparent manner. All banks have been urged to give
wide publicity to the facility of such “No-Frills” account. Banks are required to make
available all printed used by retail customers in the concerned regional language.

• Simplification of KYC norms: In order to ensure that persons belonging to low income group
in urban and rural areas do not face difficulty in opening accounts has been simplified for
those persons with balances not exceeding rupees fifty thousand rupees (Rs. 50,000) and
credits in the accounts not exceeding rupees one lakh (Rs. 1,00,000) in a year.

• Overdraft facilities in No-frill Accounts: RRBs have been specifically advised to allow
limited overdraft facilities in `No-frills` account without any collateral or linkage to any
purpose. The idea is that provision of such overdraft facility provides a ready source of
funding to the account holder who is thereby induced to open such accounts.

• One-Time Settlement: For all borrowers where the principal amount is less than ` 25000/-,
banks have been asked to offer a one-time settlement scheme. As there is large number of
such very small NFA s with banks, offer of such an OTS was expected to restore borrowing
relationship with the formal system and thereby obviate the need to go back to the informal
system. In case where the loans are under government sponsored schemes the state level
banker’s committee (SLBC) was expected to evolve a suitable policy.

• General purpose Credit Card: Banks have been advised by RBI to provide a General purpose
Credit Card (GCC) facility at their rural and semi urban branches. The credit facility extended
under the scheme will be in the nature of revolving credit. The GCC-holder will be entitled to
draw cash from the specified branch of bank up to the limit sanctioned. Banks would have
flexibility in fixing the limit based on the assessment of income and cash flow of the entire
household, without insistence on security or purpose. However, the total credit facility under
GCC for an individual should not exceed ` 25,000/- . It is expected that banks will come out
with their own schemes to popularize this product amongst the rural client.

• Business Facilitators and correspondents: with the objective of ensuring greater financial
inclusion and increasing the outreach of the banking sector, banks were permitted to use the
services of NGOS/ SHGs, MFIs and other civil society Organizations as intermediaries in
providing financial and banking services through the use of business facilitator and
correspondent models.

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Broader definition of Financial Inclusion: RBI subsequently observed that a family satisfying
the following conditions also would be treated as financially included:
• Member of SHG
• Member of a PACS
• If have a post office savings account
• Member covered under Govt. schemes

THE EXTENT OF FINANCIAL INCLUSION IN INDIA

The extent of financial inclusion in India can be studied from the analysis of the following
points.

Exhibit – I: Distribution of bank offices in India.

Exhibit – II: Sources of Deposits and Credit in India (in %).

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Exhibit – III: No. of deposits and credit accounts in scheduled commercial
banks 9% no. of households)

Exhibits – I, II, III show that rural and Semi-urban offices constitute a majority of the
Commercial Bank offices in India. Rural bank offices as a % of total have increased from 22% in
1969 to 41% in 2007. This is mainly because of the inclusive focus of the policymakers.

The following table gives information about accounts per 100 populations
in different regions of the country.

Exhibit – IV: Financial Inclusion Region Wise.

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Inclusive Growth through Financial Inclusion & Initiative by RBI Page 22
Comparison of Pie Chart representation of Savings Account in 1991 and 2005.

It can be seen from the table that there was only 29 account holders per 100 in All India Level
which increased very marginally from 1991 to 2005. Northern has highest number of savings
bank account holder per 100 persons as per the data from 2005. North East region has the lowest
number of account holders as per the data from 2005.

Exhibit – V: Number of Savings Account to adult population as per 2005 data.

Region Percentage of Savings Account

Northern 80
North Eastern 37
Eastern 34
Central 52
Western 60
Southern 66
Source: www.rbi.org.in

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Bar and Pie Chart representation of Savings Account.

Going by the available data on the number of savings bank accounts and assuming that one person
has only one account, (which assumption may not be correct as many persons could have more
than one bank account) we find that on an all India basis 59 per cent of adult population in the
country have bank accounts – in other words 41 per cent of the population is unbanked. In rural
areas the coverage is 39per cent against 60 per cent in urban areas. The unbanked population is
higher in the North Eastern and Eastern regions.

Exhibit – VI: Number of Loan Account to adult population as per 2005 data.

Region Percentage of Loan Account

Northern 12
North Eastern 07
Eastern 08
Central 09
Western 13
Southern 25
India 14
Source: www.rbi.org.in

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Bar and Pie Chart representation of Loan Account.

The extent of exclusion from credit markets is much more, as number of loan accounts constituted
only14 per cent of adult population (Exhibit – VI). In rural areas, the coverage is 9.5 per cent against
14 percent in urban areas. Regional differences are significant with the credit coverage at 25 per cent
for the Southern Region and as low as 7, 8 and 9 per cent respectively in North Eastern, Eastern and
Central Regions. The extent of exclusion from credit markets can be observed from a different view
point also. Out of 203 million households in the country, 147 million are in rural areas – 89 million
are farmer households. 51.4per cent of farm households have no access to formal or informal
sources of credit while 73 per cent have no access to formal sources of credit. Looking at the
different sources of credit, it is observed that the share of non institutional sources reduced from 70.8%
in 1971 to 42.9% in 2002. However after 1991, the share of non institutional sources has increased;
specifically, the share of moneylenders in the debt of rural households increased from 17.5 %in 1991 to
29.6% in 2002. In urban areas the share of non institutional sources has come down significantly from
40% in 1981 to around 25 % in 2002.
INCLUSIVE GROWTH

Financial Inclusion has the ultimate aim of Inclusive Growth in the economy at large for
increments in Economic Growth in GDP terms in which every stake holders in the economic
activities of the country. Government of India in its Annual Budgets since 2005 till date has
focused on this aspect with the banking sector expected to deliver the goods through FI efforts.
Such a model of Inclusive Growth is only possible, when the potential customer of the banks
come to know about the basic banking services through FES books, leaflets, brochures.

• Financial Literacy: - The otherwise neglected section of the society come to know such
facilities through Financial Literacy drives by the banks and RBI coming out in a big way to
the public platform. It raises the demand for credit by the eligible borrowers from the banks;
where as the supply of the credit by banks is monitored by RBI through its Monetary Policy
reflected in three major Annual Reports(Annual Report, Report on Currency & Finance,
Banking Trend and Progress).In such an economic model of interaction of forces of demand
and supply, the optimal price of credit is determined to allow the poor and aspirant borrower at
an affordable cost with extension of Micro Credit to such a section of borrowers.

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• The whole gamut of exercises in such Financial Literacy Drives is termed as Project Financial
Literacy initiated since 2005-Annual Budget of Government of India. RBI in terms of
Preamble to RBI Act, 1934(amended till date) is the Central Bank to ensure adequate supply of
currency and credit for the country with a perfect match for the economic activities considered
prudential for pre determined level of economic growth.

• Hence, Issue Department of RBI has to maintain clean and genuine stocks of Bank Notes in its
Regional Offices & in agent bank’s currency chests for circulation in the country. High
denomination notes of `500/ & `1000/ are found fake in large quantity in our country. Hence,
security Features of a genuine note finds a place in RBI site (F.E) at its home page (right side)-
www.rbi.org.in through 1 of the 2 sub counters named –Common Person and Financial
Education(F.E).One can have all the literature of FI & FLC available in hard copy as books,
leaflets, posters etc at FLC Drives/ awareness campaigns called Outreach Program held during
PJCs. In fact along with the Program stall, RBI puts up one ID stall in its programs, where
notes/coins not fit for circulation are exchanged ,meeting the local need of the population,
thereby attracting crowd in large numbers.

• RBI web site- www.rbi.org.in is a vast depository of knowledge regarding functioning of an

acclaimed system of central banking. Master Circulars, Press Releases, History and major
functions of RBI can be accessed to and downloaded free of cost from the site. Latest details of
above literature including games/pictorial stories on basic banking on Bank Notes are available
at the said sub counters of site.

• RBI handles its annual/routine publications in English & Hindi through its Central Office,
Mumbai (DEAP); where as Vernacular Publications are published in13 regional languages
even by Regional Offices under supervision from Central Office, DoC, Mumbai.

• With the passage of time, RBI is making an all encompassing campaign for securing rapid
economic growth at 9% of GDP not compromising on Asset Quality, Provisioning against bad
& doubtful debts and such other prudential measures. Stake holders being, the banks and the
Financial Institutions, the contribution towards eradication of financial illiteracy are gigantic
tasks ahead. Every one concerned with a Progressive India has miles to go in the path of
strenuous economic exertion, before he sleeps.

• IT enabled Financial Inclusion: Financial inclusion efforts to date have been driven
through two distinct channels: smart cards and mobile phones. One issue that often comes for
debate in this regard is the need to ensure interoperability of technological solutions. The
second issue relates to the choice of a model for mobile banking. World over, there are two
distinct models - the “bank-led” model and the “mobile operator-led” model. The Reserve
Bank has a clear preference for the bank-led model. This is so for at least two important
reasons. First, RBI wants the financial inclusion to be more than just a remittance facility. It
wants the customers to get minimum services like deposit insurance, access to affordable credit
and the payment system which only banks can offer. Second, given the growing concerns
about money laundering and financing of terrorism, a bank led model is decidedly safer and
more sustainable. Though RBI does recognize that mobile telephony has an important role in

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 the value chain and it is keen that mobile service providers collaborate with banks to provide
value added services.

Banks must put in place robust risk management systems encompassing effective
infrastructure, security policies, incident reporting and business continuity management. Also,
these management systems must be subject to regular review and monitoring. Greater
management attention can easily fix these flaws. That is why IT governance is important. The
second priority issue on the way forward is the quality control of data and its use for improving
banking efficiency. It is important not to be swamped by this deluge but to process the data
into useful information for management through robust MIS and decision support systems. The
Reserve Bank attaches a lot of importance to ensuring the quality of data; it’s processing into
useful information and the flow of that information to the appropriate level. To streamline this,
the Reserve Bank has formed a group comprising experts from banks, IDRBT, IBA and RBI to
study the information reporting system of banks and to suggest an approach for automated data
flow in a straight-through manner from the source systems of banks to the Reserve Bank.

Protection of information and customer confidentiality is another priority issue in IT enabled

financial inclusion. Several ways IT models can be used to improve the efficiency of banking -
for example, for credit appraisal using the score card model, for determination of provisioning
to be made against loans and for handling millions of low value accounts without
compromising on underwriting and supervisory standards. The need to guard against what can
be called a ‘technology barrier’ between the bank and the customer is another issue. Banks
should, therefore, take extra care to ensure that the poor are not driven away from banking
because the technology interface is unfriendly.

The Challenge of IT enabled Financial Inclusion:

• Vast Areas to be covered.
• Large numbers of excluded population.
• Keeping the transaction costs low.
• Create a Nation-wide affordable remittance system.
• Delivery channels.
• Outreach through Business Correspondent Model.
• Use of IT as an enabler.

Objective of IT enabled Financial Inclusion:

• To create a micro bank in each village.
• Solve the problem of distances and loss of wages.
• A powerful economic catalyst for revival of village economies.
• More savings, more loans, micro insurance.

Various Technology Model:

• Simputers.

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 • PDAs.
• Composite Hand Held Devices.
• Programmed Mobiles.

Salient Features of IT enabled Financial Inclusion:

• Appropriate Selection of Business Correspondent.
• Capacity Building.
• Appropriate Cash Handling Systems and Procedures.
• Long term viability and sustainability.
• Robust software.
• Risk Mitigation and Controls.
• Internalizing the model into existing banking practice.
• Costing of the model to be done on a full range of products.
• Encourage Multi-bank platforms which can communicate with each other to enable a
nation-wide affordable remittance system.

SUGGESTION ON FINANCIAL INCLUSION

• Bank should encourage households to open account by reaching the doorstep of excluded
households.

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 • Financial literacy should be part of schooling for educating children the importance of
banking services in their daily life.
• There should be a separate bank branches in urban slum areas.
• Mass media should be effectively used for educating the poor households for participating
in the programmes.
• Banks should adopt fast processing for better service.
• More public awareness should be created.
• RBI should organize camps in remote and urban slums for spreading financial literacy to
excluded households.

CONCLUSION

Financial Inclusion has been a catch phrase for the past few years. Delivering financial services
to all sections of the population will remain a challenge that central banks around the world will
face over the next few years. Increasing educational level means more financial inclusion;
therefore a literate population must be created in order to create a meaningful financially
included population. Innovation and out-of- the-box thinking are what has made the World what
it is today. We can never be complacent with what we have or what we have achieved, the
human life is an endeavour for progress and a better life. This should be the case with Financial
Inclusion; we cannot become complacent and become victims of our own success. Not only
should people have access to basic financial services but should also actively use them. A
modern and a globalize economy cannot be successful unless it is inclusive. With enthusiasm
and foresight this challenge would be overcome rather simply. We should not lose the
enthusiasm with which we started and that mediocrity or partial success cannot be considered
same as success.

REFERENCES

 The need for financial inclusion with an Indian perspective, IDBI Gilts Ltd.
 Report of the committee on informal financial sector statistics, Dr. C Rangarajan, chairman of
the National Statistical Commission.
 The Next Billion Consumers, report on financial inclusion by Boston Consulting group.
 Treating bank customers fairly, speech by Usha Throat, Deputy Governor, RBI organized by the
Financial Standards Planning Board, India.
 Taking Banking Services to the Common Man - Financial Inclusion,
Commemorative Lecture by Shri V. Leeladhar, Deputy Governor Reserve bank of India at the
Fedbank Hormis Memorial Foundation at Ernakulam on December 2, 2005.
 Index of Financial Inclusion, Mandira Sharma, Indian Council for Research on International
Economic Relations.
 National Conference on Financial Inclusion, Press Information Bureau, Govt. of India, Friday 14th
November, 2008.

Inclusive Growth through Financial Inclusion & Initiative by RBI Page 29

 Financial Education: Worthy and Worthwhile Speech by Dr. Duvvuri Subbarao, Governor, RBI at
the RBI-OECD Workshop at Bangalore on March 22, 2010.
 Harnessing Technology to Bank the Unbanked by Dr. Duvvuri Subbarao, Governor, RBI.
 www.npi.org.uk
 www.nationalcentrefordiversity.com
 www.bbcnews.com
 www.nssoresults .co in
 www.nabard.org
 www.indian-bank.com
 www.rbi.org.in
 www.innoviti.com
 www.egovonline.net

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