Financial inclusion in India
From Poverty to Prosperity
Tejasvi Karnatak Dr. Anand Rai
Vishal Kumar singh
ECONOMIC CONDITION OF INDIA
India is the 10th largest economy in the world by nominal GDP and 3rd largest by
purchasing power parity .
India is the 19th-largest merchandise and the 6th largest services exporter in the
world. India's economic growth slowed to 4.7% for the 2013–14 fiscal year.
The Indian Finance Ministry projects the GDP growth for fiscal 2014 will be 5.5%.
Where as IMF projects India's GDP to grow at 5.6% over 2014-15.
Agriculture sector is the largest employer in India's economy but contributes a
declining share of its GDP (13.7% in 2012-13).
India's manufacturing industry has held a constant share of its economic
contribution, while the fastest-growing part of the economy has been its services
sector - which includes construction, telecom, software and information technologies,
infrastructure. tourism, education, health care, travel, trade and banking in the
ON THE DIFFERENT SIDE
Post-Independence Period (60 years ahead).
Disadvantaged people of the society
Poor Population living below Poverty line.
Role of Indian government in this context.
Lets see in this context-
In 2013, the Indian government stated 21.9% of its population is
below official poverty limit.
According to World bank, the world has 872.3 million people below
the new poverty line, of which 179.6 million people lived in India.
COMPARISON OF INDIA VS CHINA
Indias growth comparison with china is not
measurable because china is 20 years
ahead of India.
China GDP which is approximately 7.5%
where as Indias GDP stands around 5%.
Reason behind this GDP Gap.
THAN WHAT’S THE SOLUTION?
Steps that should be taken by the
government to eradicate financial
Initiation of no-frills account
Electronic benefit transfer
To make this facility more cost effective.
These are the basic steps which
government needs to work upon to
eradicate financial exclusion and to bring
inclusive growth i.e. financial exclusion
History of Financial inclusion
•The Reserve Bank of India setup a commission (Khan Commission) in 2004 to look into Financial
Inclusion and the recommendations of the commission were incorporated into the Mid-term
review of the policy (2005-06).
•RBI exhorted the banks with a view of achieving greater Financial Inclusion to make available a
basic "no-frills" banking account.
•In India, Financial Inclusion was first introduced in 2005.
•In January 2006, the Reserve Bank permitted commercial banks to make use of the services of
non-governmental organizations, micro-finance institutions and other civil society organizations as
intermediaries for providing financial and banking services.
•Emphasizes on the access to basic formal financial services at an affordable cost in a
sustainable manner for the vulnerable people (NABARD, 2008).
•The bank asked the commercial banks in different regions to start a 100% Financial Inclusion
campaign on a pilot basis
Financial inclusion refers to a process that
ensures the ease of access availability in usage of
the formal financial system for all the members of
According to C.rangarajan
“The process of ensuring access to financial
services needed by vulnerable groups such as
weaker sections and low income groups at an
affordable cost in a fair and transparent
manner by mainstream institutional players”.
Why financial inclusion ?
Mobilization of economy
Larger market for the financial system
Need of Financial Inclusion
Some Facts about FI in India
90% of small businesses have no links with
formal financial institutions.
About 60% of the rural and urban population does
not even have a functional bank account.
Bank-credit to GDP ratio in the country, as a
whole, is a modest 70%.
In Bihar, Bank-credit to GDP ratio is even lower,
Saving as a proportion to GDP has fallen from
36.8% in 2007-08 to 30.8% in 2011-12.
MEASURES FOR FINANCIAL INCLUSION
•MAKING THE BANKING SYSTEM SELF SUSTAINING
•LEADS TO INCREASE IN SAVINGS, INVESTMENT AND WILL
SPUR THE PROCESSES OF ECONOMIC GROWTH
•INCREASING THE HABIT OF SAVING IN LOWER INCOME GROUP
•CREATES AVENUES OF FORMAL CREDIT TO THE UNBANKED
•INCREASING ENTREPRENEURIAL SPIRIT
•MAKING AVAILABLE THE FORMAL REMITTANCE FACILITIES TO
LOWER INCOME GROUP
Toward Financial Inclusion RBI’S Approach
Twin Aspects of financial inclusion
• To Increase Demand = Financial Literacy–i.e.
creating a demand for the financial products and
services by making people aware about their
easiness to use & its advantage.
• To Increase Supply = Financial Inclusion–i.e. for
creating access to the financial services
RBI POLICY INITIATIVES
Branch expansion in rural areas
Banks need not to require prior permission to open branches in
centres with population less than 1 lakh
Banks have been mandated to open at least 25 per cent of their new
branches in unbanked rural centres
Relaxed KYC norms
Small accounts can be opened with self certification in the presence
of bank officials
RBI has allowed ‘Aadhaar’ card
KEY INSTITUTIONS INVOLVED IN FINANCIAL
India Post, NGO,etc.
Micro finance institutions
United nations development programm
Progress in financial inclusion
Number of branches opened
Due to RBI’s concerted efforts since 2005, the number of branches of
Scheduled Commercial Banks increased manifold from 68,681 in March 2006
to 1,02,343 in March 2013.
As compared with rural areas, number of branches in semi-urban areas
increased more rapidly.
KISAN CREDIT CARD ISSUED:
Banks have been advised to issue KCCs to small
farmers for meeting their credit requirements total
number of KCCs issued to farmers at 33.79 million with
a total outstanding credit of Rs.2622.98 billion
EXPANSION OF ATM NETWORK
The total number of ATMs in rural India witnessed a
CAGR of 30.6% during March 2010 to March 2013. The
number of rural ATMs increased from 5,196 in March
2010 to 11,564 in March 2013.
Reaching out to new client groups
Village savings and loan associations
Improved demand side information
State bank reform
FINANCIAL INCLUSION –OPPORTUNITIES
FINANCIAL INCLUSION - CHALLENGES
Limited financial literacy
A large section of financially excluded population- need to be told of benefits
of financial inclusion and also to be provided
A large growing segment of educated middle class-requiring financial education
A growing capital market with increasing retail participation-requiring financial
education and consumer protection
A growing insurance market with participation of private players - need
consumer protection and financial education
A large section of workers having no pension
A move from Defined Benefit Pension Schemes to Defined Contribution
Hence, a large workforce need to be told about riskiness of various investment
MISSION OF NABARD
To facilitate sustained access to financial
To increase the living standard of working
To provide services at cost effective manner
To make poor sections financially
JAN DHAN YOJANA
Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for
Financial Inclusion to ensure access to financial services, namely,
Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance,
Pension in an affordable manner.
PMJDY focuses on coverage of households as against the earlier plan
which focused on coverage of villages. It focuses on coverage of rural
as well as urban areas.
Financial inclusion covers Jan dhan yojana under which delivery of
financial services at affordable costs to vast sections of disadvantaged
and low income groups (for example "no frill accounts").
It provides accidental insurance cover upto Rs.1.00 lac without any
charge to the customer.
LIST OF BENEFITS ATTACHED TO PMJDY
Interest on deposit.
Accidental insurance cover of Rs.1.00 lac and Life Insurance
Cover of Rs.30000/- will be available to all account-holders.
However, overdraft facility up to Rs.5000/- will be available to
only one person in the family (preferably lady of the house).
No minimum balance required. However, for withdrawal of
money from any ATM with Rupay Card, some balance is
advised to be kept in account.
Life insurance cover of Rs.30,000/-
Easy Transfer of money across India
Beneficiaries of Government Schemes will get Direct Benefit
Transfer in these accounts.
After satisfactory operation of the account for 6 months, an
overdraft facility will be permitted
Access to Pension, insurance products.
CURRENT SCENARIO OF (PMJDY) IN INDIA
The Pradhan Mantri Jan Dhan Yojana (PMJDY), a flagship
programme launched in August to provide a bank account to
every family, reached up to an extent of 2.95 million bank
accounts in last four months in india.
The target includes reaching 75 million unbanked families across
the country by January 26, 2015.
The two RRBs- Odisha Gramya Banka and Utkal Grameen Bank,
under the financial inclusion plan, have opened 2, 81,565
accounts and 1,19, 273 accounts respectively.
State Bank of India (SBI), the country largest lender.
WAY FORWARD – FUTURE OF FINANCIAL INCLUSION
One of the major challenges under Financial Inclusion has been addressing the
last mile connectivity problem. The need is to develop and implement scalable,
platform-independent technology solutions which, if implemented on a large
scale, will bring down the high cost of operation.
Banks need to perfect their delivery and business model. A number of different
models involving handheld devices with smart cards, mobiles, mini ATMs, etc
are being tried out and it is necessary that they are integrated with the backend
CBS system for scaling up.
Banks should strive to provide a minimum of four basic products and, in
addition, design new products tailored to income streams of poor borrowers and
according to their needs and interests. Banks must be able to offer the entire
suite of financial products and services to the poor clients at an attractive pricing.
Though the cost of administering small ticket personal transactions is high, these
can be brought down if banks effectively
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