The southern States race past others in financial inclusion, finds a CRISIL report

With nearly twice of the all-India average in credit penetration, the four southern States are presently leading the financial inclusion drive in the country.

A new index on financial inclusion released by ratings firm CRISIL (Credit Rating Information Services of India Limited) reveals that the number of loan accounts per lakh of population in the southern States stands at 17,142. However, this healthy figure can be easily offset by the under-penetration of formal banking facilities in most parts of the country just one in two Indians has a savings account, and only one in seven Indians have access to banking credit!

Moreover, the bottom 50 scoring districts have just two per cent of the country’s bank branches.

The index measures financial inclusion on a scale of 1 to 100, with 100 signalling that an entire population has access to banking services. The report  states that developed states like Gujarat and Maharashtra lag behind the national average of 40.1 when it comes to financial inclusion; ultimately resulting in a loss to the Indian GDP of nearly one per cent due to lack of financial inclusion.

The southern region has raced ahead across all three dimensions of financial inclusion — branch penetration, deposit penetration, and credit penetration

“The governments of the southern States ensured financial inclusion through adopting e-governance and electronic transfer of welfare payments. Higher levels of literacy in these States have also led to easier adoption and better awareness about banking services. Higher number of bank branches has played its role in increasing the reach,” explains Mujahid Ahsan, Vice President (Products), FINO PayTech Limited.

FINO PayTech is an implementing agency that works with banking and microfinance institutions to provide the last-mile connectivity through Banking Correspondents (BC).

According to the CRISIL report, six of the 10 most inclusive States and Union Territories are in the south. Puducherry is on the top with a score of 79.6. Chandigarh in the north and Goa in the west are also in the top 10.

The bottom five includes Arunachal Pradesh, Chhattisgarh, Bihar, Nagaland, and Manipur, the lowest with a rating of 16.6.

Lack of awareness, low incomes, poverty, and illiteracy are among the factors that lead to low demand for financial services and, consequently, to exclusion, the report stated.

CRISIL used bank branch, credit and deposit penetration (per lakh population) to assign scores to each district and then arrived at a score for every State and Union Territory.

“Financial inclusion… is not just about opening of saving bank accounts; it includes creation of awareness about financial products, and offering of advice on money management and debt counselling,” the report added.

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