Suggested practices are not new but the environment has changed
in India is
an overwhelming majority of
There is plenty of interest in the subject of financial inclusion, not only in India but in developed countries too.
The terminology may be new and the rationale for its adoption rooted in today’s socio-economic thinking, but for the Indian financial sector it is hardly original. Nor has this sector wilfully shunned inclusive practices, whether directed by policy makers or by market forces.
Financial Inclusion (FI) means extending the reach of the financial sector to sections of the society as well as to geographical regions that were neglected in the past.
Recently the Deputy Governor of the Reserve Bank of India, Usha Thorat, provided some interesting statistics (RBI website).
The percentage of the Indian adult population having bank accounts is one common measure.
On an all India basis, only 59 per cent have bank accounts. The share of the rural population is significantly below that of the urban population. Only 39 per cent of rural adults have access to accounts while in the urban areas the percentage rises to 60. Access to bank credit is significantly less. Only 14 out of 100 adults have loan accounts on an all India basis as well as in the rural sector. In rural areas it is just 9.5 per cent.
The financial sector’s relative neglect of the rural sector can be rationalised though not justified. Mainline finance in India is urban centric: an overwhelming majority of its staff are city bred. Equally important, the cost of running a branch bank has historically been high. Numerous attempts at evolving a low cost business model for rural banking has not been totally successful. Thus, despite the well documented achievements of Indian public sector banks in spreading the banking habit for two decades since bank nationalisation, large sections — as Ms.Thorat records, these are the vulnerable sections of the society as well as geographical areas such as the Northeast — face financial exclusion to a greater degree than the rest of the country.
Use of technology
A number of non-traditional routes are being explored to increase coverage of the financial sector. Increased use of technology (to obviate the need for uneconomical branch expansion) and licensing low cost entities to undertake basic banking functions are being thought of. While inclusive practices are not new to the mainline banks, what has changed is the environment. ‘No-frills’ accounts that are being popularised may not be different from the Rs. 5 savings bank accounts of the 1970s.
Yet in the context of much tougher guidelines for opening bank accounts (brought about by know-your-customer rules) it is a challenge to open such accounts, still make money and prevent benami accounts.