International Journal of Business

Management & Research (IJBMR)

ISSN(P): 2249-6920; ISSN(E): 2249-8036
Vol. 5, Issue 4, Aug 2015, 21-28
TJPRC Pvt. Ltd.

FINANCIAL INCLUSION IN INDIA: A CONTEMPLATIVE ASSESSMENT

REETIKA BHATT1 & CHINMAYA PANT2
1

Research Scholar, College of Agribusiness Management,

G. B. Pant University of Agriculture and Technology, Pantnagar, Uttarakhand, India

2

Manager, Commodities Finance, HDFC Bank Ltd, New Delhi, India

ABSTRACT
Financial Inclusion is an important priority of the Government as it is an enabler for inclusive growth. India has
taken numerous steps towards financial inclusion. The objective is to provide banking services at an affordable cost to the
weaker section of the society. This paper highlights various initiatives taken by Government of India (GOI) and Reserve
Bank of India (RBI) towards Financial Inclusion and its outcomes in past five years. Some exclusive steps like facility of
no frills account (now BSBD), Kisan Credit Card, General Credit Card, Banking Correspondents, ICT enabled
transactions, SHG-Bank Linkage, have been adopted to achieve total financial inclusion by 2015. With these focussed
initiatives, about 1.15 lacs banking outlets, nearly 4,600 branches in unbanked rural centres were opened. The Pradhan
Mantri Jan Dhan Yojana is a recent initiative and has gained momentum in short span of time. PMJDY has been executed
in the Mission Mode, which envisages provision of affordable financial services to all citizens within a reasonable distance.
Thus, the FI initiatives have collectively proven to be fostering inclusive growth.

KEYWORDS: Financial Inclusion, BSBD Accounts, KCC, GCC, PMJDY

1. INTRODUCTION
The Government of India and RBI have been making strenuous efforts to promote financial inclusion as one of
the important national objectives of the country. Some of the major efforts made in the last five decades include nationalization of banks, building up of robust branch network of scheduled commercial banks, co-operatives and regional
rural banks, introduction of mandated priority sector lending targets, lead bank scheme, formation of self-help groups,
appointment of Business Correspondents by banks to deliver banking services at door step, zero balance BSBD accounts,
etc. The prime objective of all these initiatives is to reach the large sections of the hitherto financially excluded Indian
population. The status of financial inclusion in India has been assessed by various committees in terms of access in
availing banking and insurance services. The Eleventh Five Year Plan (2007-12) envisions inclusive growth as a key
objective. One of the tedious task is to bring 600 million people living in rural India into the mainstream in order to have
inclusive growth in India.
Leeladhar, (2005) observed that despite making significant improvements in all areas relating to financial
viability, profitability and competitiveness, there are concerns that banks have not been able to include vast segment of the
population, especially the underprivileged sections of the society, into the fold of basic banking services. Mandira Sarma,
Jesim Pais (2008) analyzed the history that in India the concept of financial inclusion was started in the years of 1904 as
Cooperative movement, and then it gained momentum in 1969 when 14 major commercial banks of the country were
nationalized and lead bank scheme was introduced thereafter. Demirguc-Kunt (2010) observed that, Without inclusive
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Reetika Bhatt & Chinmaya Pant

financial systems, poor individuals, and small enterprises need to rely on their personal wealth or internal resources to
invest in their education, become entrepreneurs, or take advantage of promising growth opportunities. Dr Debesh Roy
(2012) in his research report emphasized that out of 600,000 habitations in the country; only about 5 percent have a
commercial bank branch. Also only about 57 percent of the population across the country has bank account (savings), and
this ratio is much lower in the North-Eastern states. Further, 13 percent of the population has debit cards and 2 percent has
credit cards. In view of the above, the objective of present paper is to study recent endeavours towards Financial Inclusion
in India and examine the progress made in this direction in last five years (2010-2014).
1.1. Phases of Financial Inclusion in India
Financial Inclusion is not a new term that has been recently coined. Rather, history of FI take us decades back.
Only the thrust area of FI changed over the time but essence of the process remained same i.e., banking the unbanked. RBI
continued efforts to create a conducive and enabling environment for access to financial services and extend door step
banking facilities in all the unbanked villages in a phase-wise manner. The process of FI in India can be broadly classified
into three phases.
The First Phase (1960-1990),focussed on flow of credit to neglected sectors of the economy and weaker sections
of society.
In the Second Phase (1990-2005) strengthening financial institutions as part of financial sector reforms was the
prime focus. Self- Help Group (SHG)-bank linkage programme in the early 1990s and Kisan Credit Cards (KCCs) for
providing credit to farmers in late 1990s were introduced as part of financial inclusion in this phase.
During the Third Phase (2005 onwards), the financial inclusion was explicitly made as a policy objective and
emphasizing safe and easy facility of saving deposits through no frills accounts. Pradhan Mantri Jan Dhan Yojana has
been introduced as the National mission of Financial Inclusion in India.

2. INITIATIVES TOWARDS FINANCIAL INCLUSION IN INDIA

This section deals with various efforts and endeavours made in the direction of Financial Inclusion in India in
recent years.
2.1. Ease in KYC Norms
The strict KYC norms posed hindrances in connecting common people with the Banking System. In August 2005,
the process for small accounts was simplified by relaxing Know Your Customer (KYC) requirements for opening bank
accounts. The guidelines have been largely simplified for opening small accounts. Now, mere self certification in the
presence of bank officials is enough for opening accounts and requires no other documentation. Further, in order to
leverage the initiative of UIDAI, Aadhaar, the unique identification number is being issued to all citizens of India, which
is used as one of the eligible document for meeting the KYC requirement for opening a bank account. Banks were also
allowed to provide e-KYC services based on Aadhaar, thus heading the path for account opening of all the people.
2.2. Opening of No-Frills Accounts
In November 2005, a new concept of basic banking 'no-frills' account with 'nil' or very low minimum balance was
introduced to make such accounts accessible to vast sections of the population. In 2012, the nomenclature was changed to

Impact Factor (JCC): 5.3125

NAAS Rating: 3.07

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Financial Inclusion in India: A Contemplative Assessment

Basic Savings Bank Deposit Accounts (BSBDAs) with zero minimum balance and facility of ATM card/ Debit card to be
provided to all individuals. No charge is levied on deposits and four withdrawals in a month are allowed. To summarize,
every person has the right to open a basic account. Banks have been advised to provide small overdrafts also in such
accounts to meet emergency credit requirement in hassle free manner.
2.3. Business Correspondents
In January 2006, the Reserve Bank permitted banks to engage Business Facilitators (BFs) and Business
Correspondents (BCs) as intermediaries for providing financial and banking services. The BC Model allows banks to
provide door step delivery of services especially to do cash in - cash out transactions, thus addressing the last mile
problem.
2.4. Use of Technology
Recognising that technology has the potential to address the issues of outreach and credit delivery in rural and
remote areas, commercial banks were advised to implement Core Banking Solution so as to enable them to make effective
use of ICT, to provide door step banking services through Business Correspondents Model. With such technology, the
accounts can be operated even by illiterate customers by using biometrics
2.5. Opening of Branches in Unbanked Rural Centres
To provide impetus to opening of branches in rural areas, banks have been mandated to open at least 25 per cent
of the branches in unbanked rural centres. Banks have been advised to open small intermediary brick and mortar structures
between the base branch and the unbanked villages. The motive behind is to ensure efficient services and supervision.
2.6. Relaxation in Branch Authorisation
In Dec 2009, domestic scheduled commercial banks were allowed to open branches in Tier 3 to Tier 6 centres
under general permission so that problem of unequal spread of bank branches can be avoided. Further, branch authorisation
was simplified to the extent that no prior permission was required to open branches even in tier I centres.
2.7. Direct Benefit Transfer
It facilitates delivery of benefits by direct crediting the amount to the bank accounts of beneficiaries. Government
proposes to route all social security payments through the banking network using the Aadhaar based platform. In order to
ensure smooth roll out of the Governments Direct Benefit Transfer (DBT) initiative, banks have been advised to seed the
existing and new accounts with Aadhaar numbers.
2.8. Financial Literacy
Financial Literacy is an important adjunct for promoting financial inclusion. Financial Inclusion and Financial
Literacy go hand in hand. Financial education, financial inclusion and financial stability are three elements of an integral
strategy, as shown in the diagram below. Through Financial literacy and education, awareness on the general banking
concepts is created among diverse target groups, including school and college students, women, rural and urban poor,
pensioners and senior. To ensure that the initiatives on the supply side are supported by initiatives on the demand side, 800
financial literacy centres have been set up by banks. Financial Literacy Centres organize Outdoor Literacy camps where
along with creating awareness, accounts are also opened. While financial inclusion works from supply side of providing

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Reetika Bhatt & Chinmaya Pant

access to various financial services, financial education feeds the demand side by promoting awareness among the people
regarding the needs and benefits of financial services offered by banks and other institutions.
2.9. Pradhan Mantri Jan Dhan Yojana
PMJDY is a national mission on Financial Inclusion was introduced in August 2014,encompassing an integrated
approach to bring about comprehensive financial inclusion of all the households in the country. The main objective of the
scheme is to ensure universal access to banking facilities with at least one basic banking account for every household,
financial literacy, access to credit, insurance and pension facility. In addition, the beneficiaries would get RuPay Debit card
also. The plan of scheme is to be executed and achieved in two phases. The first phase is ongoing and is near to completion
on August 2015. The second phase commences from August 2015 and would end in August 2018.

3. THE OUTCOMES: PROGRESS OF FINANCIAL INCLUSION IN INDIA

The progress made through focussed efforts of GoI and RBI has been analysed in this sections with the help of
percentages and averages and explained through figures and tables for detailed understanding.
3.1. Branches
Due to RBIs concerted efforts since 2005, the total number of branches of Scheduled Commercial Banks
increased manifolds from 68,681 in March 2006 to 1,22,294 in March 2014. In rural areas, the number of branches
increased from 30,572 to 47278 during March 2006 to March 2014.

Source: Handbook of Statistics on Indian Economy

Figure 1: Number of Branches Opened in an Year (including RRBs)
3.2. Banking Outlets
Total number of banking outlets increased from 67,694 in March 2010 to 3,83,804 in March 2014. The progress
made in an year (2013-14) is almost twice of total number of banking outlets in 2010. The figure itself reveals the
tremendous pace of growth of banking outlets in past years.

Impact Factor (JCC): 5.3125

NAAS Rating: 3.07

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Financial Inclusion in India: A Contemplative Assessment

Source: Annual Reports, RBI

Figure 2: Number of Banking Outlets (Including RRBs)
3.3. Basic Saving Bank Deposit Accounts
A hike in number of BSBD accounts is observed in 2013-14. The total number of BSBD accounts increased from
73.45 million in March 2010 to 242.9 million in March 2014. Over the years, from 2010 to 2014,the total number of
accounts increased 3.3 times. Whereas, in the same period, accounts opened through BCs increased about 7.8 times.

Source: Annual Reports, RBI

Figure 3: Basic Saving Bank Deposit Accounts Opened
3.4. Kisan Credit Cards (KCC)
Since inception of the scheme, KCCs are the main source of short term credit to small farmers for meeting their
credit needs. Up to March 2014, the total number of KCCs issued to farmers was 39.9 million with a total outstanding
credit of Rs.3684.5 billion. In 2013-14, 6.1 million KCCs were issued to farmers, amounting to Rs.1061.5 billion. 64
percent growth was observed in the number of KCCs issued from 2010-2014, and this figure rises to 197 percent in case of
KCC amount outstanding from 2010-2014.

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Reetika Bhatt & Chinmaya Pant

Source: Annual Reports, RBI

Figure 4: Kisan Credit Cards (Number of Accounts and Amount Outstanding)
3.5. General Credit Cards (GCC)
Banks have been advised to introduce General Credit Card facility up to Rs. 25,000/- at their rural and semi-urban
branches. Up to March 2014, banks had provided credit aggregating to Rs.1096.9 billion in 7.4 million GCC accounts. The
number has doubled in an year(2013-14), but the amount has increased almost 15 times, which is remarkable achievement.

Source: Annual Reports, RBI

Figure 5: General Credit Cards (Number of Accounts and Amount Outstanding)
3.6. ICT Based Accounts
The number of ICT-based transactions through BCs in an year increased remarkably by 12.4 times from 26.52
million in 2009-10 to 328.6 million in 2013-14, while amount of transaction increased tremendously from Rs.6.92 billion
to Rs.524.4 billion during the same period. This proves that technology has been accepted steadily in banking sector.

Source: Annual Reports, RBI

Figure 6: ICT Based Accounts through BCs in an Year (Number of Accounts and Amount of Transaction)
Impact Factor (JCC): 5.3125

NAAS Rating: 3.07

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Financial Inclusion in India: A Contemplative Assessment

3.7. ATM Network

The statistics of network of ATMs witnessed an increase of more than a lac in 3 years. The number of ATMs
increased from 74,513 in March 2011 to 1,76,409 in December 2014. There is almost similar increase in offsite and onsite
ATMs over the years. The increased network of ATMs has helped in reducing the high transaction cost and manpower
involved in the transactions.

Source: Handbook of Statistics on Indian Economy, RBI

Figure 7: Network of ATMs- Onsite and Offsite
3.8. SHG-Bank Linkage
This model helps in bringing more people under sustainable development in a cost effective manner within a short
span of time. In 2012-13, number of SHGs linked with Bank were 1, 21, 982 and credit of 205.85 billion was sanctioned
through these SHG-Bank Linkage. Although, the number of SHGs linked in an year has been decreasing over the years,
except in year 2012-13, but the amount of bank loan sanctioned in an year has been increasing over the years.
Table 1: SHG- Bank Linkage Programme

Year

No. of SHGS
Linked during the
Year

2008-09
1609586
2009-10
1586822
2010-11
1196134
2011-12
1147878
2012-13
1219821
Source: NABARD

Bank Loan
during the
Year (in
Billion)
122.54
144.53
145.48
165.35
205.85

Refinance Assistance
During the Year
(In Bllion)
26.2
31.74
31.74
30.73
39.17

3.9. PMJDY Achievements

With strong efforts from launching of the Scheme to opening accounts, PMJDY turned out to be a huge success.
As on January 2015, 12.54 Crore accounts were opened, out of which 7.5 Crore accounts are in rural areas and 5.04 Crores
in urban areas. 11.07 Crore Rupay debit cards were issued and 10499.62 Crores of deposits were mobilised by January
2015. During phase-I of the scheme, 2105.93 lacs households were surveyed, of which 2105.52 lacs accounts were opened,
leading to 99.98 percent coverage. 1,23,805 Business correspondents were deployed out of 1,26,837 BCs required. The
scheme was accolade with Guinness World Record, for opening 1,80,96,130 accounts in one week throughout the nation.

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Reetika Bhatt & Chinmaya Pant

4. CONCLUSIONS
Since the launch of financial inclusion plans, it is evident that banks are heading in areas like opening of banking
outlets, deploying BCs, opening of BSBD accounts, grant of credit through KCCs and GCCs. The number of banking
outlets has gone up to nearly 3,84,000. Out of these, 1,15,350 banking outlets were opened during 2013-14. Nearly 5,300
rural branches were opened during the last one year, of which 4,600 branches were opened in unbanked rural centres. By
the end of March 2014, number of BC outlets rose to 60730 and more than 60 million BSBD accounts were added in 201314. Similarly, 328 million transactions were carried out in BC-ICT accounts during 2013-14 as compared to 250 million
transactions during 2012-13. The addition of 6.2 million small farm sector credit including KCC and 3.8 million small nonfarm sector credits took the numbers to 40 million and 7.4 million respectively, on March 2014. Thus, it can be concluded
that in last five years Government and RBI's initiatives have provided significant impetus to Financial Inclusion.

5. REFERENCES
1.

Chattopadhyay, S. K. 2011, Financial Inclusion in India: A case-study of West Bengal. RBI Working Paper
Series. Vol. 2, No. WPS (DEPR): August.

2.

Demirguc-Kunt, A. (2010). Measuring Access to Finance-One step at a time. Access to Finance. W. Bank.
Washington, World Bank. 2010.

3.

Leeladhar, V. 2005. Taking Banking Services to the Common Man: Financial Inclusion. Deputy Governor, RBI.
Lecture delivered at Fedbank Hormis Memorial Foundation, Ernakulam.

4.

Reserve Bank of India. Annual Reports and Report on Trend and Progress of Banking in India various issues.

5.

Reserve Bank of India. Committee on Comprehensive Financial Services for Small Businesses and Low Income
Households.2013. Report. 247 p.

6.

Reserve Bank of India. Handbook of Statistics on the Indian Economy. Various issues.

7.

Roy D.(2012). Financial Inclusion in India Emerging Profitable Models, published by BANCON, Mumbai,P.129.

8.

Sarma, M & Pais, J. (2008). Financial Inclusion and Development: A Cross Country Analysis. Indian Council for
Research on International Economic Relations, pp 1-28.

9.

Thorat, U.(2007). Taking Banking Services to the Common Man Financial Inclusion. Deputy Governor, RBI.
Speech delivered at the HMT-DFID Financial Inclusion Conference, Whitehall Place, London, UK

Impact Factor (JCC): 5.3125

NAAS Rating: 3.07