Published on November 16, 2013
FINANCE CONCLAVE 2013 FINANCIAL INCLUSION IN INDIA
HISTORY OF FINANCIAL INCLUSION FINANCIAL EXCLUSION Coined In 1993 in UK Initiatives by UK Government 1. 2. 3. 4. Credit Unions Post Office Card Account Savings Gateway Community Finance Learning Initiatives Source: rbidocs.rbi.org.in, worldbank Limited Physical Access to Banking services Priority Areas identified by UK 1. Access to Banking 2. Access to affordable credit 3. Transparency in Advisory Services
WHAT IS FINANCIAL INCLUSION AVAILABILITY AWARENESS ACCESSIBILITY FINANCIAL INCLUSION AFFORDABILITY ADEQUACY Source: world-finance-conference.com/papers_wfc/138.pdf: Rangarajan Committee Report 3
OBJECTIVES •Economic: -Equitable growth -FIs can boost the development process BANK ACCOUNT CAPITAL FINANCIAL LITERACY MARKET PARTICIPATION FINANCIAL INCLUSION INSURANCE PENSON •Mobilisation of Savings -Capital formation and economic growth •Larger Market for the financial system -Emergence for new players - Participation of retail investors REMITTANCES (Money Transfer Facilities) CREDIT PRODUCTS KCCs, GCCs etc •Social -Poverty Eradication - Financial Literacy •Sustainability - To improve income generation by low income groups •Institutional -Effective implementation Source: Rangarajan Committee Report
INDIAN STORY •The Term Financial Inclusion In India was coined in 2004 by the then RBI Governor YV Reddy. •In 2008, the Government of India appointed a Committee on Financial Inclusion under the Chairmanship of Dr. C .Rangarajan Aprox. 50% of people in India don't have bank accounts 90 % of the people do not have borrowings from the banks 11% of bank branches in India are limited to the metros. 38% of the branches of the SCBs are in the rural areas Nearly 85% of the population don’t have access to insurance services. FIIs hold a stake 10.45% in the Indian capital market 2% of retail investors in India participate in the Indian capital market Source: rbidocs.rbi.org.in 5
THE TARGET GROUPS People who are Not Availing Financial Services SOCIALLY EXCLUDED GROUPS FARMERS RURAL WOMEN SENIOR CITIZENS MIGRANTS Why??? DEMAND SIDE Financial Illiteracy SUPPLY SIDE Financial Inclusion Lack of Knowledge of products Inaccessibility of Bank Dependence on informal sources of credit Cumbersome Banking procedure Low Incomes Inappropriate Design of products & services Social Exclusion High transaction cost and attitude of bank officials Source: Rangarajan Committee Report
FINANCIAL INCLUSION : IMPORTANT MILESTONES PHASE II PHASE I Setting up of Rural Cooperatives Setting up of RRBs 1904 Nationalization of 14 Commercial Banks Rural Development Programme 1990 1969 Source: rbi.org.in Setting up of Local Area Banks PHASE III 1975 Allowance by RBI for BC/BF to act as agents of banks 2005 1999 Introduction to Self Help Group 2000 Opening of No Frill Accounts 2011 2006 NPCI launched Interbank Mobile Payment System (IMPS) 7
INSTITUTIONS INVOLVED MEASURES TAKEN Introduction of ‘No-Frills’ account •Low-cost bank accounts •“Zero” or very low minimum balances. NABARD General Credit Cards & Kisan Credit Cards India post, NGOs etc Key Institutions RBI, RRBs, SCBs •Credit Cards with a credit limit of Rs 25,000 in all rural and semi rural bank branches. •Success: March 2013 •36.39lakhs GCC accounts •337.89lakhs KCC accounts Simplification of KYC norms United Nations Development Programme Source: world-finance-conference.com •Simplified KYC procedure for low income groups without documents of identity and proof of residence to open banks accounts. Microfinance Institutions Financial Inclusion Technology Fund NABARD •To meet the cost of technology adoption •An overall corpus of Rs.500cr each (enhanced to Rs.600cr in Union Budget for 2010-11)
MEASURES contd… • Business Correspondent : An individual or a committee acting as an intermediary between the bank and the customer. i. Delivering all products of the bank ii. ICT based Business Correspondent Model for low cost. • Mandatory requirement of opening 25% branches in Unbanked Areas i. Progress stimulation through “New Bank Licenses” ii. To initiate Financial Stability through Financial Literacy. • Direct Benefit Transfer Schemes: i. Increasing significance of DBT scheme and Adhaar Card. • Financial Inclusion Plans (FIPs) for banks implemented by RBI (started from April 2010) i. Increase in number of Regional Rural Banks ii. Issuing more KCCs and GCCs iii. Specially designed products for financially excluded segments. iv. Interest rates on advances totally deregulated. v. Setting up of Ultra Small Branches Source: world-finance-conference.com
INDIA FACTSHEET – FINANCIAL INCLUSION 1. Scoring considers 618 districts of total 632 districts in India. Branch Penetration Credit Penetration Deposit Penetration 2. Top 3 states : Kerala, Andhra Pradesh, Himachal Pradesh 3. Bottom 3 states : Bihar, Assam, West Bengal 4. 11 of Kerala’s 14 districts figure in the top 50 scoring district INCLUSIX SCORES 62.2 38.2 5. The Financial Inclusion in India has increased by CAGR of 7% from 2008 to 2013. 37.1 28.6 28.5 40.1 *Data as per 2011-12 Source: CRISIL Inclusix 2013, rbidocs.rbi.org.in 6. Future potential may be seen due to rise in tele-density (grew from 1% to 40% between 2001 to 2010) 10
FINANCIAL INCLUSION – CHALLENGES AND WAY AHEAD… a) Increasing Reach by Banks b) Effective Intermediation by Business Correspondents c) Increasing transactions by target group d) Technological Challenge e) Cost optimization by Banks f) Implementation Challenge- Profit vs. Social Welfare g) Financial Literacy
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