The extent of financial exclusion from different perspectives / angularities is presented based on different data sources viz.:
In consultation with the concerned stakeholders including the Government, the Reserve Bank of India had constructed a composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country, which was first published in August 2021 for the FY ending March 2021.
The FI-Index has been conceptualised as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with Government and respective sectoral regulators. The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion. The FI-Index comprises of three broad parameters (weights indicated in brackets) viz., Access (35%), Usage (45%), and Quality (20%) with each of these consisting of various dimensions, which are computed based on a number of indicators.
The Index is responsive to ease of access, availability and usage of services, and quality of services, comprising in all 97 indicators. A unique feature of the Index is the Quality parameter which captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services.
The FI-Index has been constructed without any ‘base year’ and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion. The annual FI-Index for the period ending March 2021 is 53.9 as against 43.4 for the period ending March 2017. The FI-Index will be published annually in July every year.
The value of FI Index for March 2023 stands at 60.1 vis-à-vis 56.4 in March 2022, with growth witnessed across all sub-indices. Improvement in FI Index was mainly contributed by Usage and Quality dimensions, reflecting deepening of financial inclusion.
Access and use of Financial Services
Indicator | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
---|---|---|---|---|---|---|---|---|---|---|
Automated Teller Machines (ATMs) per 100,000 adults | 12.87 | 17.80 | 19.70 | 21.24 | 22 | 21.65 | 20.95 | 21.50 | 21.21 | 24.64 |
Branches of commercial banks per 100,000 adults | 11.85 | 12.87 | 13.54 | 14.06 | 14.51 | 14.50 | 14.58 | 14.74 | 14.42 | 14.31 |
Deposit accounts with commercial banks per 1,000 adults | 1,160.72 | 1,337.41 | 1,541.79 | 1,731.27 | 1,881.54 | 1,937.25 | 1,967.61 | 2,030.71 | 2023.67 | 2130.48 |
Loan accounts with commercial banks per 1,000 adults | 141.18 | 149.78 | 152.78 | 168.75 | 175.81 | 197.34 | 228.80 | 264.13 | 285.22 | 303.1 |
Mobile money transactions: number per 1,000 adults | 35.98 | 116.06 | 270.11 | 627.69 | 1662.40 | 3031.52 | 4078.93 | 4111.97 | 3822.87 | 5008.21 |
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Number of Branches Opened (including RRBs)
Villages Covered:
Total Bank Outlets (including RRBs)
Kisan Credit Cards (KCC) Issued:
General Credit Cards (GCC) Issued:
ICT Based Accounts - through BCs
Expansion of ATM Network:
Financial Literacy Initiatives
Growth in SHG-Bank Linkage
Growth of MFIs:
Bank Credit to MSME
Insurance Penetration in the Country
Equity Penetration in the Country
Financial Inclusion Initiatives – Private Corporates:
Taking into account the achievements stated in the previous section and based on our interactions with the stakeholders during our various outreach programmes, as also the feedback received from our meetings with the frontline managers, the more important issues which need to be attended; stakeholder-wise are listed in the table below
S.No | Issues | Remarks |
1) | Business Correspondents (BC): For effective functioning of BC model in reaching poor villagers, the following need to be addressed: BCs are not making enough income due to catering of services to low-income customers with low volume transactions. For optimum usage of BCs in reaching the poor villagers, BCs have to be adequately compensated so that they are sufficiently incentivized to promote financial inclusion as a viable business opportunity. The usefulness of BC model is dependent on the kind of support provided by the bank branches. For effective supervision of BC operations and for addressing cash management issues as also to take care of customer grievances, banks should open small brick and mortar branches at a reasonable distance. Further, banks should initiate suitable training and skill development programes for effective functioning of BCs. | Banks |
2) | Tailor Made Services: | |
Innovative Products: Designing suitable innovative products to cater to the requirements of poor villagers at affordable rates is an absolute imperative.To wean away villagers from borrowing from money lenders, banks should develop simplified credit disbursement procedures and also flexibility in their work processes. | Banks | |
3) | Technology Applications: In an ICT enabled environment, technology is the main lever to achieve the eventual goal of financial inclusion at the earliest. | |
ATM-Network: ATM Network in rural areas accounted for only 10.1% of total ATMs in the country as on March 31, 201314. Banks should enhance their ATM network in rural and un-banked areas to serve poor villagers. While doing so, adequate care should be taken regarding safety/ security issues, which have come to the fore in recent times. | Banks/RRBs, Co-op Banks | |
Rupay Network: To reduce the overall transaction costs associated with small ticket transactions in rural areas, domestic RuPay cards may be utilized. | ||
KCC/GCCs:To enable farmers to withdraw cash from ATMs anywhere in the country, banks need to convert KCCs/GCCs to electronic credit card. Further, banks may explore the possibility of issuing multipurpose cards which could function as debit cards, KCC and GCC as per the requirements in rural areas. | ||
Mobile Banking: In rural India, there are 323.27 million16 mobile subscribers as on March 2012 (TRAI Annual Report, 2012). To examine the options/ alternatives, including the feasibility of using encrypted SMS based funds transfer using an application that can run on any type of handset for expansion of mobile banking in the country, RBI constituted a committee (Chairman: B. Sambamurthy) | ||
Technology Service Providers (TSPs): There are a number of issues involving TSPs via-a-vis several banks. | Banks/RRBs, Co-op Banks | |
4) | BSBD Accounts: It is understood that nearly half of the BSBD accounts are dormant. For effective use of BSBD accounts economic activity needs to be improved. | Governments – Central and State; Banks, Co-op Banks, RRBs |
5) | Use of PACs and Primary Cooperatives as BCs: PACs penetration in rural areas is far more than that of bank branches. Banks may make use of this largest rural network of cooperatives as business correspondents. Recent NABARD circular also envisaged that PACs can be utilized as BCs for CCBs/SCBs. | Banks, RRBs, State Governments |
6) | Financial Inclusion in Urban Areas: Generally, urban financial inclusion leaves vast scope for improvement. Migration from rural to urban centres is also accentuating the problem. | Banks |
7) | Remittance Corridors: Remittance facility for migrant population is of paramount importance. Providing of easy and cheap remittance facilities to migrant population is an absolute imperative. | Banks |
8) | Migrants are not Adequately Covered: Migrants are facing difficulties in opening bank accounts. Commercial banks need to take care of the needs of the migrant population in their financial inclusion plans. | RBI and Banks |
9) | Human Face of Banking: To deal with poor villagers, banks need to initiate training programmes to frontline staff and managers as well as BCs on the human side of banking. | Banks |
10) | Agriculture Advances: While the number of farmers accounts with SCBs’ increased from just 63 lakh in March 2006 to 176 lakh in March 201017; in terms of credit, farmers with land holdings ‘above 5 acre’ accounted for largest share of 44% of total bank credit. To achieve meaningful financial inclusion, banks should give priority for small farmers as compared to large farmers while sanctioning credit. | Banks |
11) | Scalability of CBS Platform: In order to handle the growing amount of work due to intensive financial inclusion efforts of country, banks/RRBs should ensure scalability of their CBS platforms. | Banks/RRBs |
12) | Electronic Benefit Transfer (EBT): The EBT scheme being an important and integral part of the overall Financial Inclusion with its attendant benefits, banks should promote EBT systems effectively for boosting their financial inclusion plans. | Banks |
13) | Ultra Small Branches18: Ultra Small Branches may be set up between the base branch and BCs to provide support to about 8-10 BC units at a reasonable distance | New Private Banks/ RRBs |
14) | Low Credit Share of Rural Areas: Although, in terms of number of branches, rural areas account for nearly 30% of total branches of scheduled commercial banks, the share of rural credit account for less than 10% of total credit. Govt./Banks should initiate steps to increase the credit absorption capacity in rural areas by promoting employment and other opportunities. | Banks/GoI |
15) | Private Sector banks need to open more branches in rural areas: In the case of private sector banks, rural branches accounted for just 13.3% of their total branches in March 2013 (while in the case of public sector the same stood at 33.1%). There is an imperative need to ramp up the number of rural branches by the private sector banks | Private Banks |
16) | Penetration of RRBs in Financially excluded Regions: Though RRBs have more presence in central (30.7% as on March 2012) and eastern regions (23.1%), financial exclusion is more acute in these regions. | RRBs |
17) | Infrastructure Development: For up-scaling financial inclusion, adequate infrastructure such as digital and physical connectivity, uninterrupted power supply etc are prerequisites. Reportedly, out of six lakh villages in India, around 80,000 villages have no electricity and the constraints of electricity directly impact the working of banks. | Central & State Governments |
18) | Vernacular Languages : Financial inclusion efforts should necessarily be done in vernacular languages. In this context, the need for vernacularisation of all forms (including legal forms) is an absolute must, at least in major languages. As per Akosha19 there are 10,506 consumer complaints received20 against financial sector (includes banking, finance, insurance, real estate and construction) during the period January 2013 to March 2013. As part of Financial Literacy initiatives, if banks were to undertake pro-active steps in helping the common public to get over their English phobia, it is felt that the number of complaints would increase manifold. | Banks & Other FIs |
19) | Private Corporate Initiatives: A few large private corporates have undertaken projects such as E-Choupal / E- Sagar (ITC), Hariyali Kisan Bazar (DCM), Project Shakti (HUL), etc. Reportedly, these pioneering projects have brought about vast improvement in the lives of the participants and set the tone for economic development in their command areas; which is a pre-requisite for Financial Inclusion efforts to be undertaken by the banking system. | Private Corporates |
20) | Post-offices: Post offices (POs) are closest to the rural people compared to bank branches. As on March 31, 2011, there are 1,54,866 post offices in India, of which 1,39,040 (89.8%) were in rural areas. All round efforts should be made to ensure that Post Offices play a greater and more active role due to known advantages. Progressively, more POs may be engaged to become BCs of banks due to well-known advantages. | RBI and Government |
21) | White Label ATMs: RBI has already started allowing eligible private entities to establish White Label ATMs. There is case for its acceleration. | RBI, Private Corporates |
22) | MSME – Financial Exclusion: The statistics based on 4th Census on MSME sector revealed that only 5.18% of the units (both registered and un-registered) had availed finance through institutional sources, 2.05% got finance from non-institutional sources. The majority of units i.e., 92.77% had no finance or depended on self-finance. SIDBI should go into the reasons for not getting access to formal sources of credit by the majority of MSME units. | SIDBI/ Banks |
23) | SHG-Bank Linkage - Penetration: Although SHG-Bank Linkage model is successful in rural areas, it has not spread evenly throughout India, the spread is poor especially in the financially excluded regions namely central and north-eastern. | NABARD |
24) | SHG-Bank Linkage Outstanding Bank Credit: Outstanding bank loans against SHGs accounted for only 1.93% of gross bank credit as on March 31, 2011. It was observed that SHGs are not getting loans from banks even after more than one year of its formation and group activities. Certain difficulties are being experienced by SHGs in obtaining bank credit which NABARD should look into and inform RBI of the same. | NABARD |
25) | Insurance for Rural India: Over 70% of total population resides in the rural areas of the country. However, insurance reaches less than 3% of the total population. Due to high competition and relatively high market saturation in the urban areas, rural areas provide ample business opportunities for insurance firms –both life and non-life. | IRDA |
Source: RBI
Last Modified : 10/25/2023
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