The Government of India and the Reserve Bank of India have been making concerted 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, permitting BCs/BFs to be appointed by banks to provide door step delivery of banking services, zero balance BSBD accounts, etc. The fundamental objective of all these initiatives is to reach the ...view middle of the document...
Why Financial Inclusion ?
1.4 Financial inclusion broadens the resource base of the financial system by developing a culture of savings among large segment of rural population and plays its own role in the process of economic development. Further, by bringing low income groups within the perimeter of formal banking sector; financial inclusion protects their financial wealth and other resources in exigent circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the usurious money lenders by facilitating easy access to formal credit.
1.5 In rural areas, the Gini’s2 coefficient rose to 0.28 in 2011-12 from 0.26 in 2004-05 and during the same period to an all-time high of 0.37 from 0.35 in urban areas.
Extent of Financial Exclusion
In this section, the extent of financial exclusion from different perspectives / angularities is presented based on five different data sources viz.:
(a) NSSO 59th Round Survey Results,
(b) Government of India Population Census 2011,
(d) RBI Working Paper Series Study on ‘Financial Inclusion in India: A Case-study of West Bengal’ and
(e) World Bank ‘Financial Access Survey’ Results.
NSSO 59th Round Survey Results3
* 51.4% of farmer households are financially excluded from both formal/ informal sources.
* Of the total farmer households, only 27% access formal sources of credit; one third of this group also borrowed from non-formal sources.
* Overall, 73% of farmer households have no access to formal sources of credit.
* Across regions, financial exclusion is more acute in Central, Eastern and North-Eastern regions. All three regions together accounted for 64% of all financially excluded farmer households in the country. Overall indebtedness to formal sources of finance of these three regions accounted for only 19.66%.
* However, over the period of five decades, there has been overall improvement in access to formal sources4 of credit by the rural households (Chart 1).
2.2 Government of India Population Census 2011
* As per census 2011, only 58.7% of households are availing banking services in the country. However, as compared with previous census 2001, availing of banking services increased significantly largely on account of increase in banking services in rural areas (Chart 2).
2.3 CRISIL Financial Inclusion Index (Inclusix)
* In June 2013, CRISIL first time published a comprehensive financial inclusion index (viz.,Inclusix). For constructing the index, CRISIL identified three critical parameters of basic banking services namely branch penetration5, deposit penetration6 and credit penetration7.
* The CRISIL Inclusix indicate that there is an overall improvement in the financial inclusion in India (Chart 3).
* CRISIL –Inclusix (on a scale of 100) increased from 35.4 in March 2009 to 37.6 in March 2010 and to 40.1 in March 2011.
2.4 RBI Working Paper Study
* Sadhan Kumar8 (2011) worked out an...