Financial Inclusion and Challenges Before Bankers-A Case of Odisha State of India

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1 Financial Inclusion and Challenges Before Bankers-A Case of Odisha State of India I Sashikanta Khuntia, II Dr.Sangeeta Mohanty, III Rashmi Ranjan Mohapatra I Lecturer, II Asst. Professor, III Sr.Lecturer I,II,III Academy of Business Administration, Harida, Kuruda.Balasore, Odisha, India Abstract India with large population and gigantic of its geographical coverage invites challenges for the policy maker to think different initiatives for financial inclusion. Strength of the financial system can increase, if more and more people attached to formal financial services. Improvisation in the financial inclusion can mobilise more funds for productive utilisation. Reserve Bank of India (RBI) and Government of India (GOI) have puts their efforts through different initiatives to overcome challenges of financial inclusion. This study focuses on different initiatives taken for financial inclusion and its feasibility towards implementation as per the bankers view. The paper undertakes the use of Multi Dimensional Scaling to give a perceptual map of the images created in the minds of bankers,when they think of the execution of the financial inclusion initiatives instructed by RBI. The uniformity of the initiatives are further tested by using Chi-Square Test of Goodness Fit Key words Financial Inclusion, Financial System, Initiatives, RBI, GOI. Introduction The concept of financial inclusion has attracted the attention of most of the international policy makers and for India it is a buzzword now. The concept of financial inclusion takes momentum in early 2000 s.hence,financial inclusion now become common objective for many central banks among the developing nation. Financial system is said to be effective only when it is capable of transferring funds from productive sector to unproductive sector. India, where more than 70% of population resides in rural areas and financial system fails there to achieve its main objective and becomes barrier for the economic growth of the nation. With economically challenged and huge rural population, financial inclusion became indispensible for sustainable development and growth of India. Financial inclusion is essential for a country or nation where large chunk of the population belongs to poor and rural areas as well as geographically remote areas. It is needed for rural and downtrodden masses for the future growth engine of the economy. The objective of the financial inclusion should be beneficial for the poor majority of who are unaware of formal financial services. Financial inclusion creates opportunities for vulnerable groups to avail following; Access to financial services at low cost (savings, loans, insurance). Access to timely availability of affordable credit. Access to face-to-face financial advice. The major concern of the financial inclusion is to include different part of community with financial services. Financial inclusion could be expedited with maximisation of banking networks, development or innovation of new financial product of low cost, maximum use of information, communication and technology enabled services supported by extensive financial literacy mission. A robust and comprehensive study of financial inclusion is required to look around the current state of affairs of financial inclusion and monitor the forward of policy initiatives for promotion of financial inclusion. In this research paper emphasis is given on challenging areas of financial inclusion for bankers. Since the topic has significance over current global economy; working on the same was an enriching experience. Financial Exclusion: India Even today nearly half of the population doesn t have access to formal financial services and are largely dependent on informal money lenders. Mere opening of no-frill account is not the end of financial inclusion. As of different statistics in India almost half of the country unbanked. India has the highest number of households (145 million) excluded from banking. In India for people there is one branch. Only 20% population have lifeinsurance and 9.6% population have non-life insurance coverage. Only 55% of the population have deposits accounts and 9% have credit accounts with the bank. The SHG-Bank Linkage Programme (SBLP) implemented through commercial banks provided credit facilities to 59 billion borrowers. Only 6.12 million of SHGs had deposit of Rs, 545cr with the banks and 4.22 million SHGs had loan of Rs.22, 680cr outstanding with the bank as on 31 st march 2009.Only 60 million households covered by both micro finance institutions and SHGs out of 130 million, which represents still more than 50% of the population are financially excluded. (FICCI) Review of Literature Sarma(2008) described the broad relationship between financial inclusion and human development by using an index of financial inclusion. It is found that level of human development and the level of financial inclusion are strongly positively correlated, although few exceptions are exist. Agarwal (2010) concluded from the study that the role of ICT tools and associated technologies in providing financial solutions to the unbanked is very much essential and rural ATMs, plastic cards and mobile payment technologies do have the ability to engage unbanked sections. It is also evident from the study that financial inclusion can be achieved by public-private partnership model powered by ubiquitous technologies. Kelkar (2010) suggested for the innovative method for improving financial inclusion by way of unifying all subsidy of the government into single one through smart card. Chakravarty, Pal (2010) observed formal banking services across India through financial index. Chakrabarty (2011) viewed banking system need to be well equipped with the emerging challenges and be prepared to cash in on the opportunities unleashed by higher growth. Bandara (2011) in the study of financial inclusion and integrated development 53

2 ISSN : (Online) observes financial inclusion must need to be accompanied with financial literacy and financial discipline to make it more discipline to make it more sustainable. Sharma, Didwania, Kumar (2011) study on financial inclusion and poverty alleviation and GDP growth revealed that it is apparent that the inclusive growth is necessary for sustainable development and equitable distribution of wealth and prosperity. Naveen Kumar et al. (2012) observed from the study that bank should encourage people to access banking services by way of no frill accounts, financial inclusion campaign and business correspondents. The suggested for the help of government for financial assistance in order to carryout smooth financial inclusion plan. Roy (2012) has revealed that banks have opened there branches at remote areas to bring out the large section of the society under umbrella of financial inclusion.inspite of that there are still large segments of the society out of formal financial system. Anjum, Ari (2012) concluded from the with the fact that information and communication technology creates opportunities for the private banks to improve financial inclusion plan for unbanked people. Siddaraju (2012) observed from the study financial inclusion will act as a source of empowerment and allow people to participate more effectively in the economic and social process. Statement of The Problem Previous research on financial inclusion widely carried out through different statistical report and most of the researchers have focused only on the penetration level of financial inclusion. By the time there are different initiatives taken by RBI and GOI. This paper makes an attempt to study the feasibility of these initiatives as far as its implementation is concerned by using Multi-Dimensional Scaling (MDS) Technique and Chi-square test of goodness fit. Recommendation of Rangarajan Committee on Financial Inclusion Committee formed under the chairmanship of C. Rangarajan recommends certain measures and initiatives for financial inclusion in their report, which was deposited on 4 th January 2008 to the Hon ble finance minister. Major recommendations for commercial banks are; Opening of 250 accounts per branch of every commercial bank per year. Target branch expansion of banks in identified districts within three years. Provision of customised savings, credit and insurance products. Development of human resources for inclusive financial services. Easy procedure for agriculture loan. Major recommendations for RRBs are; Target to catch unbanked areas by increasing the creditdeposit ratio. Recapitalisation of RRBs. Computerisation. Separate credit plan for excluded regions. Widening of network and coverage. Use of primary Agricultural Credit Societies (PACS) as business correspondents. Objective of The Study i-to study the initiatives taken for financial inclusion in India. ii-to identify the initiatives, this became difficult to implement as per the view of bankers. iii-to examination the uniform property of implementation of proposed initiatives like opening of new branch ant unbanked area, financial education and credit counselling and use of new technology. Research Methodology Sampling Technique: - Judgement sampling technique has been used as the data collection tool. Sample Size: - The sample area for this study covers 12 legislative constituency of the state of odisha representing four each from east,west,south and north.. The total area is divided into four subdivisions and data collected from 132 bankers from seven commercial banks and four regional rural banks through questionnaire. 144 bankers were approached and only 132 responded. The bankers were approached and requested to furnish the data records of last three years. Data Type: - In this study only primary data is used. Data have been collected through questionnaire method. Each of sample respondents is asked to rank the initiatives; No Frill Account, General Credit Card, Financial Education and Credit Counselling, Opening of New Branch, Use of New Technology, Know Your Client Norms, Business Correspondent Model, Self Help Group Finance, undertaken by RBI on 5 point scale ;( 1=most feasible and 8=least feasible) so far as the execution is concerned. Tools and Techniques Used: - Chi- square and Multi-Dimensional Scaling Techniques are used to elicit the information more clearly. The data so collected are analysed using SPSS-1 Hypothesis 1. No-frill account and financial inclusion are associated. 2. There is an effect of financial literacy on financial inclusion. 3. There is an effect of number of commercial bank/rrb branches on financial inclusion. 4. The financial initiatives like new branch at unbanked areas, financial education and credit counselling and use of technology are uniformly distributed during last five years. Initiatives on Financial Inclusion Realising the value of inclusive growth both government and Reserve Bank of India have taken several initiative for the purpose of decreasing financial exclusion. Major initiatives taken in this regards are; 1. Introduction of No-frill Accounts :-Banks were instructed to open bank accounts with nil or minimal balances in order to make the banking available to vast section of the society. 2. Simplification of Know Your Client (KYC) Norms: - It is made for simplifying the process on documentation at the time of opening of bank account. As per this introduction by an account holder with full KYC is sufficient for opening new account. 3. General Credit Card (GCC) Facility: - The objective is to provide hassle free credit up to Rs.25, 000 basing upon future cash flows. This is in the nature of revolving credit. 4. Use of Technology: - With the view to use information and communication technology to provide doorstep banking 2014, IJRMBS All Rights Reserved 54

3 services. 5. New Branch at Unbanked Areas: - For the purpose of banking and financial inclusion penetration banks were instructed to open 25% of their new branch at rural and unbanked areas. 6. Financial Education and Credit Counselling: - It is aimed at increasing of financial awareness through campaign, advertisement and use of regional language in the documents for easy transaction. 7. Business Correspondent (BC) Model: - In the year 2006 banks were given permission to use the services of different NGOs/SHGs, micro-finance institutions and different civil societies for providing financial and banking services to the outreach or unbanked people. Analysis of Initatives Using Multi- Dimensional Scaling Technique (MDS) MDS is useful in measuring the perception and distinctive images of the stimuli used in research. Perceived relationships among stimuli are then represented by means of a visual display using geometric relationships among points in a multidimensional space. The geometric representation is often called spatial maps. It attempts to plot these data in a map; indicating the similarities and dissimilarities as the distances between points. The important aspect of using MDS is the identification of the dimensions of feasibility of executing different initiatives like : No Frill Account, General Credit Card, Financial Education and Credit Counselling, Opening of New Branch, Use of New Technology, Know Your Client Norms, Business Correspondent Model, Self Help Group Finance. Interpretation of SPSS Outputs of MDS The MDS out puts are given in below tables. Fig: 1 Scatterplot of Linear Fit Distances Individual differences (weighted) Euclidean distance model Fig:-2 Disparities Derived Stimulus Configuration Individual differences (weighted) Euclidean distance model gcc nb nt bc no.f rill Dimension kyc 0 fecc shg Interpretation of the output The choice of number of dimensions fitting the data is based on the stress value of 2 and 3 dimensional solutions. Stress value for 2-dimensioanl solution = (Output-1) R-square values (RSQ) = , it is more than 0, the solution is acceptable. The disparities and the distances (Fig-1) show a straight line of points indicating a good fit. 55

4 ISSN : (Online) 2-Dimensional Solution On dimension-1, NO.FRILL and SHG have the maximum weightage of and 251, NT, GCC and NB have the minimum weightage of ( ), ( ) and ( ). Among different initiatives instructed by the RBI and committee, opening of no-frill account and financing of SHG became more successful for financial inclusion. Whereas initiatives like implementation of New Technology (NT), General Credit Card (GCC) and opening of New Branch (NB) at unbanked areas became the problematic areas as far as its implementation is concern. Thus dimension-1 is named as Most challenging task. FECC (Financial Education and Credit Counselling) (-066) and KYC (Know Your Client) (-678) are leading in dimension-2 at two opposite ends. Both FECC and KYC norm became problem for the banker due to lack of awareness and infrastructure facilities. Looking at their positions, the dimension is named as lack of awareness and Infrastructural facilities as well as fear of credit risk. Spatial Map (fig-2) The spatial map of 2-dimensional solution is given in (Fig-2). The stimuli closer to each other create the similar image. The stimulus which stands alone is perceived uniquely by the respondents. X-axis represents the Most challenging task (dimension-1) and Y-axis represents lack of awareness and infrastructural facilities as well as fear of credit risk (dimension-2). It is clear from the map that No-Frill has the unique image and has no real comparison with others. The same argument also holds for Business correspondent (BC) model. Among different initiative undertaken with challenge, both no-frill account and business correspondent model succeeded to some extent. GCC, NT and NB have the similar image, which signifies that there is still lot to do. The KYC norm where the intention was to make documentation simpler still unachieved because of the problem with the people due to lack of awareness. The same is also true in case of Self-Help Group (SHG) Finance. It is also reflected from the graph that Financial Education and Credit Counselling Programme (FECC) could not be implemented due to lack of infrastructure, manpower and support of the local area people. GCC, NT, NB and KYC perceived as the same categories.gcc, NT and NB initiatives became problems for banker because of its credit risk and profitability factor.kyc problem can be shut out by increase in awareness among people. Analysis of Three Majaor Initiatives Using Chi-Square Test of Goodness of Fit Of all the initiatives proposed by RBI, the researcher has selected three major initiatives; opening of new branches at unbanked areas, use of new technology and financial education and credit counseling, for the purpose of testing the uniformity rate particularly in the study area. As of now almost no researchers have tried to highlight these issues in the selected sample areas. A goodness fit of Chi-square compares the observed data with the expected or predicted data. It tests how well the observed data supports the assumption about the population. The hypotheses for the analysis are: Null hypothesis-h 0 : The attitude of the Bankers towards the execution of three major initiatives (Opening of new Branches at unbanked areas, financial Education and credit counselling, Use of new technology) is uniform during last three years. Alternative Hypothesis- H 1 : The attitude of the Bankers towards different initiatives is not uniform. Input Data The data are entered into coded variable (Codes: 1 = New Branch, 2 = financial Education, 3 = New technology). SPSS OUTPUT The SPSS outputs are enumerated in below tables. Output -3 No. of. NB.FE.UT Observed N Expected N Residual Total 27 Output-4 Test Statistics Chi-Square df Asymp. Sig. No.of.NB.FE. UT a a. 0 cells (%) have expected frequencies less than 5. The minimum expected cell frequency is 9.0. INTERPRETATION: The p-value is 32 and it is less than 5 (5% level of significance). Therefore we reject the null hypothesis and conclude that the different financial initiatives are not equally viewed by the Bankers. Conclusion Financial inclusion became one of the integral part and prerequisite for poverty alleviation. Vision of 2020 for India is mainly dependent on economic growth. This growth can be achieved through maximum penetration of financial inclusion, which is feasible only through the cooperation of the commercial banks. Mere policy formation is not at all effective if there is no implementation. This study reveals that bankers are facing numerous hurdles in implementing full fledged financial inclusion initiatives. Among different initiatives undertaken in the research, no-frill account has achieved an unique image for its feasibility. Most of the bankers have successfully executed the plan. Whereas the bankers are facing the problems of implementation of other initiatives like general credit card, new technology, new branch, financial literacy and credit counselling and KYC norms in the stated areas. The paper also reveals the non uniform attitude of the Bankers towards the execution of three major initiatives (Opening of new Branches at unbanked areas, financial Education and credit counselling, Use of new technology).the major hindrances for implementation of the initiatives are: lack of manpower, infrastructure facilities and fear of profitability and credit risk. References [1]. Agarwal, A. (2010).Financial deepening. Financial Inclusion; Challenges & Oppertunities.Working paper of 23rd skotch summit. [2]. Anjum, B. and Tiwari, R. (2012).Role of Private Sector Bank for Financial Inclusion. International Journal of Multidisciplinary Research.1 (2), , IJRMBS All Rights Reserved 56

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