Role of Banks in Financial Inclusion

Transcription

1 60 Role of Banks in Financial Inclusion Neha Garg, Student of M. Com., Department of Commerce, Kurukshetra University, Kurukshetra ABSTRACT Financial inclusion is the buzz word in the current economy in general and banking industry in particular. Financial inclusion is the delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low income groups. The concept of financial inclusion has a special significance for a growing economy like India as bringing the large segment of the productive sectors of the economy under formal financial network could unleash their creative capacities besides augmenting domestic demand on a sustainable basis driven by income and consumption growth from such sectors. Since banks are the gateway to the various basic banking services, so they can play a vital role in enhancing the extent of financial inclusion in India and they have played that role since late 1960s. The banking reforms have accelerated this process. Thus, this paper studies the role of banks in enhancing the extent of financial inclusion through various initiatives like no frills bank account, financial literacy, expansion of ATM networks, etc. and the various issues to be considered by banks for ensuring that. This paper will be studied with the help of secondary data from various journals, articles, research paper, annual report of RBI, Census of India 2001 & 2011, etc. then the paper will proceed to know the extent of financial inclusion achieved by banks in India. It is found that inspite of various efforts by the banks; the real adoption of banking services, i.e., financial inclusion is very low. Keywords Financial inclusion, business correspondence, banking services, Pradhan Mantri Jan Dhan Yojana, Self Help Groups. INTRODUCTION Financial inclusion is the buzz word in the current economy in general and banking industry in particular. Financial inclusion is the delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low income groups. According to the committee on financial reforms, (Chairman: Dr. Raghuram G. Rajan), Financial inclusion broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. This includes not only banking products but also other services such as insurance and equity products. I believe that financial inclusion is a continuous process supported by four basic pillars. Focus on these pillars can improve the people s participation in financial services. These pillars are: Product availability: Generally, there are five banking products offered (saving, borrowing, payment system, insurance and investment). Disadvantageous groups do not need all the products. Appropriate products can help to attract the unbankable groups towards the banking system. Financial literacy: People in disadvantageous groups are often excluded from banking system because of their lack of knowledge of the system. Awaring them about the benefits of banking system can bring them under the umbrella of financial services. Accessibility: In most of the cases, low level of financial inclusion is due to the lack of available time with the person in disadvantageous groups, to go to banks. The development of telecommunication system can help in ensuring access to these financial services. Risk management: The identification and assessment of the past credit track record of the customers will give the financial institutions, a better consideration for disbursing the credit to their customers. As the credit risk is mitigated, more financial institutions will likely join the process of development of financial inclusion. Under these pillars, collaborative partnership forms the base of financial inclusion. Believing the issue of financial inclusion as a common issue will help the process and act as a catalyst to start and develop it. REVIEW OF LITERATURE The literature available for financial inclusion is not limited. Various studies have been conducted and the glimpses of some of them are: Various strategies have been adopted by banks to enhance the coverage of their services so as to accelerate financial inclusion. But the cost effective is to tie up with micro finance institutions and local committees, to encourage no frills account, restructuring of business strategies to integrate the specific plans to promote financial inclusion. (V. Leeladhar, 2005) Financial services access allow low income groups to save money, prevent concentration of economic power in few hands and alleviate the risk of poor people. (Beck, Demirguckunt and Peria, 2006).

2 61 According to Rangrajan Committee (Report of the committee on financial inclusion in India (2008)), the financial inclusion is the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups, at an affordable cost. In 2010, Dr. M. Syed Ibrahim carried out a study on the topic performance evaluation of regional rural banks in India. In this study, it was concluded that RRBs in India showed a remarkable performance in post merger period. Access to finance for those who are getting crowded out of the credit markets is an equally important element. (Depali Pant Joshi, 2013). So, following the above mentioned literature, the present study focuses on the role of banks in financial inclusion. NEED OF THE STUDY Since India is moving towards becoming a developed country from being a developing country, so in this, the contribution of each and every section of society is needed- rich and poor, urban and rural. For this financial untouchability, people have to be made financially inclusive so that they all contribute in development. Here, the banks help a lot in achieving this through various schemes. They act as intermediaries or middlemen between Government and people. So, the research is imperative to assess that upto what extent they have been successful and what need to be done in this regard. STATEMENT OF PROBLEM To achieve greater financial inclusion, financial services should reach the poor people of the socially excluded groups and regions. Mostly, the banks have played a vital role in filling this gap. This study helps us to know the extent of financial inclusion in India and the role of banks in this. RESEARCH OBJECTIVE The paper aims: To know about the various initiatives taken by banks to enhance the extent of financial inclusion in India. To examine the various problems encountered by banks while encouraging financial inclusion. RESEARCH METHODOLOGY In order to achieve the research objectives, the study is based on secondary source of data. The data has been collected from various journals, research papers, Census of India 2001 & 2011, annual report of RBI, reports of various committees, etc. With the help of this data, the role of banks in financial inclusion in India has been analyzed. ANALYSIS The concept of financial inclusion was introduced in India by Dr. K.C. Chakrabarty in 2005, the then chairman of Indian Bank. Mangalam village was the first village to be brought under financial inclusion, where all households, who were not having proof of permanent address, were provided the banking facilities. The concept of financial inclusion has a special significance for a growing economy like India as bringing the large segment of the productive sectors of the economy under formal financial network could unleash their creative capacities besides augmenting domestic demand on a sustainable basis driven by income and consumption growth from such sectors. Since banks are the gateway to the various basic banking services, so banks can play a vital role in enhancing the extent of financial inclusion in India and they have played that role since late 1960s and the banking reforms have accelerated this process. ROLE OF BANKS IN FINANCIAL INCLUSION Since their nationalization, banks have contributed a lot to financial inclusion. Under banking reforms, nationalization of banks, setting up of regional rural banks, Grameen Mahila Bank, introduction of SHG- bank linkage program, etc., all this has led to enhancing the extent of financial inclusion in India. In recent years, banks have played a significant role in achieving financial inclusion to a large extent. Banks have adopted various policy measures or initiatives for making people financially included and as a result, the extent of financial inclusion has enhanced. Some of the major measures are: No frills account: Financially excluded people usually find it difficult to open their savings account. Recognizing this problem, RBI, in 2005, took an initiative & made it compulsory for banks to provide no frills savings accounts without a minimum balance requirement. The transaction charges are reasonable and small overdrafts are allowed. This initiative proved to be very effective. Financial literacy: Much of the financial exclusion is due to the lack of knowledge among the excluded people regarding financial products and system. So, for awaring them, financial literacy centres have been set up by the banks. In October 2013, a quick study was conducted on the impact of their awareness programmes. Out of the 730 participants interviewed, who attended financial literacy camps during the last year, the findings revealed that almost all the participants, i.e., 99% had got linked

3 62 to the formal banking system. The activities undertaken in FLCs has resulted in increase in participation of people which is evidenced by table 1. Table 1: Activities undertaken by Financial Literacy Centres Particulars Year ending March 31, 2013 Year ending March 31, 2014 Number of outdoor activities conducted Outdoor activities- number of persons participated Indoor activities- number of persons participated Total number of persons participated Source: Annual Report of RBI released in August, 2014 Information and communication technology based accounts through business correspondents: Recognizing the efficiency of technology in reaching huge masses in viable manner, banks have made effective use of information and communication technology to provide banking services through business correspondence model as intermediary. Nearly business correspondent agents had been deployed by banks as on March 31, 2014 under financial inclusion programme. Nearly 328 million transactions were carried out in BC-ICT accounts for the year ended March, 2014, as compared to million transactions for the year ended March, 2013 as shown in table 2. Table 2: Financial Inclusion Plan (summary progress of all banks including RRBs) Particulars Year ended Year ended Year ended Progress in March, 2010 March, 2013 March, Banking outlets in villages- branches Banking outlets in villages- branchless mode Banking outlets in villages- Total Urban locations covered through BCs Basic savings bank deposit account through branches (number in millions) Basic savings bank deposit account through branches (amount in billion ) Basic savings bank deposit account through BCs (number in millions) Basic savings bank deposit account through BCs (amount in billion) Basic savings bank deposit account- Total (number in millions) Basic savings bank deposit account- Total (amount in billion) Overdraft facility availed in basic savings bank account (number in millions) Overdraft facility availed in basic savings bank account (amount in billion) Kisan Credit Cards- (number in millions) Kisan Credit Cards- (amount in billion) ICT account-bc transaction (number in million) during the year Source: Annual Report of RBI released in August, 2014 Expansion of ATM networks: So as to enable the rural, far away and busy people to avail the financial services, banks have expanded their ATM networks from as on March 31, 2013 to

4 as on December, 2014 in case of public sector banks as shown in table 3. ATMs of SCBs have also been regularly increasing as compared to past years. Table 3: Number of ATMs of banks Public sector banks Scheduled commercial banks As on Offsite Onsite Total Offsite Onsite ATMs Total ATMs ATMS ATMs ATMs ATMs Source: Reserve Bank of India Opening branches in rural as well as urban areas: By opening branches in rural, semi urban, urban and metropolitan areas, the scope of financial inclusion has been enhanced. Now people find it easy to go to banks in the nearby area and thus deposit their money in banks instead of depositing it with the local people. In 2013, there were branches which rose to as on December 31, 2014 in case of Scheduled Commercial Banks. As shown in table 4, it has been regularly increasing from past years. Table 4: Population group wise number of branches of scheduled commercial banks As on Rural Semi urban Urban metropolitan Total March 31, March 31, March 31, March 31, December 31, Source: Reserve Bank of India Kisan Credit Cards (KCC) issued: The KCC scheme was revised in May, 2012 and a smart card is being issued to all the farmers for making available easy credit to them. Number of KCCs issued were 33.8 million as on March, 2013 which increased to 39.9 million as on March, 2014 as shown in table 2. This has resulted in increased inclusion of farmers in financial system. Pradhan Mantri Jan Dhan Yojana (PMJDY): To ensure 100% financial inclusion, PMJDY has been launched on and banks opened 12.54crore accounts as on , out of which 7.50crore accounts were in rural areas and 5.04crore accounts in urban areas, thus enabling them to have easy access to savings bank account.11.07crore Rupay debit cards have been issued till Implementation of Lead Bank Scheme: The monetary policy statement for stated that the challenge for financial inclusion is also widespread in metropolitan areas, especially among the disadvantaged and low income groups. To facilitate doorstep banking for the excluded segment of the urban poor, it was decided to bring all the districts in metropolitan areas under lead bank scheme. As on end March, 2014, lead bank responsibility was assigned to designate banks in 671 districts as compared to 644 districts in the country as at the end of March, Relaxed and simplified Know Your Customer norms: Know your customer requirements for opening bank accounts were relaxed for small accounts, thereby, simplifying procedures. It has now been further relaxed to include Aadhar card as identity proof. Mobile banking service: Recognizing that India has 3 rd largest smart phone userbase with an estimated 207 billion users in 2014, now banks offer their services which customers can use on their smart phones like internet banking, SMS alert, etc. So, as a result of above major initiatives of banks, financial inclusion has enhanced in India. ISSUES IN FINANCIAL INCLUSION There are some issues which should be considered by banks in ensuring financial inclusion. Some of the major of them are:

5 64 Commercial viability: Commercial viability is the key to the programme s success. Past experience suggests that without proper incentives, the facilities will not be used by the really needy. This has become a serious issue for banks to think of innovative incentives which are beneficial for customers as well as the banks also. Otherwise, there will be a large number of dormant accounts. Financial illiteracy: Generally it is found that the people are not aware of the real terms and conditions of the financial product and are scared of using that product. This results in enhanced financial exclusion. Non Performing Assets (NPAs): The no frill accounts so opened, are mostly going to become NPAs of banks in future as overdraft facility is also given on them and they are not able to repay them. This makes the banks reluctant to indulge in financial inclusion program. Sluggishness of business correspondence agents: The BC agents are found usually inactive in supporting the customers effectively after opening their accounts, thus, resulting in unsatisfied customers unwilling to continue with the product offered by banks. Coordination between mobile telephone companies and banks: Since mobile banking through phones is to play an increasingly important role in the recent scenario. So, greater coordination between mobile phone companies and banks will be necessary. KEY FINDINGS The paper found that the financial inclusion has increased as compared to earlier due to the efforts of banks as shown in table 5. But the impact in reality is not upto that mark. According to Census 2011, about 50% of the deposit accounts in the country are not operated at all. RBI surveys says that 47% of the business correspondents cannot be traced and are not motivated to help the public because of low commission. They also engage in corrupt practices. Rural men and women are less likely to use their bank accounts frequently than urban men and women due to less physical proximity to bank branches and ATMs. SBI & its associates and nationalized banks are more concentrated in rural areas but foreign banks are more concentrated in metropolitan cities as shown in table 6. Table 5: Availing of banking services Areas Total number Number of Percentage Total number of Number of Percentage of households households availing households banking services households households availing households banking services Rural Urban Total Source: Census of India and RBI Table: 6 Bank group and Population group wise number of functioning branches as on December 31, 2014 Bank group Rural Semi urban Urban Metropolitan Total SBI and its associates Nationalized Banks Other PSBs Private Sector Banks Foreign Banks Regional/Rural Banks Grand Total Source: Reserve Bank of India SUGGESTIONS Business correspondents should be remunerated appropriately so that they will work with loyalty and regular check should be made on them to check any of their corrupt practices. Organizing financial literacy camps at regular intervals covering mainly the rural areas and mainly in the form of short play or skits or quiz so as to make the learning effective. Self help groups should be involved in this process by providing them credit as this will ensure more penetration in rural areas.

6 65 Use e-advertising about the financial products so that people with shortage of time can be accessed more easily through internet. CONCLUSION So, let me conclude by repeating what I have endeavoured to convey about the assessment of the role of banks in financial inclusion. I began with the brief introduction to the concept of financial inclusion and then discussed the initiatives taken by banks for enhancing the extent of financial inclusion and the various issues to be considered by banks. Banks have played a significant role in financial inclusion but the ground reality is that the actual access to banking products is quite low as discussed in findings. Hope and desire, the findings and the issues raised could provide an invaluable feedback in making strategies by banks in ensuring 100% financial inclusion. It is rightly said by the Prime Minister Narendra Modi- Mahatma Gandhi tried to end untouchability in the society, if we want to eradicate poverty, we need to get rid of financial untouchability. REFERENCES [3] Speech delivered on Financial Inclusion in India by Sh. P. Vijaya Bhaskar, executive director, RBI at the MFIN & Access Assist Summit organized in New Delhi on December 10, [4] Report of committee on financial sector reforms (Chairman: Dr. Raghuram G. Rajan) [5] Dangi, Neha; Kumar, Pawan; (2013); Current Situation of Financial Inclusion in India & its future visions; International Journal of Management & Social Science Research, 2(8), (pp: ) [6] Kaur, Paramjeet (2014), A study on Financial Inclusion- Role of Indian Banks in Implementing a Scalable and Sustainable Financial Inclusion Strategy, International Journal on Management, 5(11), (pp: ). [7] R. Ramakumar, Mirage of inclusion, October 3, 2014, Frontline [8] [9] Speech of Gayatri Murthy on Moving beyond the first step to financial inclusion, July 1, 2014 journal.asci.org.in/ [10] Muhammad Zulqarnain Zulfi, Pradhan Mantri Jan Dhan Yojana: Reality check identification, duplicity- matter of concern, October, 2014, Bureaucracy Today [1] Annual Report of RBI released in 2014 [2] Census of India 2001 & 2011.