FINANCIAL INCLUSIVENESS IS A RIGHT EMERGING PROFITABLE MODEL IN INDIA SRIKANTH.R Research Scholar, Department of Commerce, Bangalore University, BANGALORE Dr.T. ASWATHA NARAYANA Assistant Professor & Research Guide Department of commerce and Management Government First Grade College K R Puram Bangalore-36 ABSTRACT This report examines evidence from the academic and policy literature review about the financial capability & saving of low-income people. The purposes of the study are to provide a critical review of evidence about the low-income people s financial savings & the role of commercial banks measurement, the programs used to promote their saving capability & aware their knowledge about financial product, services and the information uncovered about the programs by evaluations. Financial knowledge & saving is the most important for financial inclusion. Financial product knowledge has been proposed widely as an effective approach to preparing people to manage their finances. Financial capability includes both the ability to act (knowledge, skills, confidence, and motivation) and the opportunity to act (through access to quality financial products and services). The data required for the study have collected from the secondary sources. Banks are essential for each country s economy, since no growth can be achieved unless savings are efficiently channeled into investment. In this respect, the lack of a full-fledged banking system has often been identified as a major weakness of the centrally planned economies. Therefore, reforming the banking sector in the former communist countries and creating a new culture of trust and confidence has been a crucial task in the process of transition to a market economy. The banks should encourage the people to access banking services by ways of no frills account, financial inclusion campaign and business correspondent etc. As a financial inclusion strategy, developing inclusive financial systems should give priority, which is financially and socially sustainable Keywords: low-income people, Banking services, financial inclusion campaign. www.apjor.com Page 121
INTRODUCTION Bank nationalization in India marked a paradigm shift in the focus of banking as it was intended to shift the focus from class Banking to mass banking. As you would be aware, the new branch authorization policy of Reserve Bank encourages Banks to open branches in these under Banked states and the under Banked areas in other states. The new policy also places a lot of emphasis on the efforts made by the Bank to achieve, inter alia, financial inclusion and other policy objectives. An efficient finance always promotes economic growth but the magnitude of impact differs. Financial inclusion is intended to connect people to banks with consequential benefits. Ensuring that the financial system plays its due role in promoting inclusive growth is one of the biggest challenges facing the emerging economies. We therefore advocate that financial development creates enabling conditions for growth when access to safe, easy and affordable credit and other financial services by the poor and vulnerable groups, disadvantaged areas and lagging sectors is recognized as a pre-condition for accelerating growth and reducing income disparities and poverty. Access to a well-functioning financial system, by creating equal opportunities, enables economically and socially. Objectives of the Study 1. To study the need and importance of financial inclusion. 2. To examine essence and impact of financial inclusion. 3. To study the various initiatives of financial inclusion. 4. To study the role and responsibilities of government and RBI. 5. To suggest right mode of operandi for effective financial inclusion. Scope of the Study This study is related to examine the relationship among good governance and financial inclusion. The study also includes the role of financial inclusion with special reference of state-wise and bank-wise performance. Data Collection and Statistical Tools: Data for the study collected from secondary source. Data for the study is collected from website of ministry of finance and RBI s website as well as from journals and research papers. After this, data is analyzed with the help of graphical and percentage method. Need and importance of Financial Inclusion Rural incomes have grown rapidly in a short time span due to high priority accorded by the Govt. to rural development and employment programs. A survey by CRISIL, a ratings and research firm, has reported in August 2012 that for the first time since economic reforms began two decades ago, consumption in rural India is growing faster than in urban areas. Between 2009-10 and 2011-12, additional spending by rural India was Rs. 3,750 billion, significantly higher than Rs. 2,994 billion by the urban population. Banks have a key role in converting into business opportunities, the untapped large no. of small deposits in rural areas and www.apjor.com Page 122
facilitate achievement of the aspirations of the bulk of our population in these areas. The increase in rural income will open up various types of lending. Not only will the demand for business/commercial, education, home and personal loans increase substantially, various types of services such as remittance facilities will need to be provided by the banks through modern payment system to a very large number of people who have hardly interfaced with a modern financial system. The process is expected to enable manifold growth in the banks business. Thus, Financial Inclusion is a win win situation for both the hitherto uncovered people and the banks. Initiatives of Government and RBI 1. Policy for Branch Expansion The first step n financial inclusion is the interface between a bank customer and a bank. In India, conventionally this interface has been through a normal brick and mortar bank branch. Since banking is essentially a commercial business there are limits to which such bank branches can be spread out in different areas to cover the entire population. It is only in the recent past that with the use of communications technology that a bank branch has been able to spread out geographically. 2. Ultra Small Branches(USB) To minimize the cost of Financial inclusive initiative, ensure universal accessibility to a range of banking services and instill confidence amongst bank customers, Ultra Small Branches(USBs) are set up at all places where opening of a brick and mortar branch is presently not viable. USBs comprise an area of 100-200 sq. feet where a bank-designated officer will be available with a laptop at a predetermined day and time of the week. The BCA also operates from such premises. The BCA provides cash dispensation services and the bank officer offers other bank services, undertakes field verification and follows up on banking transactions. 3.Banking presence ensured in all unbanked Blocks There were 81 unbanked Blocks in the country, as on 31.03.2011. With the persistent efforts of the Government, banking facilities have been provided in all the unbanked Blocks either through Brick and Mortar Branches or Business Correspondents Model or Mobile Banking. As a next step, Banks have been advised to cover all those blocks which have so far been covered by mobile banking only, with BCA and USBs. 4.Opening of one bank account per family Opening of a Bank Account is one of the key requirements in Financial inclusion. The country has made appreciable progress on this parameter. 5. Development of Geographical Information system (GIS) Geographical Information System (GIS) can be effectively used to assist the decision makers in planning for expansion of infrastructure of the Banks by highlighting the pockets of the hinterland which are yet to have access to these facilities. A web based application to develop a GIS for the banking network in www.apjor.com Page 123
the country has been launched by the DFS. The project envisages capturing existing information about bank branches, ATMs, Business Correspondents, Clearing houses and Currency chests of Scheduled Commercial Banks at village level. This facility enables the Banks to easily identify the deficit areas as per the guidelines of the Department, where expansion of branch/ ATM/BCA network needs to be carried out. 6. Simplification of Savings Bank Account Opening Form To ease the opening of bank account by the migratory labour, street hawkers, and other poorer sections of the society, Simplified Account Opening Form has been designed.banks have been requested to put in place a system to enable the customer to fill the account opening form on an online mode. This Form contains sections for Small Account, Accounts with Introduction and Basic Saving Bank Deposit Account. 7. Simplification of Know Your Customer (KYC) Guidelines To open a Regular Account, a customer has to provide documents on (a) Proof of identity, and (b) Proof of address, as per RBI guidelines. RBI has provided an indicative list of documents that can be relied upon for the aforesaid proofs. It has also allowed each bank to specify any other document which the banks can use for this purpose. Customers face difficulties in providing the requisite documentation for opening regular bank accounts. The Government has tried to address this problem. To simplify the issue of documentation, a Sub-Group of senior officers of some select public sector banks (PSBs), constituted by DFS, has suggested uniform KYC guidelines and a common list of documents, for guidance and adoption by the PSBs. The Sub-Group noted that most banks/fis have either not specified the documents under the category any other document which their branches/offices may rely upon for opening of accounts, or there is no uniformity in such documents across banks. To overcome difficulties being experienced in this regard, the sub-group has suggested a list of documents that can be relied upon by the Banks as Proof of identity (30 documents) and Proof of residence (33 documents) at the time of opening the accounts. The KYC Guidelines and the simplified account opening form have been sent to the Indian Banks Association (IBA) for adoption by the banks. 8.Mobile phone banking Mobile phone banking enables access to basic financial services through mobile phones. With its potential for providing the unbanked with banking services, mobile banking has become increasingly prevalent in both developed and developing countries. The potential of mobile banking has not been fully realized in India. The Inter Bank Mobile Payment Service launched by National Payments Corporation of India (NPCI) for mobile-based fund transfers and other banking activities was accessible only on a smart phone and hence unavailable to the common man. NPCI has now developed the Common USSD Platform through which Banks can provide banking services through ordinary phones, which will lead to Financial Inclusion in the rural hinterland. 9. Financial Literacy cum Credit Counselling Center (FLCCC) The Indian Overseas Bank has set up 14 FLCCCs in Tamil Nadu. FLCCC at Kothagiri was set up mainly for the benefit of tribals of Nilgiris district with the objective of creating awareness about various products & services available from financial institutions. www.apjor.com Page 124
10. Boost to e-payments To achieve quick success in FI, the country has to urgently move from the conventional paper based banking to e-banking. Banks, Governments at the Centre and State level and the RBI need to constantly keep in focus this crucial Endeavour. Taking into account the increased volume and value of mobile banking transactions, the RBI has removed the Rs 50,000 per day cap on transactions conducted by this mode, thereby giving a boost to e-payments. However, the regulator has directed banks to set limits for transactions, based on their own assessment of risk and following the prior approval of their board members 11. RTGS and NEFT Systems for Electronic Payments Electronic Benefit Transfer Roll out of new KCC Scheme National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) are the centralized payments systems. NEFT is an important, vital and convenient delivery channel. For the purpose of encouraging the people to increasingly adopt this channel and to enable them transact through NEFT at anytime convenient to them, the extent of coverage of NEFT and RTGS has been extended to all licensed banks through the sub-membership route. The DFS has also advised all the Public Sector Banks (PSBs) to proactively offer sub-membership of the centralized payment systems (like NEFT and RTGS) to all the banks including the State Cooperative Banks. 80 out of the 82 RRBs which have migrated to Core Banking Solution are offering NEFT services. PSBs could also offer their systems to enable these cooperative banks and Regional Rural Banks to provide the remaining payment products such as ATMs, PoS, Credit and Debit Cards to their customers. 12. Electronic Benefit Transfer Government of India as well as various State Governments are implementing a number of welfare schemes, which transfers benefits through Scheme Implementing Department (SID), to the Bank account of the beneficiary. The beneficiary can then withdraw from a branch/atm/ BC/PoS terminal and use it for his personal consumption or could even utilize the Merchant PoS terminal infrastructure to make purchases through Debit Card. Such transfers into the account of the beneficiary is referred to as Electronic Benefit Transfer (EBT). While the benefit of schemes like MNREGA are being transferred directly into the bank accounts all over the country, the State Government are being persuaded to ensure transfer of as many as 32 schemes into the account of the beneficiaries directly. This includes all schemes of scholarships, old age pension etc. Substantial progress has been made in all States. Table Showing number of Households availing Banking Service Number of Households availing Banking Services Total Number of Households 2001 2011 2001 2011 Total 68,230,642 144,814,788 191,963,935 246,692,667 Rural 41,639,949 91,369,805 138,271,559 167,826,730 Urban 26,590,693 53,444,983 53,692,376 78,865,937 www.apjor.com Page 125
Percentage of Households availing Banking Services in 2001 and 2011 Percentage of Households availing banking services 2001 2011 Total 35.5 58.7 Rural 30.1 54.4 Urban 49.5 67.8 www.apjor.com Page 126
FINDINGS OF THE STUDY: 1. RBI s Good Governance and financial inclusion: Governance includes a proper way of working with appropriate systems, policies and framework which governed by law and it always affects the way of working of society and peoples. It provides direction to people to move on right path in a proper structured manner. Good governance also includes the relationship between all sections of society. In this context, the first documented use of the word "corporate governance" is by Richard Eells (1960, pg. 108) to denote "the structure and functioning of the corporate policy. Financial inclusion and governance are also interrelated, if small financial needs are satisfied with effective financial inclusion plans then people can think about pure system and processes and they and they also try to overcome corruption, it may be best sign for application of good governance. If the basic requirements of finance are satisfied by financial inclusion plans then good governance become possible, because it makes possible peoples job oriented they not use corruption-oriented activities. Movements by RBI for the success of Financial Inclusion Plans (FIPs): RBI is the prominent player of Indian banking sector. RBI is the governance of FIPs success. As good governance of FIPs, RBI is taking many initiatives. 1. RBI offered a special scheme for domestic scheduled commercial banks to open freely their branches, having less than 50,000 population size. 2. RBI has also directed to banks to start banking with no-frills account with the facility of low or zero balances and with fewer charges which enable to low income people to open bank accounts. 3. RBI launched the website as Good Governance for FIPs to spread information about basic banking as well as financial literacy to the different sections of the society. 4. RBI allowed to different banks to permute FIPs they can use the services of retired bank employees and retired government employees as Business Correspondent (BCs). 5. RBI also issued special criterion for the enhancement of Mobile Banking to improve the position of FIPs. 6. RBI is also initiating financial institutions like as NABARD, SIRDI, etc especially, to identify those areas which are untouched or backward from FIPs. Present Problems and Future Possibilities: There are various causes for the underdevelopment of FIPs in India; these issues are related with mainly lack of awareness and literacy rate as well as poor infrastructure facility in India. Besides these loopholes of the failure various positive ways also has been seen during the study. RBI the governance of the FIPs is taking many initiatives like as increasing awareness among peoples and society, technological advancement through mobile banking and also focusing for financial literacy programs for the success of the FIPs. www.apjor.com Page 127
Conclusion: Financial inclusion plans are the important plans for the growth and development of the Indian economy. Enhancement in growth rate can be obtained through financial and banking facilities circulation. RBI the central body of Indian banking system is playing very dominant role for the successful implementation of the FIPs. RBI is the main governing body of FIPs success and maintenance. Governance is the main focus for the success of any system. On the basis of results and findings of whole study, it can be state that governance of RBI is really good because India is a developing country having many problems illiteracy, backwardness, etc. but besides this RBI is performing very tremendous role for the success of FIPs in India. References: 1. Economic Research Report by IDBI Gilts Limited (IDBI Gilts) 2. Bihari Suresh Chandra (2011), Growth through financial inclusion in India, journal of international business ethics, vol. 4. 3. Swamy Vighneswara and Vijayalakshmi, Role of Financial Inclusion for Inclusive Growth in India- Issues & Challenges. 4. Band Gayathri, Naidu Kanchan And Mehadia Tina (2012), Opportunities & Obstacles To Financial Inclusion, APJEM. 5. Bihari S. C., (2011), Financial inclusion-the key to emerging India, AIJSH 6. Duvvuri Subbarao, Financial Inclusion: Challenges and Opportunities 7. http://en.wikipedia.org/wiki/governance 8. Arunachalam Ramesh S., Scoping Paper on Financial Inclusion 9. Financial Reports of RBI. Web-References: 1. http://financialservices.gov.in/banking/financialinclusion.asp 2. www.google.com www.apjor.com Page 128