chapter-2 status of financial inclusion in...
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CHAPTER-2
STATUS OF FINANCIAL INCLUSION IN INDIA
“There is a compelling moral case for equity; but it is also necessary if there is to
be sustained growth. A country’s most important resource is its people.”
-Joseph E. Stieglitz, Nobel laureate in Economics, 2001
India is a nation of 1.2 billion people, spread across 29 states and seven union
territories. There are around 6, 00,000 villages and 640 districts in our country. Forty per
cent of the households in India have bank accounts, but only 38 per cent of the 87,051
branches of scheduled commercial banks are in rural areas. A vast majority of our
population, especially in rural areas, is excluded from the easy access to finance.
Efforts have been made to provide financial services, especially credit facilities, to
the rural population since the 18th
century. Taccavi loans were provided to the poor
farmers in order to buy seeds and agricultural implements. The institutionalization of
systems for financial inclusion in India began with the establishment of credit
cooperatives following the enactment of the Cooperative Credit Societies Act in 1904.
After Independence, these efforts were intensified, following the recommendations of the
All India Rural Credit Survey Committee of 1954. The expansion of the traditional
commercial banks to rural areas commenced with the nationalization of the Imperial Bank
of India and its conversion to the State Bank of India in 1955. The nationalization of 14
major commercial banks in 1969 and another six commercial banks in 1980, along with
the introduction of the Lead Bank Scheme in 1970, were steps that facilitated rapid
expansion of the banking system into „hitherto unbanked areas.‟ Regional rural banks
(RRBs) were established under the RRBs Act, 1976, to overcome the difficulties faced by
commercial banks, like cultural barriers in dealing with rural people and the high costs
involved in the setting up of rural branches. In Bangladesh, Micro Finance Institutions
(MFIs), particular "Grameen Bank" is playing a very important role to enhance the
financial inclusion. RRBs were envisaged as hybrid banks, incorporating the technical
competence and professionalism of the commercial banking system with the local field-
level knowledge and low-cost structure of the cooperative banking system. The issues of
outreach and credit were fundamental and integral to the concept of RRBs. The creation
of the National Bank for Agriculture and Rural Development (NABARD) in 1982 was
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specifically intended to extend credit and financial services to farmers and the rural
population. The cooperatives, which had made sufficient in Poverty and exclusion
continue to dominate socio-economic and political discourse in India as they have done
over the last six decades in the post-independence period. Poverty reduction has been an
important goal of development policy since the inception of planning in India. Various
anti-poverty, employment generation and basic services programmes have been in
operation for decades in India. The ongoing reforms attach great importance to removal
of poverty and to addressing the wide variations across states. Though the Indian
economy recorded impressive growth rates until recently, its impact has sadly not fully
percolated to the lowest deciles. Despite being one of the ten fastest growing economies
of the world, India is still home to one-third of the world‟s poor.
The Reserve Bank of India setup a commission (Khan Commission) in 2004 to
look into Financial Inclusion and the recommendations of the commission were
incorporated into the Mid-term review of the policy (2005-06). In the report RBI exhorted
the banks with a view of achieving greater Financial Inclusion to make available a basic
"no-frills" banking account. In India, Financial Inclusion first featured in 2005, when it
was introduced, that, too, from a pilot project in UT of Pondicherry, by Dr. K. C.
Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in
India where all households were provided banking facilities. Financial inclusion gained
prime importance since 2005 when Rangarajan Committee was set up to review the
banking practices hindering inclusive growth. India recognized the need for inclusive
growth at the onset of independence. Unfortunately, in spite of having a far-fetched vision
and well intended policies, she is still struggling to achieve its goal of financial inclusion.
The appointment of the Committee on Banking Sector Reforms (R Narasimhan)
in 1998, the Committee on Financial Inclusion (C. Rangarajan) in 2007, and the
agriculture debt waiver and debt relief scheme introduced by the Government of India in
2008 have further pushed the cause of financial inclusion.
The appointment of the Committee in developing economies like India, the banks,
as mobilizer of savings and allocators of credit for production and investment, have a
very critical role. As a financial intermediary, the banks contribute to the economic
growth of the country by identifying the entrepreneurs with the best chances of
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successfully initiating new commercial activities and allocating credit to them. At a
minimum, all retail commercial banks also provide remittance facilities and other
payment related products. Thus, inherently, the banking sector possesses a tremendous
potential to act as an agent of change and ensure redistribution of wealth in the society.
However, it is disheartening to note that the number of people with access to the
products and services offered by the banking system continues to be very limited even
years after introduction of inclusive banking initiatives in the country through measures
such as the cooperative movement, nationalization of banks, creation of regional rural
banks, etc. As Nobel Laureate Prof. Amartya Sen has also noted, “the thrust of
developmental policy in India has undergone a paradigm shift from an exclusive focus on
efficiency to one on equity; from the rate and pattern of growth, and on inequalities,
distribution of income and wealth to the extent to which people are deprived of the
requirements for leading a fulfilling life and suffer „capability deprivation‟. Over the past
five years, Reserve Bank of India, as also other policy makers have resolutely pursued the
agenda of financial inclusion and achieved discernible progress in improving access to
financial services for the masses. The importance of financial inclusion has been
emphatically underlined in the wake of the financial crisis. The crisis has had a significant
negative impact on lives of individuals globally. Millions of people have lost their
livelihoods, their homes and savings. One of the prominent reasons for the crisis was that
the financial system was focused on furthering its own interests and lost its linkage to the
real sector and with the society at large. The crisis also resulted in a realization that free
market forces do not always result in greater efficiency in the financial system,
particularly while protecting the interests of the vulnerable sections of society. This is due
to the information asymmetry working against these sections, thereby placing them at a
severe disadvantage. In wake of the crisis, therefore, Financial Inclusion has emerged as a
policy imperative for inclusive growth in several countries across the globe. However,
though much lip service has been paid to Financial Inclusion, the actual progress has
remained far from satisfactory. It is regrettable that the entire debate surrounding
financial inclusion has generated significant heat and sound, but little light.
The average population per branch office decreased from 64,000 to 18,000 as on
June 2009. However, there are certain under-banked states such as Bihar, Orissa,
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Rajasthan, Uttar Pradesh, Chhattisgarh, Jharkhand and West Bengal where the branches
are unevenly spread. The extent of financial exclusion is 75 per cent or more in the North
Eastern states of Meghalaya, Arunachal Pradesh, Mizoram, Manipur and Assam.
The bank nationalization phase in India marked a paradigm shift in Indian
banking, as it was intended to shift the focus from class banking to mass banking.
Branches of commercial banks and RRBs have increased from 8321 in 1969 to 100,277
as on December 31, 2012. However, the progress is far from satisfactory as evidenced by
the World Bank Findex Survey (2012). According to the survey findings, only 35% of
Indian adults had access to a formal bank account and 8% borrowed formally in the last
12 months. Only 2% of adults used an account to receive money from a family member
living in another area and 4% used an account to receive payment from the Government.
The miniscule numbers suggest a crying need for a further push to the financial inclusion
agenda to ensure that the people at the bottom of the pyramid join the formal financial
system, reap benefits and improve their financial well-being.
Major attempts to provide financial access to the population have been
summarized in Table
Figure 2.1
Major Milestones of Financial Inclusion in India
1969 Nationalization of Banks
1971 Establishment of priority Sector Lending Banks
1975 Establishment of Regional Rural Banks
1982 Establishment of NABARD
1992 Launching of the Self Help Groups bank Linkage Programme
1998 NABARD sets a goal for linkage one million SHGs by 2008
2000 Establishment of SIDBI foundation for Micro Credit
2005 One million SHG linkage target achieved three years ahead of date
2006 Committee on Financial Inclusion
2007 Proposed Bill on Micro Finance Regulation introduced in parliament
2008 Committee submitted its final report on Financial Inclusion to Union
Finance Minister in January
2013 Unique Identification Number (AADHAR) and the Direct Benefit Transfer
(DBT) Scheme
There are 67 RRBs in India with a total network of 16,000 branches as on January
2013. The introduction of a universal and targeted public distribution system (PDS), the
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provision for employment in rural areas through the National Rural Employment
Guarantee Scheme (NREGS), the implementation of the project to bring the population
under a unique identification number (AADHAR) and the Direct Benefit Transfer (DBT)
scheme in 2013 are the most recent measures by the government to realize inclusive
growth targets.
Global Experience in Promoting Financial Inclusion
Nowadays, enhancement of financial inclusion is the main objective of every
country's financial policy. The United Kingdom was one of the first countries to realise
the importance of financial inclusion and has established a Financial Inclusion Fund to
promote the same and assigned responsibility to banks and credit unions in removing
financial exclusion. In United States of America, the "Community Reinvestment Act-
(1977)" has been enacted to contribute to financial inclusion and it prohibits
discrimination by banks against families with low and moderate incomes. During 2003,
legislation entitled "Access to Basic Banking Services Regulations" was introduced in
Canada to ensure that all Canadians could obtain personal bank accounts without
difficulty. In South Africa, "MZANSI" a low cost national bank account was launched in
October 2004 extending banking services to low income segments and especially to that
segment for which the banking services were elusive till recently. Chaia et al. (2010)
using cross-country data from previous research studies estimate the size of the world's
adult population that doesn't use formal (and semi-formal) financial services. They find
that over half of the world's population (2.5 billion adults) do not use formal financial
services for either saving or borrowing purposes and that nearly 90 percent of this
population lives in Asia, Africa, Latin America and the Middle East.
India’s Experience in Promoting Financial Inclusion
Since independence Government had been thinking of financial inclusion but it
took steps for its implementation on war footing much later. The process of financial
inclusion in India can broadly be classified into three phases. During the First Phase
(1960-1990), the focus was on channeling of credit to the neglected sectors of the
economy. Special emphasis was also laid on weaker sections of the society. The second
Phase (1990-2005) focused mainly on strengthening the financial institutions as part of
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financial sector reforms. During the Third Phase (2005 onwards), the financial inclusion
was explicitly made as a policy objective and thrust was on providing the safe facility of
savings deposits.
There are several benchmarks employed to assess the penetration of financial
services in a country. For instance, the quantum of current and savings account (CASA)
deposits held as a ratio to the adult population can be used to measure the reach of
financial inclusion within a specific country, or to compare it to other countries.
According to the 2001 Census, India‟s CASA ratio to the total adult population was 59.
Even within the country there was a huge disparity among states. The ratio for Kerala was
89, while that for Bihar was 33. The northern region (Haryana, Chandigarh and Delhi)
had a high coverage ratio of 84, compared to the meager coverage ratio of 21 for
Nagaland and 27 for Manipur.
Historically, the Reserve Bank of India (RBI) and the Government of India have
been making efforts to increase banking penetration in the country. Notwithstanding
various improvements, financial inclusion found a place in the every financial policy of
the RBI. The RBI has undertaken number of measures with the objective of attracting the
financially excluded population into the structured financial system. In addition to these,
some of the other major initiatives taken by RBI and Government are as follows: Opening
of No Frills Accounts, Easier Credit facility by introducing a General Purpose Credit
Card facility up to Rs.25,000, Simpler 'Know Your Customer' (KYC) procedure, Use of
Information Technology, implementation of Business Correspondent (BC) Model and
Project Financial Literacy, Financial Literacy and Credit Counseling programme and
establishment of Financial Inclusion Fund.
Comparison of India with Other Countries
India and the UK are at the forefront of such efforts, and both have made key
strides in supporting and enabling banks, post offices, insurers and credit providers to
offer services to all their citizens.
Both countries have established bodies specifically to tackle the issues of financial
inclusion, setting ambitious targets. In the UK, the Financial Inclusion Taskforce oversees
over £250 million of government spending and measures progress towards targets for
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delivering banking services, credit and debt advice. The Indian Committee on Financial
Inclusion is headed by Sri C. Rangarajan, the Chairman of the Economic Advisory
Council to the Indian Prime Minister. India‟s National Rural Financial Inclusion Plan
aims to reach at least 50 per cent, or 56 million, of financially excluded households by
2012 through rural/semi-urban branches of commercial and regional rural banks, with full
inclusion to be achieved by 2015.
Both countries have also made significant progress. In India, the number of “no-
frills” accounts with low or nil minimum balances rose from around half a million
accounts in March 2006 to 15 million in 2008, with smart cards accounting for two to
three million of these accounts. Meanwhile, the existing branch network in India 45,000
rural and semi-urban branches has enabled public sector banks and the regional rural
banks to scale up their efforts by leveraging on the existing capacity.
Both India and UK recognize that by encouraging and supporting people to
manage their finances, they can reduce the impact of poverty and help families to sustain
themselves, start small businesses and allow enterprise to flourish. They realize that
excluding those on low incomes from financial services creates a lack of cash flow for
poor families, recourse to expensive moneylenders and the inability to save for
emergencies such as sickness and poor harvests, or for older age.
The UK Government and industry are already working in partnership with India to
build on our shared experience of encouraging financial inclusion through making bank
accounts more accessible, extending credit facilities, and supporting microfinance
initiatives and self-help groups.
Many UK companies have also shown their commitment to promoting financial
inclusion in India, particularly to the rural poor, by striving to extend the accessibility of
financial products such as bank accounts and microfinance to all.
“UK companies are in India for the long-term,” says Vicki Treadell, British
Deputy High Commissioner based in Mumbai. “They see their role as playing an
important part in fuelling the growth of the Indian economy not just servicing successful
metropolitan companies but also reaching out to ordinary people. By following
programmes of branch expansion, improving financial literacy and leveraging IT
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solutions to extend reach, they are demonstrating their determination to make financial
services available to all.”
Around the world, there is more attention than ever to the ways in which access to
financial services accelerates progress toward development and the persisting needs we
still face. This has spurred a first wave of high-level commitments by governments,
international agencies, the private sector, and others to make the vision of financial
inclusion a reality. G20 leaders recognized financial inclusion as a cross-cutting issue for
development and economic system stability, and included it in work plans. In 2012, 17
countries committed to create cross-sector coordination platforms and national strategies
under the G20, and the AFI Maya Declaration has gained over 30 commitments from
national regulators and policy makers. Unique partnerships are forming, for example the
Better than Cash Alliance brings together private sector, donors and governments to
advance the use of digital channels. ASEAN leaders recognized financial inclusion as a
key to inclusive and sustained growth for the region, and global standard setters have
incorporated financial inclusion considerations into their guidelines for banking
regulation and supervision.
The extent of financial services outreach is very low in India especially when
compared with developed countries. For instance, 92-94 per cent population of the UK
either has a current or savings bank account. The Reserve Bank of India (RBI) has
actively sought to address this problem with a slew of measures, including a new
licensing policy for banks that mandates 25 per cent of their branches must be opened in
rural areas that are largely excluded from the mainstream financial economy.
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A financial inclusion survey was conducted by World Bank team in India between April-June 2011 which included face to
face interviews of 3,518 respondents
Table 2.1
Key Statistics on Financial Inclusion in India: A Survey
Share with an account
at a formal financial
institution
Adults saving in the
past year
Adults originating a
new loan in the past
year
Adults with
a credit card
Adults with an
outstanding
mortgage
Adults paying
personally for
health and
insurance
All
Adults
Poorest
income
Quintile
Women Using a
formal
account
Using a
Community
based
method
From a
formal
financial
institution
From a
family or
friends
India 35 21 26 12 3 8 20 2 2 7
World 50 38 47 22 5 9 23 15 7 17
*Source: Asli Demirguc - Kunt and Klapper, L. (2012): .Measuring Financial Inclusion., Policy Research Working Paper, 6025,
World Bank, April.
The results of the survey suggest that India lags behind developing countries in opening bank accounts, but is much closer to
the global average when it comes to borrowing from financial institution. In India, 35 percent of people had formal accounts versus
the global average of 50 per cent.
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Present Status of Financial Inclusion in India
In order to study the important aspects of financial inclusion it is important to
know the method to measure the financial inclusion. There are many methods for
measurement of financial inclusion but according to Thorat (2006) one common
measure of financial inclusion is the percentage of adults with bank accounts (deposit
and credit). A study by Chakrabarty (2006) showed that in India there are 17 credit
accounts and 54 saving accounts per 100 persons and at the same time only 13 percent
people are availing loans from the banks in the income bracket of less than Rs. 50000
per annum. Leeladhar's (2006) study revealed that one of the benchmarks employed to
assess the degree of reach of financial services to the population of the country, is the
quantum of deposit accounts (current and savings) held as a ratio to the adult
population. In Indian context, taking into account the census of 2001, the ratio of
deposit accounts to the total adult population was only 59 percent. But within the
country, there is a wide variation across states. For instance, the ratio for the state of
Kerala is as high as 89 percent while Bihar is marked by a low coverage of 33 percent.
A study by Sharma (2007) has evolved a concept of "Index of Financial Inclusion" to
make it a more comprehensive indicator of inclusion in an economy. The index is an
amalgamation of three aspects of the financial inclusion; penetration of the banking
system, its availability to users and its actual usage. All these aspects are measured by
using data on number of bank accounts per hundred population, number of bank
branches per thousand populations and the size of bank credit and deposits relative to
the GDP respectively. According to this study in the group of 100 countries, India's rank
was 50 while Spain's and Switzerland's ranks were first and fifth respectively. Sangwan
(2008) revealed that as on 31st March 2006 in India the saving accounts per 100 adult
populations were 63 and credit accounts were only 16. Conory (2008) pointed out that
the exclusion of people from financial services is a general problem, to which
microfinance is one of the possible solution. It is a powerful tool for achieving higher
levels of financial inclusion efficiency and equity benefits in developing economies.
Subbarao (2010) pointed out that efforts at financial inclusion are not new; both the
government and RBI have been pursuing this goal over the last several decades through
building the rural cooperative structure in the 1950s, the social contract with banks in
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the 1960s and the expansion of bank branch network in the 1970s and 1980s. These
initiatives have paid off in terms of a network of branches across the country. Yet the
extent of financial exclusion is staggering and the RBI approach to financial inclusion
aims at 'connecting people' with the banking system and not just opening accounts.
Lyngdoh and Pati (2010) concluded that microfinance based financial inclusion has
ensured that the underprivileged and downtrodden are taken special care of. It has led to
their economic empowerment and subsequently in socio-political development outcomes i.e.
inclusive growth. Gokarn (2011) observed that the process of financial inclusion is going
to be incomplete and inadequate if it is measured only in term of new accounts being
opened and operated. Actually a huge proportion of the Indian workforce is either self-
employed or in the causal labour segment which suggests the need for products that will
make access to credit easier to the former, while offering opportunities for risk
mitigation and consumption smoothing to the latter.
India is one country where the Financial Stability and Development Council
(FSDC) has a specific mandate for financial inclusion and financial literacy. There is a
separate Technical Group on Financial Inclusion and Financial Literacy under the aegis
of FSDC with representation from all the financial sector regulators.
In order to spearhead efforts towards greater financial inclusion, RBI has
constituted a Financial Inclusion Advisory Committee (FIAC) under the Chairmanship
of a Deputy Governor from RBI. The FIAC has few Directors from the Central Board
of RBI and experts drawn from NGO sector/other civil society representatives, etc. as
members. The collective expertise and experience of the members is expected to be
leveraged to explore issues such as developing viable and sustainable banking services
delivery models focusing on accessible and affordable financial services, developing
products and processes for rural as well as urban unbanked consumers.
At the state level, we have State Level Bankers Committees (SLBC) in all the
states. Going further down, we have Lead District Managers in all the 659 districts, with
recent inclusion of the metropolitan areas into the Lead Banks Scheme.
About 700 financial literacy centres have been set up by banks. There are Rural
Self-Employment Training Institutes (R-SETI), working towards capacity building for
taking up self employment ventures.
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In India RBI have encouraged banks to adopt a structured and planned approach
to financial inclusion with commitment at the highest levels, through preparation of
Board approved Financial Inclusion Plans (FIPs). The first phase of Financial Inclusion
Plans was implemented over the period 2010-2013. The Reserve Bank has sought to use
the Financial Inclusion Plans as the basis for Financial Inclusion initiatives at the bank
level. Reserve Bank has put in place a structured, comprehensive monitoring
mechanism for evaluating banks‟ performance against their Financial Inclusion Plans.
Annual review meetings are being held with CMDs of banks to ensure top management
support and commitment to the Financial Inclusion process.
Self Help Groups (SHGs) are playing a very important role in the process of
financial inclusion. A most notable milestone in the Self Help Groups movement was
when NABARD launched the pilot phase of the SHG Bank Linkage programme in
February 1992. The Self Help Groups movement in India has enabled social and
economic inclusion of people. The Self Help Groups Bank Linkage movement, where
SHGs are linked to banks in a gradual way-initially through savings and later through
loan products, has been able to ensure financial inclusion to a certain extent. The Self
Help Groups have become the common vehicle of development process covering all
development programmes. The number of Self Help Groups banks linked in India
increased from 255 in 1992-93 to 1609586 in 2008-09. In the same way loan disbursed
to these Self Help Groups increased from Rs.0.29 crore in 1992-93 to Rs. 12253.51
crore in 2008-09. Thus, from 1992-93 to 2008-09 the number of SHGs have increased
by 6312 times and the bank's loan disbursement to 42253.48 times. During 2008-09, the
commercial banks had lead in disbursement of loan to Self Help Groups with 62.4
percent share followed by RRBs with 25.2 percent and co-operative banks with a share
of 12.4 per cent. During the same year commercial banks disbursed Rs. 8060.53 crore
(65.8 percent) to 1004587 SHGs, RRBs Rs. 3193.49 crore (26.1 percent) to 405569
SHGs and co-operative banks Rs. 999.49 crore (8.2 percent) to 199430 SHGs.
Progress made by Banks under the Financial Inclusion Plans
(April 2010 – March 2013)
A snapshot of the progress made by banks under the Financial Inclusion Plans
(April 2010 – March 2013) for key parameters, during the three year period is as under:
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• Nearly 2, 68, 000 banking outlets have been set up in villages as on March 13 as
against 67,694 banking outlets in villages in March 2010
• About 7400 rural branches opened during this period
• Nearly 109 million Basic Savings Bank Deposit Accounts (BSBDAs) have been
added, taking the total no. of BSBDAs to 182 million. Share of ICT based
accounts have increased substantially – Percentage of ICT accounts to total
BSBDAs has increased from 25percent in March 10 to 45percent in March 13
• With the addition of nearly 9.48 million farm sector households during this
period, 33.8 million households have been provided with small entrepreneurial
credit as at the end of March 2013
• With the addition of nearly 2.25 million non farm sector households during this
period, 3.6 million households have been provided with small entrepreneurial
credit as at the end of March 2013.
• About 4904 lakh transactions have been carried out in ICT based accounts
through BCs during the three year period
It is important to analyze this progress against some disconcerting trends that
were noticed in the run up to the structured Financial Inclusion initiatives that the banks
launched since 2010 onwards. First, the number of banked centres in the country
between 1991 and 2007 had actually come down (from 35236 to 34471). Second, the
number of rural branches during the same period had also declined significantly (from
35206 to 30409).
Against this backdrop, the progress made during 2010-13 is certainly
remarkable. In order to continue with the process of ensuring access to banking services
to the excluded, banks have now been advised to draw up a fresh 3 year Financial
Inclusion Plan for the period 2013-16. Banks have also been advised that the FIPs
prepared by them are disaggregated and percolated down up to the branch level. The
disaggregation of the plans is being done with a view to ensure involvement of bank
staff across the hierarchy, in the FI efforts and also to ensure uniformity in the reporting
structure under the Financial Inclusion Plan. The focus is also now more on the volume
of transactions in new accounts opened as a part of the financial inclusion drive.
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Table 2.2
Bank-Branch and ATM Net-work
No. of Branches of Scheduled Commercial Banks as on 31st March, 2013
Bank Group-wise Number of Branches as on 31.03.2013
Bank Group Rural Semi-urban Urban Metropolitan Total
Public Sector Banks 23286 18854 14649 13632 70421
Private Sector Banks 1937 5128 3722 3797 14584
Foreign Banks 8 9 65 249 331
Regional Rural Banks 12722 3228 891 166 17007
Total 37953 27219 19327 17844 102343
Table 2.2 provides some extent of financial inclusion in India. It is revealed
from the table the expansion of Bank Group wise number of Branches till 31 March
2013. These banks include public section banks, private sector banks, foreign banks and
regional rural banks. There are 37953 bank branches in rural area, 27219 branches in
semi-urban areas, and 19327 branches in metropolitan area. The total numbers of
branches are 102343 till 31 March 2013.
Table 2.3
No. of functioning branches of Scheduled Commercial Banks: 2009-2013
As on Rural Semi-urban Urban Metropolitan Total
March 31, 2009 31476 19126 15273 14325 80200
March 31, 2010 32493 20855 16686 15446 85480
March 31, 2011 33905 23114 17599 16419 91037
March 31, 2012 36356 25797 18781 17396 98330
March 31, 2013 37953 27219 19327 17844 102343
Table 2.3 shows the number of functioning branches of scheduled commercial
banks from 2009 to 2013. The number of functioning branches in 2009 in rural areas
was 31476 which increased to 37953 till 31 March 2013. Also the number of branches
increased from 19126 to 27219 in semi-urban areas during the period 2009 to 2013. In
urban area, the numbers of branches increased from 15273 to 19327 till March 2013.
Number of branches has also shown a change in metropolitan areas by increasing from
14325 to 17844 till 2013. The total number of functioning branches of scheduled
commercial banks was 80200 in 2009 which increased to 102343 in 2013
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Table 2.4
No. of branches of Scheduled Commercial Banks opened: 2008-09 to 2012-13
Year Rural Semi-urban Urban Metropolitan Total
2008-09 706 1290 1046 953 3995
2009-10 1021 1729 1417 1139 5306
2010-11 1422 2258 919 981 5580
2011-12 2453 2686 1186 982 7307
2012-13* 1598 1422 546 451 4017
*provisional
Table 2.4 depicts the number of branches of scheduled commercial banks which
were opened during the time period of 2009 to 2013. Through this table we can see that
in 2009 the number of branches was 706 which increased to 1598 in 2013. The number
of branches in semi-urban area was also increased from 1290 in 2009 to 1422 in 2013.
In urban area the number of branches was 1046 in 2009 which declined to 546 in 2013.
There was also decline in number of branches in metropolitan area. The number of
branches in 2009 was 953 which declined to 451 in 2013. The total numbers of
branches in different areas increased from 3995 in 2009 to 4017 in 2013.
Table 2.5
No. of villages and Average Population per Branch (APPB)
Number of villages in India as per 2001 Census 600,000 (approx.)
Average Population per Bank Branch (APBB) as on
31.03.2013
12,100
Table 2.5 shows the number of villages in India. As per 2001 Census it was
600,000 (approx) and also average population per bank branch (APBB) as on
31.03.2013 was 12,100.
Table 2.6
No. of bank branches of SCBs over the years
Number of scheduled commercial bank
branches as on 31st December, 1969
8,826
Number of scheduled commercial bank
branches as on 31st March, 1990
59,762
Number of scheduled commercial bank
branches as on 31st March, 2013
1,02,343
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Table 2.6 shows the number of bank branches of Scheduled Commercial Bank
ranches (SCB) from the time period of 1969 to 2013. Number of Scheduled
Commercial Bank Branches on 31 December 1969 was 8826 which increased to
1,02,343 in 31 March 2013.
Table 2.7
Number of ATMs in the country as on 31st March, 2013
Rural Semi-urban Urban Metropolitan Total
Public Sector Banks 8552 18445 22518 20137 69652
Old Private Sector Banks 768 2760 2354 1684 7566
New Private Sector Banks 2214 6484 10995 15842 35535
Foreign Banks 30 21 244 966 1261
Total 11564 27710 36111 38629 114014
Table 2.7 shows the expansion of number of ATM in the country till 31 March
2013. The number of ATMs in rural area was 11564 in 2013. In semi-urban area it was
2710. The number of ATM in urban and metropolitan areas was 36111 and 38629,
respectively, in 2013. The total number of ATM is 104014.
Crisil Inclusix
On June 25, 2013, CRISIL, India's leading credit rating and Research Company
launched an index to measure the status of financial inclusion in India. CRISIL Inclusix
is a one-of its- kind tool to measure the extent of inclusion in India, right down the 632
districts. CRISIL Inclusix is a relative index on a scale of 0 to 100, and combines three
critical parameters of basic banking services- branch penetration, deposit penetration,
and credit penetration – into one metric. A CRISIL Inclusix score of 100 indicates the
ideal state for each of the three parameters.
On the basis of the given review of literature, the researcher identified four
parameters to analyse impact of Financial Inclusions, namely; Bank Branches, Credit
Account, Savings Account, and Credit-Deposit Ratio. This chapter shows comparative
study among these parameters during the period 2000-2010.
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Figure 2.2
Dimensions and Parameters used to measure Financial Inclusion
Parameters Significance Interpretation
No. of Bank Branches No. of Bank Branches
(all SCBs)
Per Thousand in a State
Measures the ease with which
people in a particular territory
can access banking services
The higher the better
Credit Accounts(CP)
No. of loan accounts per
thousand of population in a
State
Measures the extent of access
to loan products offered by
banks in a particular territory
The higher the better
No. of small borrower loan
accounts as defined by RBI per
thousand of population in a
State (small borrowers with a
sanctioned credit limit of upto
Rs. 2 akh)
Measures access to credit for
small borrowers, who typically
face financial non-inclusion
The higher the better
No. of agriculture advances per
lakh of population in a State
Measures farmers‟ access to
credit
The higher the better
Deposit Accounts (DP) No. of saving deposit accounts
per thousand of population in a
State
Measures the extent of access
to savings products offered by
banks in a particular territory
The higher the better
Credit –Deposit Ratio Ratio of Loan given to people
and saving deposited by the
people in bank
Gives the idea how much
amount is given by the bank to
the people and how much
money is deposited by the
people in the banks
The higher the better
*Source: CRISIL INCLUSIX, June 2013
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Table 2.8
Bank Branches per 1000 population: 2000-2010
States 2000 2002 2004 2006 2008 2010
Northern Region 0.081 0.079 0.078 0.08 0.087 0.095
Haryana 0.072 0.072 0.072 0.074 0.083 0.096
Himachal Pradesh 0.129 0.125 0.122 0.126 0.136 0.15
Jammu & Kashmir 0.082 0.079 0.076 0.079 0.083 0.86
Punjab 0.104 0.106 0.107 0.104 0.113 0.123
Rajasthan 0.06 0.058 0.056 0.055 0.059 0.062
Chandigarh 0.22 0.021 0.21 0.21 0.22 0.22
Delhi 0.106 0.106 0.105 0.115 0.13 0.14
Northern -Eastern Region 0.05 0.048 0.047 0.046 0.048 0.051
Arunachal Pradesh 0.063 0.061 0.058 0.054 0.056 0.058
Assam 0.047 0.045 0.044 0.044 0.046 0.048
Manipur 0.038 0.033 0.031 0.03 0.028 0.029
Meghalaya 0.079 0.076 0.074 0.075 0.076 0.081
Mizoram 0.089 0.087 0.081 0.078 0.083 0.086
Nagaland 0.036 0.033 0.039 0.039 0.042 0.045
Tripura 0.057 0.056 0.055 0.054 0.057 0.063
Eastern Region 0.052 0.051 0.05 0.049 0.051 0.055
Bihar 0.062 0.042 0.04 0.03 0.039 0.042
Jharkhand NA 0.053 0.052 0.123 0.054 0.059
Orissa 0.061 0.06 0.059 0.059 0.063 0.069
Sikkim 0.086 85 0.085 0.096 0.118 0.121
West Bengal 0.056 0.055 0.054 0.054 0.057 0.06
Andaman & Nicobar Islands 0.086 0.083 0.08 0.079 0.08 0.075
Central Region 0.053 0.052 0.05 0.049 0.052 0.056
Chhattisgarh NA 0.04 0.047 0.04 0.04 0.05
Madhya Pradesh 0.076 0.056 0.0541 0.053 0.055 0.059
Uttar Pradesh 0.055 0.048 0.046 0.046 0.048 0.052
Uttarakhand NA 0.098 0.097 0.098 0.109 0.121
Western Region 0.071 0.069 0.067 0.067 0.071 0.078
Goa 0.241 0.24 0.23 0.234 0.24 0.25
Gujarat 0.074 0.072 0.07 0.069 0.073 0.08
Maharashtra 0.06 0.065 0.064 0.064 0.067 0.074
Dadra & Nagar Haveli NA NA NA NA NA NA
Daman & Diu NA NA NA NA NA NA
Southern Region 0.082 0.081 0.081 0.082 0.089 0.099
Andhra Pradesh 0.069 0.068 0.068 0.068 0.075 0.084
Karnataka 0.092 0.091 0.09 0.091 0.097 0.105
Kerala 0.104 0.105 0.106 0.109 0.117 0.127
Tamil Nadu 0.079 0.077 0.076 0.077 0.086 0.096
Lakshadweep NA NA NA NA NA NA
Pondicherry 0.08 0.08 0.08 0.08 0.1 0.12
ALL-INDIA 0.06 0.06 0.063 0.06 0.06 0.07
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Table 2.8 depicts the bank branches expansion per 1000 population in different
regions of the country during the time period of 2000 to 2010. So far as northern region
of the country is concerned, in the year 2000, state of Haryana was at the level of 0.072
and it remained same in 2002 and 2004. It increased to 0.074 in 2006 and 0.08 in 2008
but in 2010 it achieved the level of 0.096. In case of the state of Himachal Pradesh it
was at the level of 0.129 in 2000 which declined to the level of 0.125 in 2002 and
further declined to 0.122 in 2004. In 2006 it increased slightly to the level of 0.126 and
further increased to the level of 0.136 in 2008. But in the year 2010 it fell to the level of
0.015. In case of Jammu & Kashmir, it was 0.082 in 2000, 0.079 in 2002, 0.079 in
2006, 0.083 in 2008 and 0.086 in 2010. In case of Punjab, it showed a significant
increasing trend in bank branches. It was 0.104 in 2000, 0.106 in 2002, 0.107 in 2004,
0.003 in 2008 and 0.123 in 2010.In North-East Region, the trend in bank branches per
1000 population has grown from the level of 0.05 in 2000 to 0.051 in 2010.As far as the
state of Arunachal Pradesh is concerned, it was at the level of 0.063 in 2000 which
declined to 0.061 in 2002. Again it increased to the level of 0.058 in 2004 and again
declined to the level of 0.054 in 2006. It again achieved the level of 0.056 in 2008 and
then 0.058 in 2010.In case of Assam, it was 0.047 in 2000 then declined in the year
2002 and kept on declining in the years 2004 and 2006. It started increasing in the years
2008 and 2010 by attaining the levels of 0.046 and 0.048, respectively. In Eastern
Region, the trend in bank branches per 1000 population has grown from the level of
0.052 in 2000 to 0.055 in 2010.So far as the state of Orissa is concerned, it was 0.061 in
the year of 2000 then it declined to the level of 0.060 in the year 2002 then again
declined to the level of 0.059 in 2004. After that it remained same in the year 2006 and
again started increasing and attained the level of 0.063 in 2008 and 0.069 in 2010.Same
trend was found in the state of West Bengal. In Central Region, the trend in expansion
of bank branches has grown from the level of 0.058 in 2000 to 0.056 in 2010.So far as
the state of Uttar Pradesh is concerned; it was at the level of 0.55 in 2000. Then it
declined to 0.048 in 2002 and 0.046 in 2004 and remained stable in 2006.Then again it
increased to the level of 0.048 in 2008 and then 0.052 in 2010. In case of Uttrakhand,
the bank branch expansion was 0.098 in the year 2002 then it declined to 0.09 in 2004.
It again increased to the level of 0.098 in 2006, 0.109 in 2008 and 0.121 in 2010.In
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Western Region, the trend in expansion of bank branches has grown from the level of
0.071 in 2000 to 0.078 in 2010. So far the state of Goa is concerned it was at the level
of 0.24 in 2000 which declined to the level of 0.240 in 2002. It increased to the level of
0.230 in 2004, 0.234 in 2006, 0.240 in 2008 and 0.250 in 2010.In Southern Region, the
trend of expansion of bank branches has grown from the level of 0.082 in 2000 to 0.099
in 2010. So far as the state of Kerala is concerned, it showed a significant increase in
this trend. It was 0.104 in 2000, 0.105 in 2002, 0.106 in 2004, 0.109 in 2006, 0.117 in
2008 and 0.127 in 2010.In case of Tamil Nadu, it was 0.079 in 2000. It declined to the
level of 0.077 in 2002, 0.076 in 2004. It increased to the level of 0.77 in the year 2006
and kept on increasing by attaining the level of 0.086 in 2008 and 0.096 in 2010.In case
of All India, it has grown from the level of 0.06 in 2000 to 0.07 in 2010. It was 0.06 in
2006, 0.063 in 2004, 0.06 in 2006 and 0.06 in 2008.
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Table 2.9
Credit Accounts per 1000 Population: 2000-2010
States 2000 2002 2004 2006 2008 2010
Northern Region 49.2 51.81 49.09 62.65 70.14 70.4
Haryana 50.7 48.4 48.46 60.8 62.8 76.3
Himachal Pradesh 58.2 55 57.9 67.5 72.4 81.3
Jammu & Kashmir 30.03 35.63 33.9 42.84 57.97 51.8
Punjab 64.04 67.9 60.7 66.9 70.5 77.2
Rajasthan 37.5 38.1 37.38 46.13 51.8 55.8
Chandigarh 167.4 109.4 101.9 143.8 164.5 193.6
Delhi 70.47 91.3 80.96 131.6 155.2 106.6
Northern -Eastern Region 34.19 29.65 30.06 39.48 46.02 51.44
Arunachal Pradesh 35.7 25.8 26.9 32.5 41.22 45.2
Assam 27.6 23.8 26.33 35.6 42.5 49
Manipur 22.02 14.34 15.78 25.6 28.46 31.4
Meghalaya 35.08 29.95 32.09 48.99 50.58 49.42
Mizoram 26.1 28.2 37.11 41.17 53.7 61.9
Nagaland 16.4 12.5 17.4 29.8 45.2 50
Tripura 108.7 101.8 76.7 82.2 85.2 88.3
Eastern Region 43.44 39.82 37.98 44.8 46.47 50.25
Bihar 41.65 25.82 26.19 31.27 34 42.3
Jharkhand NA 37.6 34.2 43.3 43.3 46.21
Orissa 65 62.54 60.94 72.43 78.02 80.63
Sikkim 32.07 30.35 43.85 60.34 68.33 72.13
West Bengal 50.07 44.87 41.19 45.45 45.13 45.95
Andaman & Nicobar Islands 33.3 32.43 35 46.51 43.47 53.06
Central Region 35.22 34.96 36.72 43.06 45.53 50.38
Chhattisgarh NA 24.7 27.2 34.5 38.1 40.04
Madhya Pradesh 44.9 34.53 34.22 45.1 46.96 54.45
Uttar Pradesh 37.94 35.56 37.95 42.14 44.64 48.79
Uttaranchal NA 51.4 53.8 67.4 71.3 78.8
Western Region 47.04 47.55 57.9 75.72 174 168.5
Goa 94.7 91.4 83.1 117.1 123.3 130.2
Gujarat 40.67 40.7 37.85 48.61 55.76 59.65
Maharashtra 49.6 50.41 68.05 89.23 236.8 226.1
Dadra & Nagar Haveli NA NA NA NA NA NA
Daman & Diu NA NA NA NA NA NA
Southern Region 93.94 98.12 128.04 163.9 164.5 193.4
Andhra Pradesh 87.2 92.4 98.3 124.4 142.7 161.5
Karnataka 97 104.1 108 135.3 135.8 147
Kerala 111.9 115.8 123 186.2 167.2 174.4
Tamil Nadu 90.2 90.9 184.6 226.7 215.1 283.4
Lakshadweep NA NA NA NA NA NA
Pondicherry 95.8 85 97.1 135.1 167.8 211.1
ALL-INDIA 53.3 53.3 60.9 76.1 92.7 100
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Table 2.9 shows the trend in credit account in India from the year 2000 to 2010.
In Northern Region, the trend in credit account per 1000 population has grown from the
level of 49.2 in 2000 to the level of 70.4 in 2010 following the corresponding levels of
51.81. 49.09. 62.65 and 70.14 in the years of 2002, 2004, 2006, and 2008, respectively.
So far as the state of Haryana is concerned it was at the level of 50.7 in 2000 which
declined to the level of 48.4 in 2002 and retained the same level of 48.4 in 204 also.
After 2004, it increased interestingly and reached the level of 60.8 in 2006, 62.8 in 2008
and 76.3 in 2010. Similar trend was found in respect of the state of Himachal Pradesh
which was 58.2 in 2000, 55 in 2002, 57.9 in 2004, 67.5 in 2006 72.4 in 2008 and 81.3 in
2010. In North-East Region, the trend in credit account per 1000 population has grown
from the level of 34.19 in 2000 to 51.44 in 2010. So far as the state of Arunachal
Pradesh is concerned it was at the level of 35.7 in 2000 which declined to the level of
25.8 in 2002. From the year 2004 to 2010 there was found an increasing trend in this
regard by attaining the level of 26.9, 32.5, 41.22 and 45.2 during the years 2004, 2006,
2008 ad 2010, respectively. Almost the same trend was followed in the states of Assam
and Manipur. In case of the state of Mizoram, a significant increasing trend was found.
It was at the level of 26.1 in 2000, 28.2 in 2002, 37.11 in 2004, 41.17 in 2006, 53.7 in
2008 and 61.9 in 2010. The state of Nagaland has followed almost the same trend. But
in case of the state of Tripura it was completely adverse. A declining trend was there in
this regard. It was at the level of 108.7 in 2000, 101.8 in 2002 and 76.7 in 2004. After
2004, it started increasing by attaining the level of 82.2 in 2006, 85.2 in 2008 and 88.3
in 2010. In Eastern Region, the trend in credit account per 1000 population has grown
from the level of 43.44 in 2000 to 50.25 in 2010. In case of the state of Bihar, it was at
the level of 41.65 in 2000 which declined to the level of 25.82 in 2002. From the year
2004 there was an increasing trend till 2010 in this regard by attaining the level of
26.19, 31.27, 34 and 42.3 during the years 2004, 2006, 2008 and 2010, respectively.
Almost the same trend was found in case of the states of Orissa and Sikkim. In Central
Region, the trend in credit account per 1000 population has grown from the level of
35.22 in 2000 to the level of 50.38 in 2010. So far as the state of Chhattisgarh in
concerned, an increasing trend was found there in this regard. It was 24.7 in 2002, 27.2
in 2004, 34.5 in 2006, 38.1 in 2008 and 40.04 in 2010. Almost the same trend was
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found in case of the state of Uttaranchal. In case of the state of Uttar Pradesh, it was
37.94 in 2000, which declined to the level of 35.56 in 2002. From the year 2004 to
20110 there was an increasing trend with regard to credit accounts per 1000 population
by attaining the level of 37.95, 42.14, 44.64 and 48.79 during the years 2004, 2006,
2008 and 2010, respectively. Almost the same trend was found in case of the state of
Madhya Pradesh. In Western Region, the trend in credit accounts per 1000 population
has grown significantly from the level of 47.04 in 2000 to the level of 168.5 in 2010.So
far as the state of Goa is concerned; it was at the level of 94.7 in 2000, which declined
to 91.4 in 2002 and 83.1 in 2004. From the year 2006 to 2010 a significant increasing
trend was there in this regard by attaining the level of 117.1, 123.3 and 130.2 during the
years 2006, 2008 and 2010, respectively. In Southern Region the trend in credit account
per 1000 population has grown from the level of 93.94 in 2000 to 193.4 in 2010. So far
as the states of Andhra Pradesh and Karnataka are concerned, a significant increasing
trend was there. In case of Andhra Pradesh, it was at the level of 87.2 in 2000, 92.4 in
2002, 98.3 in 2004, 124.4 in 2006,142.7 in 2008 and 161.5 in 2010. In case of
Karnataka, it was 97 in 2000, 104.1 in 2002, 108 in 2004, 135.3 in 2006, 135.8 in 2008
and 147 in 2010. In case of the state of Kerala, it was 41.9 in 2000 which declined to the
level of 115.8 in 2002. From the ear 2004 to 2010, there was almost an increasing trend
in this regard by attaining the level of 123, 186.2, 167.2 and 174.4 and during the years
2004, 2006, 2008 and 2010, respectively. Almost the same trend was found in case of
the state of Pondicherry. In case of All India, the trend in credit accounts per 1000
population has grown from the level of 53.3 in 2000 to 1000 in 2010.
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Table 2.10
Saving Accounts per 1000 Population: 2000-2010
States 2000 2002 2004 2006 2008 2010
Northern Region 357.1 350.6 368 396.9 466.7 592.5
Haryana 347.6 326.4 356.7 388.5 466.2 546.5
Himachal Pradesh 379.1 354.5 373.8 411 474.3 552.1
Jammu & Kashmir 271.6 264.7 278.3 332.5 386.6 485.1
Punjab 538.5 535.6 547.9 547.8 627.1 617.3
Rajasthan 181.1 184.4 199.6 224.2 280.5 326..0
Chandigarh 1264 1103.1 1104.9 1044.7 1126.7 1009.8
Delhi 764.9 754.4 769.8 843.7 947.1 1753.3
Northern -Eastern Region 184.2 171.9 170.2 197 241.9 338.3
Arunachal Pradesh 171.5 216.9 181.7 201.5 257.2 348.9
Assam 195.7 181.4 178.9 207.3 252.2 349.9
Manipur 103.9 89.02 81.37 97.27 122.8 206.4
Meghalaya 196.9 191.5 188.8 202 250.9 319.9
Mizoram 126.1 118.6 121.6 162.7 219.4 308.8
Nagaland 107.2 92.5 109.5 129.8 170 234.1
Tripura 204.3 190.4 190.4 225.9 278.1 417.2
Eastern Region 199.5 197.4 198.7 221 260.7 334
Bihar 213.3 144.8 149.1 158.7 192.6 245.8
Jharkhand NA 209.1 204.2 230.5 278.5 354
Orissa 162.6 167.6 183 208.5 269.6 367.7
Sikkim 154.7 176.7 219.2 298.2 335 462.2
West Bengal 268.7 261 255.78 289 322.5 405.9
Andaman & Nicobar Islands 325 302.7 290 346.5 408.6 448.9
Central Region 232 230.6 233.5 251.7 306.1 397.8
Chhattisgarh NA 143.7 150 165.7 206.2 307.7
Madhya Pradesh 218.7 167.3 180 197.4 231.3 320.7
Uttar Pradesh 277.9 256.6 256.1 274.5 337.3 428.6
Uttaranchal NA 385.9 374.1 401.8 472.6 562.7
Western Region 295.4 302 314.7 351.5 412.2 470.2
Goa 100.5 1020.7 1070.2 1113.8 1180.3 1210.8
Gujarat 269 279 301.5 341.7 397 465.7
Maharashtra 298.2 302.7 309.1 343.9 408.1 457.8
Dadra & Nagar Haveli NA NA NA NA NA NA
Daman & Diu NA NA NA NA NA NA
Southern Region 327.5 330.4 358.1 391 502.1 653.6
Andhra Pradesh 256.2 268.3 303.1 348.2 465.3 629.1
Karnataka 315.7 323.2 346.8 390.1 501.3 623.7
Kerala 491.6 487.9 534.3 493.4 588 696.1
Tamil Nadu 337.4 328.9 342.4 389.5 501.2 683.9
Lakshadweep NA NA NA NA NA NA
Pondicherry 465.9 486 499 569.4 729.4 901.7
ALL-INDIA 269.2 268.1 279.4 306.1 371.8 471.7
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Table 2.10 shows that the saving accounts in Northern Region, Northern -
Eastern Region, Eastern Region, Central Region, Western Region and Southern Region
are 592.5 percent, 338.3 percent, 334 percent, 397.8 percent, 470.2 percent and 653.6
percent respectively in 2010. Further it shows trend in savings account in India from the
year 2000 to 2010. In North Region, the trend in savings account per 1000 population
has grown from the level of 357.1 in 2000 to 592.5 in 2010.So for the state of Haryana
in concerned it was 357.1 in 2000 which declined to 350.6 in 2002. From 2004 to 2010
there was an increasing trend in saving account by attaining the level at 368, 396.4,
466.7 and 592.5 in the years 2004, 2005, 2006, 2008 and 2010, respectively. Almost the
same trend was followed in the state of Himachal Pradesh, Jammu and Kashmir, Punjab
and Delhi. In case of the state of Rajasthan, a significant increasing trend was found. It
was 181.1 in 2000, 124.4 in 2002, 199.6 in 2004, 224.2 in 2006, 280.5 in 2008 and
326.0 in 2010.In North East Region, the trend in savings account per 1000 population
has grown from the level of 184.2 in 2000 to 338.3 in 2010.So far as the state of Assam
is concerned, it was 195.7 in 2000 which declined to 181.4 in 2002 and again declined
to 178.9 in 2004. From 2006 to 2010 there was an increasing trend in savings account
by attaining the level at 207.3, 252.2 and 349.9 in the years 2006, 2008 and 2010,
respectively. Almost same trend was followed in the states of Manipur and Meghalaya.
In Eastern Region, the trend in savings account per 1000 population has grown from the
level of 199.5 in 2000 to 334 in 2010.So far as the state of Bihar is concerned; it was at
213.3 in 2000 which declined to 144.8 in 2002. From 2004 to 2010 there was an
interesting trend in savings account by attaining the level at 149.1, 158.7, 192.6 and
245.8 in the years 2004, 2006, 2008 and 2010, respectively. In case of states of Orissa
and Sikkim, a significant increasing trend was found. In Orissa, it was 162.6 in 2000,
167.6 in 2002, 183.0 in 2004 208.5 in 2006, 269.6 in 2008 and 367.7 in 2010. In
Sikkim, it was 154.7 in 2000, 176.7 in 2002, 219.2 in 2004, 298.2 in 2006, 335 in 2008
and 462.2 in 2010.In Central Region, the trend in savings account per 1000 population
has grown from the level of 232.0 in 2000 to 397.8 in 2010.So far as the state of
Chhattisgarh is concerned, it shows a significant increasing trend. It was 143.7 in 2002,
150.0 in 2004, 165.7 in 2006, 206.2 in 2008 and 307.7 in 2010.In case of state of
Madhya Pradesh; it was at a level of 218.7 in 2000. It declined at the level of 167.3 in
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the year of 2004. But from the year 2004 it started increasing by attaining the level of
180.5 and reached at the level of 197.4 in 2006, 231.3 in 2008 and 320.7 in 2010. In
Western Region, the trend in savings account per 1000 people has grown from the level
of 295.4 in 2000 to 470.2 in 2010. In the case of Goa and Gujarat states, a significant
increasing trend was found. It was 1005.2 in 2000, 1020.7 in 2002, 1070.2 in 2004,
1113.8 in 2006, 1180.3 in 2008 and 1210.8 in 2010 in case of the state of Goa. In case
of the state of Gujarat, it was 269.0 in 2000, 279 in 2002, 301.5 in 2004, 341.7 in 2006,
397.0 in 2008j and 465.7 in 2010. Almost the same trend was followed in the state of
Maharashtra. In Southern Region, the trend in savings account per 1000 population has
grown from the level of 327.5 in 2000 to 653.6 in 2010.So far as the state of Kerala is
concerned it was 491.6 in 2000 which declined to 487.9 in 2002. From 2004 to 2010
there was an increasing trend in savings account by attaining the levels of 534.3, 493.4,
588.0 and 696.1 during the years 2004, 2006, 2008 and 2010, respectively. Almost
same trend was found in the state of Tamil Nadu. In case of the state of Andhra Pradesh
and Karnataka, a significant increasing trend was found. In the state of Andhra Pradesh,
it was 256.2 in 2000, 268.3 in 2002, 303.1 in 2004, 348.2 in 2006, 465.3 in 2008 and
629.1 in 2010. In the state of Karnataka, it was 315.7 in 2000, 323.2 in 2002, 364.8 in
2004, 390.1 in 2006, 501.3 in 2008 and 623.7 in 2010. In all India, the trend in savings
account per 1000 population has grown from the level of 269.2 in 2000 to 471.7 in
2010. It was at the level of 268.1 in 2002, 279.4 in 2004, 306.0 in 2006 and 371.8 in
2008.
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Table 2.11
Credit-Deposit Ratio in India: 2000-2010
States 2000 2002 2004 2006 2008 2010
Northern Region 51.1 56.2 56.9 64.6 67.7 74.4
Haryana 42.4 43.7 47.9 57.4 60.1 63.3
Himachal Pradesh 23.8 23.4 29.7 41 43.4 42.2
Jammu & Kashmir 33.5 36.8 39.2 47.2 56.4 46.4
Punjab 39.4 41.8 43.4 56.8 67.2 71.5
Rajasthan 46.4 48.4 57.2 77.3 82.4 88.4
Chandigarh 82 102.8 142 76.8 96.2 131.1
Delhi 60.5 67.6 61.2 67.4 66.9 74.6
Northern -Eastern Region 28.1 27.2 29.8 40.7 40.7 35.5
Arunachal Pradesh 15.7 15.8 17.3 26.5 31.7 27.5
Assam 32 31.7 30.8 42.6 42.4 37.8
Manipur 37.4 26.4 29 50.1 48.4 42.1
Meghalaya 16.3 18.3 36.9 48.1 33.2 25.6
Mizoram 23.3 26.4 16.8 51.2 62.9 53.2
Nagaland 15.3 12.8 25.5 22.3 34 30.3
Tripura 25.7 21.5 … 32.8 36.1 30.7
Eastern Region 37 37.6 42.1 49.2 51.5 50.8
Bihar … 21.3 25.6 30.3 28.2 29
Jharkhand 22.5 25.1 27.4 31.2 35.3 35.1
Orissa 41.5 44.5 54.3 66 56.3 54.4
Sikkim 15.1 16 23.3 45.3 46.8 37.2
West Bengal 45.5 45.8 49.3 56.3 62.4 61.5
Andaman & Nicobar Islands 16.8 18.5 25 29 30.7 36.5
Central Region 33.9 33.9 35.9 44.2 46.1 47.3
Chhattisgarh … 44 39.8 45.5 49.8 52.3
Madhya Pradesh 49.1 46.6 47.7 60.5 60.1 60.6
Uttar Pradesh 28.2 29.9 33.2 41 43.7 43.3
Uttaranchal … 23.7 20.4 25.8 26.2 33.7
Western Region 75.4 79.7 72 92 88.6 79.1
Goa 23.8 25.3 21.8 23.2 29.4 26.5
Gujarat 49 44.1 43.3 55.6 66.5 65.3
Maharashtra 86.4 92.3 81.4 102.2 93.9 82.9
Dadra & Nagar Haveli 18.8 20.9 19.6 49.3 23.9 60
Daman & Diu 15.7 9.9 9.7 11.4 15 20.2
Southern Region 66.2 64.6 68.1 84.4 89.1 92.7
Andhra Pradesh 64.2 61.9 66 81.3 90.4 105.1
Karnataka 63.3 61.6 62.9 75.9 78.1 77.6
Kerala 41.5 43.3 47.3 61.4 63.4 63.1
Tamil Nadu 88.6 85.4 89.6 110.5 114.7 113.8
Lakshadweep 7.5 7.9 7.4 11.5 7.5 7.3
Pondicherry 33.6 32.3 33.9 45 49.7 57.2
ALL-INDIA 56 58.4 58.7 72.4 74.4 73.3
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Table 2.11 depicts the credit deposit ratio per 1000 population in different
regions of the country during the time period of 2000 to 2010. So far as northern region
of the country is concerned, in the year 2000, it was at the level of 42.4 in Haryana
which increased slightly to the level of 43.7 in 2002 and further kept of increasing at the
level of 47.9 in 2004, 57.4 in 2006, 60.1 in 2008 and 63.3 in 2010. In case of Jammu &
Kashmir, there was an increasing trend in credit deposit ratio. It was 33.5 in 2000, 36.8
in 2002, 39.2 in 2004, 47.2 in 2006, 56.4 in 2008 and 46.4 in 2010. A significant
increasing trend was found in the State of Punjab, Rajasthan and Chandigarh. In case of
Rajasthan 46.4 in 2000, 48.4 in 2002, 57.2 in 2004, 77.3 in 2006, 82.4 in 2008 and 88.4.
So far as the northern-eastern region is concerned in the year 2000 it was 15.7 in
Arunachal Pradesh which slightly increased to 15.8 in 2002. It was 17.3 in 2004, 26.5 in
2006, and 31.7 in 2008 and again it declined to 27.5 in 2010. There was a trend of credit
deposit ration in State of Nagaland. It was 15.3 in 2000 which declined to 12.8 in 2002.
It increased to 25.8 in 2004 declined to 22.3 in 2006. Similarly it increased to 34 in
2008 and declined to 30.3 in 2010. Almost same trend was found in other States of
Northern-Eastern Region. So far as the eastern region is concerned, in the year 2000,it
was at the level of 22.5 in the state of Jharkhand which further increased to 25.1 in
2002.There was an increasing trend in the credit deposit ratio after that year. It was 27.4
in 2004, 31.2 in 2006, and 35.3 in 2008 and again slightly declined to 35.1 in
2010.Same kind of trend was found in the state of west Bengal. In case of state of
Andaman & Nicobar, an increasing trend was found. It was16.8 in 2000,which
increased to 18.5 in 2002.it further increased and attain the level of 25 in 2004,29 in
2006,30.7 in 2008 and 30.5 in 2010. So far as central region is concerned, in the year
2000,it was 28.2 in the state of Uttar Pradesh which further increased to 29.9 in
2002.after that it kept on increasing and attain the level of 33.2 in 2004,41 in 2006,43.7
in 2008and 43.3 in 2010. So far as the western region is concerned, in the year 2000, it
was at the level of 23.8 in the state of Goa which slightly increased 25.3 in 2002.after
that it further declined to 23.2 in 2006.After that it increased to 29.4 in 2008 and 26.5 in
2010. In case of state of Maharastra , it was 86.4 in 2000 which increased to 92.3 in
2002 after that it declined to 81.4 in 2004.and again increased to 102.2 in 2006.then it
kept on declining and it was at the level of 939 in 2008 and 82.9 in 2010. In case of
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state of Daman and Diu, it was 15.7 in 2000 which declined to 9.9 in 2002 and kept on
declining and reached at the level of 9.7 in 2004.After that it started rising and it was
11.4 in 2006,15 in 2008 and 20.2 in 2010.So far as the southern region is concerned, in
the year 2000, it was at the level of 64.2 in the state of Andhra Pradesh which slightly
decline to 61.9 in 2002.after that it kept on increasing and achieve the level of 62.9 in
2004,75.9 in 2006 ,78.1 in 2008 and 77.6 in 2010.same kind of trend was found in the
state of Pondicherry. In case of the state of Tamil Nadu, it was 88.3 in 2000, which
decline to 85.4 in 2002.after that it increased to 89.6 in 2004,110.5 in 2006 and 114.1 in
2008. In the year 2010 it again decline to 113.8. In case of all India, the credit deposit
ratio was 56 in 2000, which increased to 58.4 in 2002, 58.7 in 2004, 72.4 in 2006 and
74.4 in 2008.in the year 2010 it declined to 73.3.
Progress of Financial Inclusion in India
Tables 2.8 to 2.11 show the progress of Financial Inclusion in India from 2000
to 2010 in various parameters. It shows commendable progress in all the parameters like
total number of branches, total number of rural branches, banking outlets in population
greater than 2000 and banking outlets in population lesser than 2000, brick and mortar
branches, banking outlets through BCs, no frill accounts and amount in no frill
accounts. In spite of all the progress it has been observed that the progress is much less
in comparison to the vastness of the country and this made RBI to come with mobile
banking as a tool of financial inclusion.
It clearly shows increase in number of branches in the country over the years
but increase in number of rural branches is comparatively less. There is good progress
in all the parameters in order to achieve the objective of Financial Inclusion. There is
comparatively good progress in banking outlets with population greater than 2000.
Banking outlets through brick and mortar branches have not expanded much. There is
impressive increase in total banking outlets. There is some increase in no frill accounts
and amount in no frill accounts but since the number is less it is not reflected in the
diagram.
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Extent of Exclusion
As per the NSSO data, 45.9 million farmer households in the country (51.4 per
cent), out of a total of 89.3 million households do not have accesses to credit,
either from institutional or non-institutional sources.
Only 27 per cent of total farm households are indebted to formal sources (of
which one-third also borrow from informal sources).
Farm households‟ not accessing credit from formal sources as a proportion to
total farm households is especially high at 95.91 per cent, 81.26 per cent and
77.59 per cent in the North Eastern, Eastern and Central Regions respectively.
Thus, apart from the fact that exclusion in general is large, it also varies widely
across regions, social groups and asset holdings. The poorer the group, the
greater is the exclusion.
Demand Side
While financial inclusion can be substantially enhanced by improving the supply
side or the delivery systems, it is also important to note that many regions,
segments of the population and sub-sectors of the economy have a limited or
weak demand for financial services.
In order to improve their level of inclusion, demand side efforts need to be
undertaken including improving human and physical resource endowments,
enhancing productivity, mitigating risk and strengthening market linkages.
However, the primary focus of the Committee has been on improving the
delivery systems, both conventional and innovative.
Major Schemes for Financial Inclusion in India
1. National Mission on Financial Inclusion
The Committee feels that the task of financial inclusion must be taken up in a
mission mode as a financial inclusion plan at the national level.
A National Mission on Financial Inclusion (NaMFI) comprising representatives
from all stakeholders may be constituted to aim at achieving universal financial
inclusion within a specific time frame.
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The Mission should be responsible for suggesting the overall policy changes
required for achieving the desired level of financial inclusion, and for supporting
a range of stakeholders – in the domain of public, private and NGO sectors - in
undertaking promotional initiatives.
2. National Rural Financial Inclusion Plan (NRFIP)
A National Rural Financial Inclusion Plan (NRFIP) may be launched with a
clear target to provide access to comprehensive financial services, including
credit, to at least 50% of financially excluded households, say 55.77 million by
2012 through rural/semi-urban branches of Commercial Banks and Regional
Rural Banks.
The remaining households, with such shifts as may occur in the rural/urban
population, have to be covered by 2015.
Semi-urban and rural branches of commercial banks and RRBs may set for
themselves a minimum target of covering 250 new cultivator and non-cultivator
households per branch per annum, with an emphasis on financing marginal
farmers and poor non-cultivator households.
3. Handling Cost through Funds
There is a cost involved in this massive exercise of extending financial services
to hitherto excluded segments of population. Such costs may come down over a
period of time with the resultant business expansion.
However, in the initial stages some funding support is required for promotional
and developmental initiatives that will lead to better credit absorption capacity
among the poor and vulnerable sections and for application of technology for
facilitating the mandated levels of inclusion.
The Committee has, therefore, proposed the constitution of two funds with
NABARD – the Financial Inclusion Promotion & Development Fund and the
Financial Inclusion Technology Fund with an initial corpus of Rs. 500 crore
each to be contributed in equal proportion by GoI/RBI/NABARD. This
recommendation has already been accepted by the Government of India.
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4. Business Correspondent Model
The Rangarajan Committee recommended that extending outreach on a scale
envisaged under NRFIP would be possible only by leveraging technology to
open up channels beyond branch network.
Adoption of appropriate technology would enable the branches to go where the
customer is present instead of the other way round. This, however, is in addition
to extending traditional mode of banking by targeted branch expansion in
identified districts.
The Business Facilitator/Business Correspondent (BF/BC) models riding on
appropriate technology can deliver this outreach and should form the core of the
strategy for extending financial inclusion.
The Committee has made some recommendations for relaxation of norms for
expanding the coverage of BF/BC. Ultimately, banks should Endeavour to have
a BC touch point in each of the 6, 00,000 villages in the country.
5. Procedural Simplification
Procedural Changes like simplifying mortgage requirements, exemption from
Stamp Duty for loans to small and marginal farmers and providing agricultural /
business development services in the farm and non-farm sectors respectively
will help in extending financial inclusion.
6. New Role of Regional Rural Banks (RRBs)
Regional Rural Banks, post-merger, represent a powerful instrument for
financial inclusion. Their outreach vis-à-vis other scheduled commercial banks
particularly in regions and across population groups facing the brunt of financial
exclusion is impressive.
RRBs account for 37 per cent of total rural offices of all scheduled commercial
banks and 91 per cent of their workforce is posted in rural and semi-urban areas.
They account for 31 per cent of deposit accounts and 37 per cent of loan
accounts in rural areas.
Regional Rural Banks have a large presence in regions marked by financial
exclusion of a high order.
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They account for 34 per cent of all branches in North-Eastern, 30 per cent in
Eastern and 32 per cent in Central regions.
Out of the total 22.38 lakh Self Help Group Bank Linkage Scheme credit linked
by the banking industry as on 31st March 2006, 33 per cent of the linkages were
by RRBs which is quite impressive to say the least.
Significantly the more backward the region the greater is the share of Regional
Rural Banks which is amply demonstrated by their 56 per cent share in the
North-Eastern, 48 per cent in Central and 40 per cent in Eastern region.
RRBs are, thus, the best suited vehicles to widen and deepen the process of
financial inclusion. However, there has to be a firm reinforcement of the rural
orientation of these institutions with a specific mandate on financial inclusion.
The Committee recommended that the process of merger of RRBs should not
proceed beyond the level of sponsor bank in each State. The Committee has also
recommended the recapitalization of RRBs with negative Net Worth and
widening of their network to cover all unbanked villages in the districts where
they are operating, either by opening a branch or through the BF/BC model in a
time bound manner. Their area of operation may also be extended to cover the
87 districts, presently not covered by them.
Self Help Group Bank Linkage Scheme
There are a large number of SHGs in the country which are well established in
their savings and credit operations. The members of such groups want to expand and
diversify their activities with a view to attain economies of scale. Many of the groups
are organizing themselves into federations and other higher level structures. To achieve
this effectively, resource centres can play a vital role. Federations of Self Help Group
at village and taluk levels have certain advantages. Federations, if they emerge
voluntarily from amongst SHGs, can be encouraged. However, the Committee felt that
they cannot be entrusted with the financial intermediation function.
The Committee has recommended amendment to NABARD Act to enable it to
provide micro finance services to the urban poor.
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Joint Liability Groups
Self Help Group Bank bank linkage has emerged as an effective credit delivery
channel to the poor clients. However, there are segments within the poor such as
share croppers/oral lessees/tenant farmers, whose loan requirements are much
larger but who have no collaterals to fit into the traditional financing approaches
of the banking system.
To service such clients, Joint Liability Groups (JLGs), an upgradation of Self
Help Group Bank model, could be an effective way. NABARD had piloted a
project for formation and linking of JLGs during 2004-05 in 8 States of the
country through 13 RRBs.
Based on the encouraging response from the project, a scheme for financing
JLGs of tenant farmers and oral lessees has also been evolved. The Committee has
recommended that adoption of the Joint Liability Groups concept could be another
effective method for purveying credit to mid-segment clients such as small farmers,
marginal farmers, tenant farmers, etc. and thereby reduce their dependence on informal
sources of credit.
Micro Finance Institutions - Non Banking Finance Companies
The committee recommended a greater legitimacy, accountability and
transparency for Micro Finance Institutions which only enable MFIs to source
adequate debt and equity funds, but also eventually enable them to take and use
savings as a low cost source for on-lending.
The committee also recommended that there was a need to recognize a separate
category of Micro finance – Non Banking Finance Companies (MF–NBFCs),
without any relaxation on start-up capital and subject to the regulatory
prescriptions applicable for Non Banking Finance Companies. Such Micro
Finance Institutions could provide thrift, credit, micro-insurance, remittances
and other financial services up to a specified amount to the poor in rural, semi-
urban and urban areas.
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Such Micro finance – Non Banking Finance Companies may also be recognized
as Business Correspondents of banks for providing only savings and remittance
services and also act as micro insurance agents.
Cooperative System
In terms of number of agricultural credit accounts, the Short Term Cooperative
Credit System (STCCS) has 50% more accounts than the commercial banks and RRBs
put together.
On an average, there is one Primary Agricultural Societies for every 6 villages;
these societies have a total membership of more than 120 million rural people
making it one of the largest rural financial systems in the world.
However, the health of a very large proportion of these rural credit cooperatives
has deteriorated significantly.
For this segment, the Rangarajan Committee reiterated the need to implement
the recommendation of the Vaidyanathan Committee Report, which had suggested an
implementable Action Plan with substantial financial assistance.
Concluding Remarks
On the basis of above discussion it may be concluded that despite significant
growth of financial sector in India a vast segment of population especially low income
groups or underprivileged section of society have not been covered under financial
inclusion. Availability of banking services to the entire population without any
discrimination is the prime objective of financial inclusion. In India there are many
reasons for financial exclusion and it may bring many negative effects on individual as
well as on the society. The main reason for low financial inclusion are lack of adequate
supportive infrastructure, absence of appropriate technology, financial illiteracy, lack of
suitable financial products and its inflexibility. The Reserve Bank of India and
Government of India has been making many efforts to increase financial inclusion. The
emergence of Self Help Group as financial intermediaries in recent year has raised
hopes that excluded people and rural India could be effectively financial linked. The
Self Help Group Bank Linkage Programme is playing a very important role in the
process of financial inclusion in India. Keeping in view the role of financial inclusion in
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the process of inclusive growth, its effective expansion is a must. When people become
aware of the proper use and benefits of the financial services they start getting
themselves associated with the development schemes run by the government and others.
This has a positive impact on the process of inclusive growth. Financial inclusion is a
necessary condition for inclusive growth and in order to achieve it, we should remove
or reduce all regional imbalance of financial infrastructure. Financial inclusion should
be used as a tool for inclusive growth and Banks, and Micro Finance Institutions, and
Non Government Organisations can play a simultaneous major role to achieve it. Banks
should redesign their business strategies to incorporate specific plans to promote
financial inclusion of low income group treating it both as a business opportunity and as
a corporate social responsibility. Banks should also ensure wide publicity about their
financial products and policies to enhance financial literacy.