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The new dimension of financial inclusion

The new dimension of financial inclusion
Highlights

Several countries across the globe now look at FI as the means for a more comprehensive growth, wherein, each citizen of the country is able to use his/her earnings as a financial resource that they can put to work to improve their future financial status and simultaneously contribute to the nation’s progress.

Though the initial sprit of inclusion goes back to the nationalisation of banks in July 1969, the present format of the Financial Inclusion (FI) gained greater thrust in recent years. Thus, the history of FI in India is actually much older than the formal adoption of its objectives. The nationalisation of banks, lead bank scheme, incorporation of regional rural banks, service area approach and formation of self-help groups, all these were initiatives aimed at taking banking services to the masses.

Several countries across the globe now look at FI as the means for a more comprehensive growth, wherein, each citizen of the country is able to use his/her earnings as a financial resource that they can put to work to improve their future financial status and simultaneously contribute to the nation’s progress.

Thus, a more focused and structured approach towards FI has been followed since 2005 when the Reserve Bank of India (RBI) decided to implement policies to promote FI and urged the banking system to focus on this goal. Banks also created a separate FI vertical and put a three-year plan in force. But, the actual momentum was in later years.

FI as a policy got more thrust with the implementation of the Prime Minister’s Jan DhanYozana (PMJDY) that began on August 28, 2014. Banks did a good job by opening 22.65 crore savings accounts.

Banks could also get additional savings deposits to the tune of Rs 40750.82 crore as on July 27, 2016. Out of them, Rupay debit cards were issued to 18.39 crore account holders to familiarise them with benefits of digital banking.]

The success of PMJDY led to many hitherto unbanked people getting connected to formal banking system. As a result, as on March 2016, 390,387 villages were covered by the bank’s 14,207 branches, taking the total branch network to 132,587.

There are 357,856 business correspondents (BCs) and 18,324 other modes, such as automated teller machines (ATMs) and mobile vans. The total ATM network has exceeded the 200,000-mark. These collaborative efforts led to speedy connect of people with the banking system.

Having disseminated FI with getting close to a million touch points, banks are now exploring opportunities to lend to those who are bankable in the hinterland. Cross-selling opportunities are explored.

Credit inclusion to create micro enterprises in the rural economy is another effort and an outcome of FI. The objective of FI is threefold – extending banking services to those who do not have any connect with banks, deepening relationship with those who already have (selling more products to same customers, preferably a credit product if customer needs it) and greater financial literacy and consumer protection so that customers can make appropriate choice of banking products.

According to the RBI, the FI in any country is driven by three basic methods –mandates and subventions, creating new banking institutions to serve the community and expanding FI by tagging other products with conventional savings products, including sale of bancassurance products, social security insurance schemes and pension equities, launch of financial literacy camps (FLCs), mobile education vans, imparting digital literacy to make customers access alternate delivery channels. Banks have opened 1,329 FLCs up to December 2015.

In order to make the methods of achieving FI more practical, Know Your Customer (KYC) norms have been liberalised – for savings accounts having outstanding below Rs 50,000 at any point of time and credit into account not exceeding Rs 1 lakh, banks can open accounts with one address proof of permanent residence. Local address can be self-certified.

Also, banks are permitted to restructure agriculture loans without classifying them as non-performing, which are hit by widespread natural calamities. Similarly, student loans can be restructured till they are employed and are able to repay loans subject to the bank’s own conditions.

With collective collaboration of all the stakeholders, FI in India is fast acquiring new dimensions of growth. Many of the recommendations of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households”, which was set up by the RBI in September 2013 under the Chairmanship of Nachiket Mor, an RBI board member, are being implemented in a phased manner. It contained valued recommendations on how to increase the presence of banks.

Rolling out specialised and differentiated banks to serve specific customer segment with limited products is its mind. With the National Payment Corporation of India (NPCI) and banks joining together, FI will take digital payments to a different trajectory to move towards less cash society.

The Near Field Communication (NFC) and UPI, when works together, can ease the whole payment and remittance network in such a way that paper-based transfers will significantly come down. With smart mobile phone penetration increasing fast, seamless transmission of funds can be a reality.

With new policy initiatives shaping up, FI in India can set a global benchmark too soon changing the lives of many. (The author teaches at the National Institute of Bank Management, Pune. The views are his own)

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