Financial inclusion: The march of banks

Jan 13 2014, 13:10 IST
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Last week, a Reserve Bank of India (RBI) committee chaired by Nachiket Mor submitted its various recommendations for the banking system along with its vision to provide, by Jan 1, 2016. Last week, a Reserve Bank of India (RBI) committee chaired by Nachiket Mor submitted its various recommendations for the banking system along with its vision to provide, by Jan 1, 2016.
SummaryPeople are yet to see a bank in their neighbourhood. But RBI is set to change all that. Hereís how:

A large section of people in India are yet to see a bank in their neighbourhood. But the RBI is set to change all that with its financial inclusion plan. Hereís how:

Financial inclusion has been a much debated subject for several years now and, over the last few years, it has gained a lot of momentum. While the issue has been a subject of discussion and development of various financial services industries ó banking, capital markets, mutual funds and insurance, pension funds, etc ó the last two weeks witnessed at least two reports on financial inclusion.

Rating agency Crisil came up with its Inclusix index for the financial year ended March 2012 that covered the extent and growth of financial inclusion across 638 districts. Last week, the Reserve Bank of India (RBI) committee on Comprehensive Financial Services for Small Businesses and Low-Income Households chaired by Nachiket Mor submitted its report. While the Inclusix showed the extent of bank account and credit penetration across states and their divergence across them, the RBI committee submitted various recommendations for the banking system along with its vision to provide, by January 1, 2016, an electronic bank account to every Indian adult who has an Aadhaar card.

The committee has also presented its vision to provide low-income households and small businesses with access to formally regulated lenders by January 1, 2016. If the plan goes through, it will not only provide everyone with a bank account and thereby a formal system for monetary transaction, it will also be beneficial to the economy as it will help channelise domestic savings which otherwise goes to the informal system ó gold, unregulated collective investment schemes ó where investors end up losing lots of money.

The current situation

Crisilís Inclusix index that rates districts on the basis of the number of bank branches, deposits made and credit provided has given a score of 42.8 to the country on a scale of 100 and that reflects under-penetration of formal banking in the country. The report also said that only one out of two Indians has a bank savings account and only one in seven have access to bank credit.

The RBI report states that close to 90 per cent of small businesses have no links to the formal financial institutions, and as high as 60 per cent of the rural and urban populations does not have a functional bank account.

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