Slow inclusion

Updated: Jun 29 2013, 08:20am hrs
While financial inclusion is a priority of the government and the Reserve Bank of Indias of India (RBI), a recent Crisil report underlines that a lot needs to be done to bring in more people under the formal banking system. At an all-India financial score of 40.1 (on a scale of 100) is relatively low and is a reflection of the under penetration of formal banking facilities in most parts of the country.

Only one in two Indians has a savings account and only one in seven Indians has access to banking credit. Though the Crisil Inclusix score at an all-Indian level has improved to 40.1 in 2011, from 37.6 in 2010 and 35.4 in 2009, the bottom 50 scoring districts in India have only 4,068 loan accounts per lakh population which is nearly one-third of the all-India average of 11,680. Southern region leads across all three dimensions of financial inclusion branch penetration, deposit penetration and credit penetration. The western region has the second highest penetration of branches and the northern region, which has the largest population, has the second highest penetration of deposits. Eastern region including the north-eastern region is the laggard.

As deposit penetration is the key driver of financial inclusion in India banking correspondents (BC) can be a major catalyst in increasing financial inclusion. The RBI has taken several initiatives to push financial inclusion by providing no-frills account and improve the outreach through banking correspondents model. It has set up the goal for banks to provide access to formal banking to all 74,414 villages with a population of less than 2000. Even the UIDAI has recommended to the government that BC systems be made inter-operable where customers can access their bank accounts through any BC terminal as with ATMs.