India has made remarkable strides in expanding financial access on the back of schemes like PM Jan Dhan Yojana that enabled 80 per cent of adults to have bank accounts, said M Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI). Till date, 54.84 crore bank accounts have been opened under PM Jan Dhan Yojana with a total balance of Rs 2.45 lakh crore in the accounts. However, he added, true financial inclusion goes beyond merely opening accounts and it requires meaningful engagement with financial services.
According to the Reserve Bank of India’s Financial Inclusion Index (FI-Index), the extent of financial inclusion across the country stood at 64.2 in March 2024, up from 60.1 in March 2023 and 43.4 in 2017. The index is based on three sub-indices – Access, Quality and Usage and per the RBI deputy governor, usage is the one which is lagging the other two.
A bank account should serve as the entry point for individuals to access a broader suite of financial products, including credit, insurance, pensions, and investment opportunities, said M Rajeshwar Rao. “Without this deeper engagement, financial inclusion remains superficial, and the true benefits of a formal financial system do not reach every individual or business,” he added.
M Rajeshwar Rao further highlighted that the improvement in the FI-Index in 2023-24 was largely contributed by the usage dimension, reflecting deepening of financial inclusion. “While this shows that we are moving in the right direction, there is still a long way to go wherein the most vulnerable populations and low-income groups have access to secure and affordable finance,” he said while speaking at the second Annual Conference on Macroeconomics, Banking and Finance, jointly organised by Institute of Management Kozhikode (IIMK) and National Stock Exchange (NSE).
In terms of key challenges, M Rajeshwar Rao raised concerns of excessive exposure and over-leveraging, which can create significant vulnerabilities for both individuals and the broader financial system. He said that the central bank has seen some concerns of excessive borrowing in the unsecured segment and from derivative euphoria in the capital markets. “The temptation of short-term gains can easily overshadow the long-term financial security of individuals. Financial entities have a duty to ensure that customers fully understand the risks associated with leveraged products and speculative investing,” he said.
While RBI along with other financial sector regulators is taking progressive steps to educate the customers, M Rajeshwar Rao added, financial sector entities also need to shoulder part of the responsibility.