Financial inclusion is imperative for inclusive growth. To accelerate the process of financial inclusion, RBI announced in its credit policy for the year 2005-06 a number of measures, including the provision of a gamut of financial services. Initially, banks were advised to open no-frills accounts (since renamed as Basic Savings Bank Deposit account in August 2012, and now under the Jan Dhan Yojana). Later on, state-level banking committees were advised to identify at least one district to achieve 100% financial inclusion on a pilot basis. Banks were also advised to (i) initiate ICT-based business correspondent (BC) model to provide low-cost banking services at the doorstep in remote villages, (ii) draw up board-approved financial inclusion plans (FIP) for 3 years commencing from 2010, (iii) develop a roadmap to cover all villages with population above 2,000 by 2012 and all the villages with a population of ,000 -1,999 by 2013, (iv) make available at least four banking products and (v) open at least 25% of their new branches in previously unbanked rural areas.
Measures initiated towards financial inclusion under the first phase yielded spectacular results, particularly in developing the financial inclusion network. Important among these developments are:
1.the four-fold increase in the number of banking outlets, from 67,694 to 2,68,458,
2.the over two-fold increase in the number of BSBD accounts, from 73 million to 182 million, thanks to the penetration of the banking correspondent services,
3. the more than three-fold increase in the deposits in BSBD accounts,
4. the increase in the number of Kisan credit cards issued, from 24 million to 33 million,
5. the rise in the average annual transaction through Kisan credit cards. From R55,000 to R77,625, and,
6. the fall in the average overdraft per BSBD account, from R555 to R392.
The second phase of financial inclusion plan was launched in 2013 to effect further penetration in unbanked centres. It goes without saying that the Jan Dhan Yojana (2014) gave a big push to financial inclusion. The ultimate objective of financial inclusion is to improve the availability of appropriate financial services, viz., saving, credit, remittances, insurance and products such as credit cards, overdrafts to all the sections of society—and particularly to the poor—at reasonable cost through a regulated institutional network.
It is important to know the impact of these measures on the ground, i.e., at the household level. In the context, the recently-released findings of All India Debt and Investments Survey (AIDIS 2013), carried out as a part of the 70th round of survey of NSSO, are quite relevant and revealing, too. The survey indicates that in rural areas, the percentage of indebted households to institutional agencies (representing credit availability) was 17.2% as against 19% indebted to non-institutional agencies. Evidently, in rural areas, non-institutional agencies like professional money-lenders still rule the roost. Similarly, in rural areas, the share of institutional agencies in terms of total loans outstanding was 56% as against 61.1%in 2002. Thus, in rural areas, the share of institutional agencies is on the decline. This suggests that steps taken under the financial inclusion programme, and the enhancement of farm credit availability through interest rate subvention have not been adequate to replace money-lenders. The presence of new generation institutional agencies, like self-help groups, has not been felt at the grass-root level; as a share of the total outstanding, this was a minuscule 2%. Thus, the spread of micro-finance is still more of a hype than a reality. Further, the analysis of assets group-wise loan outstanding revealed that distribution of institutional credit was highly skewed as compared to non-institutional credit. As for social groups, while SCs and OBCs received a fair deal, STs did not get their due.
The survey noted that about 68.6% of households have bank accounts, 13.2% received remittances and only 7.1% have Kisan credit cards in rural areas. In urban areas, 79.5% of the households have bank accounts. Households reporting remittances were about 13.3% of the total.
The analysis reveals that barring overdrafts facility, banks have done well in terms of taking banking outlets to the villages (of course, through the BC model), opening of BSBD accounts and issuing of Kisan credit cards. But, they still haven’t succeeded in replacing informal credit and ensuring fair distribution of credit across various social groups, particularly to tribals and small-asset holders. The share of institutional credit has declined and the percentage of households indebted to such sources was lower compared to those with non-institutional credit. The higher market share of institutional agencies in the quantum of credit vis-à-vis its lower share in household covered suggest that there was a higher concentration of institutional credit. This defeats the very purpose of the financial inclusion programme. Urgent measures are needed to improve the situation.
The reasons for this disappointing performance at the household level may range from the lack of awareness among households to the apathy of bank staff. Orientation programmes for bank staff and repackaging of financial literacy programme should be taken up with a sense of urgency. There is also a pressing need to envisage targets at the household-level in terms of number of accounts per outlets, amount per account and the coverage of the economically and socially disadvantaged. Banking outlets alone may not derive desirable results. Financial inclusion programme should take off at the ground level.
The author is former director (rural economics), RBI