Financial Inclusion in India ─ Policies and Programmes

It is well-known that in India, while one segment of the population has access to assortment of banking services encompassing regular banking facilities and portfolio counselling, the other segment of underprivileged and lower income group is totally deprived of even basic financial services. Exclusion of large segments of the society from financial services adversely affects the overall economic growth of a country. Apart from the rural areas, there is a significant degree of financial exclusion in urban areas as well. The cost of financial exclusion is recognised to be enormous for the society as well as for individuals, particularly in terms of inability to realise full potential due to financial constraints. The recent developments in banking technology have transformed banking from the traditional brick-and-mortar infrastructure like staffed branches to a system supplemented by other channels like automated teller machines (ATMs), credit/debit cards, internet banking, online money transfers etc. However, access to such technology is restricted only to privileged segments of the society. In order to ensure financial inclusion of the poor, particularly in rural areas, various initiatives have been taken by the Government of India and the Reserve Bank of India (RBI) from time to time. These have included nationalization of commercial banks in 1969 and 1980, establishment and expansion of rural credit co-operatives, regional rural banks (RRBs), urban co-operative banks (UCBs), micro finance and self-help groups (SHGs), mutual funds, pension funds and Pradhan Mantri Jan-Dhan Yojana (PMJDY), 2014. There are several challenges that require concerted efforts from banks, the RBI and the Government to ensure convenient and cost-effective delivery of financial services to the public at large. In particular, the challenge is to introduce innovations in risk assessment, reduce transaction costs, devise new credit delivery channels, and use information technology to make financial inclusion a viable model. Looking to the immense potential lying ahead, rapid progress of financial inclusion efforts in India is the need of the hour. The stakeholders have come to realize the need for viable and sustainable business models which can sharply focus on accessible and affordable financial services, products and processes, synergistic partnerships with non-bank entities including the technology service providers.