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CHAPTER-2

STATUS OF FINANCIAL INCLUSION IN INDIA

“There is a compelling moral case for equity; but it is also necessary if there is to

be sustained growth. A country’s most important resource is its people.”

-Joseph E. Stieglitz, Nobel laureate in Economics, 2001

India is a nation of 1.2 billion people, spread across 29 states and seven union

territories. There are around 6, 00,000 villages and 640 districts in our country. Forty per

cent of the households in India have bank accounts, but only 38 per cent of the 87,051

branches of scheduled commercial banks are in rural areas. A vast majority of our

population, especially in rural areas, is excluded from the easy access to finance.

Efforts have been made to provide financial services, especially credit facilities, to

the rural population since the 18th

century. Taccavi loans were provided to the poor

farmers in order to buy seeds and agricultural implements. The institutionalization of

systems for financial inclusion in India began with the establishment of credit

cooperatives following the enactment of the Cooperative Credit Societies Act in 1904.

After Independence, these efforts were intensified, following the recommendations of the

All India Rural Credit Survey Committee of 1954. The expansion of the traditional

commercial banks to rural areas commenced with the nationalization of the Imperial Bank

of India and its conversion to the State Bank of India in 1955. The nationalization of 14

major commercial banks in 1969 and another six commercial banks in 1980, along with

the introduction of the Lead Bank Scheme in 1970, were steps that facilitated rapid

expansion of the banking system into „hitherto unbanked areas.‟ Regional rural banks

(RRBs) were established under the RRBs Act, 1976, to overcome the difficulties faced by

commercial banks, like cultural barriers in dealing with rural people and the high costs

involved in the setting up of rural branches. In Bangladesh, Micro Finance Institutions

(MFIs), particular "Grameen Bank" is playing a very important role to enhance the

financial inclusion. RRBs were envisaged as hybrid banks, incorporating the technical

competence and professionalism of the commercial banking system with the local field-

level knowledge and low-cost structure of the cooperative banking system. The issues of

outreach and credit were fundamental and integral to the concept of RRBs. The creation

of the National Bank for Agriculture and Rural Development (NABARD) in 1982 was

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specifically intended to extend credit and financial services to farmers and the rural

population. The cooperatives, which had made sufficient in Poverty and exclusion

continue to dominate socio-economic and political discourse in India as they have done

over the last six decades in the post-independence period. Poverty reduction has been an

important goal of development policy since the inception of planning in India. Various

anti-poverty, employment generation and basic services programmes have been in

operation for decades in India. The ongoing reforms attach great importance to removal

of poverty and to addressing the wide variations across states. Though the Indian

economy recorded impressive growth rates until recently, its impact has sadly not fully

percolated to the lowest deciles. Despite being one of the ten fastest growing economies

of the world, India is still home to one-third of the world‟s poor.

The Reserve Bank of India setup a commission (Khan Commission) in 2004 to

look into Financial Inclusion and the recommendations of the commission were

incorporated into the Mid-term review of the policy (2005-06). In the report RBI exhorted

the banks with a view of achieving greater Financial Inclusion to make available a basic

"no-frills" banking account. In India, Financial Inclusion first featured in 2005, when it

was introduced, that, too, from a pilot project in UT of Pondicherry, by Dr. K. C.

Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in

India where all households were provided banking facilities. Financial inclusion gained

prime importance since 2005 when Rangarajan Committee was set up to review the

banking practices hindering inclusive growth. India recognized the need for inclusive

growth at the onset of independence. Unfortunately, in spite of having a far-fetched vision

and well intended policies, she is still struggling to achieve its goal of financial inclusion.

The appointment of the Committee on Banking Sector Reforms (R Narasimhan)

in 1998, the Committee on Financial Inclusion (C. Rangarajan) in 2007, and the

agriculture debt waiver and debt relief scheme introduced by the Government of India in

2008 have further pushed the cause of financial inclusion.

The appointment of the Committee in developing economies like India, the banks,

as mobilizer of savings and allocators of credit for production and investment, have a

very critical role. As a financial intermediary, the banks contribute to the economic

growth of the country by identifying the entrepreneurs with the best chances of

60

successfully initiating new commercial activities and allocating credit to them. At a

minimum, all retail commercial banks also provide remittance facilities and other

payment related products. Thus, inherently, the banking sector possesses a tremendous

potential to act as an agent of change and ensure redistribution of wealth in the society.

However, it is disheartening to note that the number of people with access to the

products and services offered by the banking system continues to be very limited even

years after introduction of inclusive banking initiatives in the country through measures

such as the cooperative movement, nationalization of banks, creation of regional rural

banks, etc. As Nobel Laureate Prof. Amartya Sen has also noted, “the thrust of

developmental policy in India has undergone a paradigm shift from an exclusive focus on

efficiency to one on equity; from the rate and pattern of growth, and on inequalities,

distribution of income and wealth to the extent to which people are deprived of the

requirements for leading a fulfilling life and suffer „capability deprivation‟. Over the past

five years, Reserve Bank of India, as also other policy makers have resolutely pursued the

agenda of financial inclusion and achieved discernible progress in improving access to

financial services for the masses. The importance of financial inclusion has been

emphatically underlined in the wake of the financial crisis. The crisis has had a significant

negative impact on lives of individuals globally. Millions of people have lost their

livelihoods, their homes and savings. One of the prominent reasons for the crisis was that

the financial system was focused on furthering its own interests and lost its linkage to the

real sector and with the society at large. The crisis also resulted in a realization that free

market forces do not always result in greater efficiency in the financial system,

particularly while protecting the interests of the vulnerable sections of society. This is due

to the information asymmetry working against these sections, thereby placing them at a

severe disadvantage. In wake of the crisis, therefore, Financial Inclusion has emerged as a

policy imperative for inclusive growth in several countries across the globe. However,

though much lip service has been paid to Financial Inclusion, the actual progress has

remained far from satisfactory. It is regrettable that the entire debate surrounding

financial inclusion has generated significant heat and sound, but little light.

The average population per branch office decreased from 64,000 to 18,000 as on

June 2009. However, there are certain under-banked states such as Bihar, Orissa,

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Rajasthan, Uttar Pradesh, Chhattisgarh, Jharkhand and West Bengal where the branches

are unevenly spread. The extent of financial exclusion is 75 per cent or more in the North

Eastern states of Meghalaya, Arunachal Pradesh, Mizoram, Manipur and Assam.

The bank nationalization phase in India marked a paradigm shift in Indian

banking, as it was intended to shift the focus from class banking to mass banking.

Branches of commercial banks and RRBs have increased from 8321 in 1969 to 100,277

as on December 31, 2012. However, the progress is far from satisfactory as evidenced by

the World Bank Findex Survey (2012). According to the survey findings, only 35% of

Indian adults had access to a formal bank account and 8% borrowed formally in the last

12 months. Only 2% of adults used an account to receive money from a family member

living in another area and 4% used an account to receive payment from the Government.

The miniscule numbers suggest a crying need for a further push to the financial inclusion

agenda to ensure that the people at the bottom of the pyramid join the formal financial

system, reap benefits and improve their financial well-being.

Major attempts to provide financial access to the population have been

summarized in Table

Figure 2.1

Major Milestones of Financial Inclusion in India

1969 Nationalization of Banks

1971 Establishment of priority Sector Lending Banks

1975 Establishment of Regional Rural Banks

1982 Establishment of NABARD

1992 Launching of the Self Help Groups bank Linkage Programme

1998 NABARD sets a goal for linkage one million SHGs by 2008

2000 Establishment of SIDBI foundation for Micro Credit

2005 One million SHG linkage target achieved three years ahead of date

2006 Committee on Financial Inclusion

2007 Proposed Bill on Micro Finance Regulation introduced in parliament

2008 Committee submitted its final report on Financial Inclusion to Union

Finance Minister in January

2013 Unique Identification Number (AADHAR) and the Direct Benefit Transfer

(DBT) Scheme

There are 67 RRBs in India with a total network of 16,000 branches as on January

2013. The introduction of a universal and targeted public distribution system (PDS), the

62

provision for employment in rural areas through the National Rural Employment

Guarantee Scheme (NREGS), the implementation of the project to bring the population

under a unique identification number (AADHAR) and the Direct Benefit Transfer (DBT)

scheme in 2013 are the most recent measures by the government to realize inclusive

growth targets.

Global Experience in Promoting Financial Inclusion

Nowadays, enhancement of financial inclusion is the main objective of every

country's financial policy. The United Kingdom was one of the first countries to realise

the importance of financial inclusion and has established a Financial Inclusion Fund to

promote the same and assigned responsibility to banks and credit unions in removing

financial exclusion. In United States of America, the "Community Reinvestment Act-

(1977)" has been enacted to contribute to financial inclusion and it prohibits

discrimination by banks against families with low and moderate incomes. During 2003,

legislation entitled "Access to Basic Banking Services Regulations" was introduced in

Canada to ensure that all Canadians could obtain personal bank accounts without

difficulty. In South Africa, "MZANSI" a low cost national bank account was launched in

October 2004 extending banking services to low income segments and especially to that

segment for which the banking services were elusive till recently. Chaia et al. (2010)

using cross-country data from previous research studies estimate the size of the world's

adult population that doesn't use formal (and semi-formal) financial services. They find

that over half of the world's population (2.5 billion adults) do not use formal financial

services for either saving or borrowing purposes and that nearly 90 percent of this

population lives in Asia, Africa, Latin America and the Middle East.

India’s Experience in Promoting Financial Inclusion

Since independence Government had been thinking of financial inclusion but it

took steps for its implementation on war footing much later. The process of financial

inclusion in India can broadly be classified into three phases. During the First Phase

(1960-1990), the focus was on channeling of credit to the neglected sectors of the

economy. Special emphasis was also laid on weaker sections of the society. The second

Phase (1990-2005) focused mainly on strengthening the financial institutions as part of

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financial sector reforms. During the Third Phase (2005 onwards), the financial inclusion

was explicitly made as a policy objective and thrust was on providing the safe facility of

savings deposits.

There are several benchmarks employed to assess the penetration of financial

services in a country. For instance, the quantum of current and savings account (CASA)

deposits held as a ratio to the adult population can be used to measure the reach of

financial inclusion within a specific country, or to compare it to other countries.

According to the 2001 Census, India‟s CASA ratio to the total adult population was 59.

Even within the country there was a huge disparity among states. The ratio for Kerala was

89, while that for Bihar was 33. The northern region (Haryana, Chandigarh and Delhi)

had a high coverage ratio of 84, compared to the meager coverage ratio of 21 for

Nagaland and 27 for Manipur.

Historically, the Reserve Bank of India (RBI) and the Government of India have

been making efforts to increase banking penetration in the country. Notwithstanding

various improvements, financial inclusion found a place in the every financial policy of

the RBI. The RBI has undertaken number of measures with the objective of attracting the

financially excluded population into the structured financial system. In addition to these,

some of the other major initiatives taken by RBI and Government are as follows: Opening

of No Frills Accounts, Easier Credit facility by introducing a General Purpose Credit

Card facility up to Rs.25,000, Simpler 'Know Your Customer' (KYC) procedure, Use of

Information Technology, implementation of Business Correspondent (BC) Model and

Project Financial Literacy, Financial Literacy and Credit Counseling programme and

establishment of Financial Inclusion Fund.

Comparison of India with Other Countries

India and the UK are at the forefront of such efforts, and both have made key

strides in supporting and enabling banks, post offices, insurers and credit providers to

offer services to all their citizens.

Both countries have established bodies specifically to tackle the issues of financial

inclusion, setting ambitious targets. In the UK, the Financial Inclusion Taskforce oversees

over £250 million of government spending and measures progress towards targets for

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delivering banking services, credit and debt advice. The Indian Committee on Financial

Inclusion is headed by Sri C. Rangarajan, the Chairman of the Economic Advisory

Council to the Indian Prime Minister. India‟s National Rural Financial Inclusion Plan

aims to reach at least 50 per cent, or 56 million, of financially excluded households by

2012 through rural/semi-urban branches of commercial and regional rural banks, with full

inclusion to be achieved by 2015.

Both countries have also made significant progress. In India, the number of “no-

frills” accounts with low or nil minimum balances rose from around half a million

accounts in March 2006 to 15 million in 2008, with smart cards accounting for two to

three million of these accounts. Meanwhile, the existing branch network in India 45,000

rural and semi-urban branches has enabled public sector banks and the regional rural

banks to scale up their efforts by leveraging on the existing capacity.

Both India and UK recognize that by encouraging and supporting people to

manage their finances, they can reduce the impact of poverty and help families to sustain

themselves, start small businesses and allow enterprise to flourish. They realize that

excluding those on low incomes from financial services creates a lack of cash flow for

poor families, recourse to expensive moneylenders and the inability to save for

emergencies such as sickness and poor harvests, or for older age.

The UK Government and industry are already working in partnership with India to

build on our shared experience of encouraging financial inclusion through making bank

accounts more accessible, extending credit facilities, and supporting microfinance

initiatives and self-help groups.

Many UK companies have also shown their commitment to promoting financial

inclusion in India, particularly to the rural poor, by striving to extend the accessibility of

financial products such as bank accounts and microfinance to all.

“UK companies are in India for the long-term,” says Vicki Treadell, British

Deputy High Commissioner based in Mumbai. “They see their role as playing an

important part in fuelling the growth of the Indian economy not just servicing successful

metropolitan companies but also reaching out to ordinary people. By following

programmes of branch expansion, improving financial literacy and leveraging IT

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solutions to extend reach, they are demonstrating their determination to make financial

services available to all.”

Around the world, there is more attention than ever to the ways in which access to

financial services accelerates progress toward development and the persisting needs we

still face. This has spurred a first wave of high-level commitments by governments,

international agencies, the private sector, and others to make the vision of financial

inclusion a reality. G20 leaders recognized financial inclusion as a cross-cutting issue for

development and economic system stability, and included it in work plans. In 2012, 17

countries committed to create cross-sector coordination platforms and national strategies

under the G20, and the AFI Maya Declaration has gained over 30 commitments from

national regulators and policy makers. Unique partnerships are forming, for example the

Better than Cash Alliance brings together private sector, donors and governments to

advance the use of digital channels. ASEAN leaders recognized financial inclusion as a

key to inclusive and sustained growth for the region, and global standard setters have

incorporated financial inclusion considerations into their guidelines for banking

regulation and supervision.

The extent of financial services outreach is very low in India especially when

compared with developed countries. For instance, 92-94 per cent population of the UK

either has a current or savings bank account. The Reserve Bank of India (RBI) has

actively sought to address this problem with a slew of measures, including a new

licensing policy for banks that mandates 25 per cent of their branches must be opened in

rural areas that are largely excluded from the mainstream financial economy.

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A financial inclusion survey was conducted by World Bank team in India between April-June 2011 which included face to

face interviews of 3,518 respondents

Table 2.1

Key Statistics on Financial Inclusion in India: A Survey

Share with an account

at a formal financial

institution

Adults saving in the

past year

Adults originating a

new loan in the past

year

Adults with

a credit card

Adults with an

outstanding

mortgage

Adults paying

personally for

health and

insurance

All

Adults

Poorest

income

Quintile

Women Using a

formal

account

Using a

Community

based

method

From a

formal

financial

institution

From a

family or

friends

India 35 21 26 12 3 8 20 2 2 7

World 50 38 47 22 5 9 23 15 7 17

*Source: Asli Demirguc - Kunt and Klapper, L. (2012): .Measuring Financial Inclusion., Policy Research Working Paper, 6025,

World Bank, April.

The results of the survey suggest that India lags behind developing countries in opening bank accounts, but is much closer to

the global average when it comes to borrowing from financial institution. In India, 35 percent of people had formal accounts versus

the global average of 50 per cent.

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Present Status of Financial Inclusion in India

In order to study the important aspects of financial inclusion it is important to

know the method to measure the financial inclusion. There are many methods for

measurement of financial inclusion but according to Thorat (2006) one common

measure of financial inclusion is the percentage of adults with bank accounts (deposit

and credit). A study by Chakrabarty (2006) showed that in India there are 17 credit

accounts and 54 saving accounts per 100 persons and at the same time only 13 percent

people are availing loans from the banks in the income bracket of less than Rs. 50000

per annum. Leeladhar's (2006) study revealed that one of the benchmarks employed to

assess the degree of reach of financial services to the population of the country, is the

quantum of deposit accounts (current and savings) held as a ratio to the adult

population. In Indian context, taking into account the census of 2001, the ratio of

deposit accounts to the total adult population was only 59 percent. But within the

country, there is a wide variation across states. For instance, the ratio for the state of

Kerala is as high as 89 percent while Bihar is marked by a low coverage of 33 percent.

A study by Sharma (2007) has evolved a concept of "Index of Financial Inclusion" to

make it a more comprehensive indicator of inclusion in an economy. The index is an

amalgamation of three aspects of the financial inclusion; penetration of the banking

system, its availability to users and its actual usage. All these aspects are measured by

using data on number of bank accounts per hundred population, number of bank

branches per thousand populations and the size of bank credit and deposits relative to

the GDP respectively. According to this study in the group of 100 countries, India's rank

was 50 while Spain's and Switzerland's ranks were first and fifth respectively. Sangwan

(2008) revealed that as on 31st March 2006 in India the saving accounts per 100 adult

populations were 63 and credit accounts were only 16. Conory (2008) pointed out that

the exclusion of people from financial services is a general problem, to which

microfinance is one of the possible solution. It is a powerful tool for achieving higher

levels of financial inclusion efficiency and equity benefits in developing economies.

Subbarao (2010) pointed out that efforts at financial inclusion are not new; both the

government and RBI have been pursuing this goal over the last several decades through

building the rural cooperative structure in the 1950s, the social contract with banks in

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the 1960s and the expansion of bank branch network in the 1970s and 1980s. These

initiatives have paid off in terms of a network of branches across the country. Yet the

extent of financial exclusion is staggering and the RBI approach to financial inclusion

aims at 'connecting people' with the banking system and not just opening accounts.

Lyngdoh and Pati (2010) concluded that microfinance based financial inclusion has

ensured that the underprivileged and downtrodden are taken special care of. It has led to

their economic empowerment and subsequently in socio-political development outcomes i.e.

inclusive growth. Gokarn (2011) observed that the process of financial inclusion is going

to be incomplete and inadequate if it is measured only in term of new accounts being

opened and operated. Actually a huge proportion of the Indian workforce is either self-

employed or in the causal labour segment which suggests the need for products that will

make access to credit easier to the former, while offering opportunities for risk

mitigation and consumption smoothing to the latter.

India is one country where the Financial Stability and Development Council

(FSDC) has a specific mandate for financial inclusion and financial literacy. There is a

separate Technical Group on Financial Inclusion and Financial Literacy under the aegis

of FSDC with representation from all the financial sector regulators.

In order to spearhead efforts towards greater financial inclusion, RBI has

constituted a Financial Inclusion Advisory Committee (FIAC) under the Chairmanship

of a Deputy Governor from RBI. The FIAC has few Directors from the Central Board

of RBI and experts drawn from NGO sector/other civil society representatives, etc. as

members. The collective expertise and experience of the members is expected to be

leveraged to explore issues such as developing viable and sustainable banking services

delivery models focusing on accessible and affordable financial services, developing

products and processes for rural as well as urban unbanked consumers.

At the state level, we have State Level Bankers Committees (SLBC) in all the

states. Going further down, we have Lead District Managers in all the 659 districts, with

recent inclusion of the metropolitan areas into the Lead Banks Scheme.

About 700 financial literacy centres have been set up by banks. There are Rural

Self-Employment Training Institutes (R-SETI), working towards capacity building for

taking up self employment ventures.

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In India RBI have encouraged banks to adopt a structured and planned approach

to financial inclusion with commitment at the highest levels, through preparation of

Board approved Financial Inclusion Plans (FIPs). The first phase of Financial Inclusion

Plans was implemented over the period 2010-2013. The Reserve Bank has sought to use

the Financial Inclusion Plans as the basis for Financial Inclusion initiatives at the bank

level. Reserve Bank has put in place a structured, comprehensive monitoring

mechanism for evaluating banks‟ performance against their Financial Inclusion Plans.

Annual review meetings are being held with CMDs of banks to ensure top management

support and commitment to the Financial Inclusion process.

Self Help Groups (SHGs) are playing a very important role in the process of

financial inclusion. A most notable milestone in the Self Help Groups movement was

when NABARD launched the pilot phase of the SHG Bank Linkage programme in

February 1992. The Self Help Groups movement in India has enabled social and

economic inclusion of people. The Self Help Groups Bank Linkage movement, where

SHGs are linked to banks in a gradual way-initially through savings and later through

loan products, has been able to ensure financial inclusion to a certain extent. The Self

Help Groups have become the common vehicle of development process covering all

development programmes. The number of Self Help Groups banks linked in India

increased from 255 in 1992-93 to 1609586 in 2008-09. In the same way loan disbursed

to these Self Help Groups increased from Rs.0.29 crore in 1992-93 to Rs. 12253.51

crore in 2008-09. Thus, from 1992-93 to 2008-09 the number of SHGs have increased

by 6312 times and the bank's loan disbursement to 42253.48 times. During 2008-09, the

commercial banks had lead in disbursement of loan to Self Help Groups with 62.4

percent share followed by RRBs with 25.2 percent and co-operative banks with a share

of 12.4 per cent. During the same year commercial banks disbursed Rs. 8060.53 crore

(65.8 percent) to 1004587 SHGs, RRBs Rs. 3193.49 crore (26.1 percent) to 405569

SHGs and co-operative banks Rs. 999.49 crore (8.2 percent) to 199430 SHGs.

Progress made by Banks under the Financial Inclusion Plans

(April 2010 – March 2013)

A snapshot of the progress made by banks under the Financial Inclusion Plans

(April 2010 – March 2013) for key parameters, during the three year period is as under:

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• Nearly 2, 68, 000 banking outlets have been set up in villages as on March 13 as

against 67,694 banking outlets in villages in March 2010

• About 7400 rural branches opened during this period

• Nearly 109 million Basic Savings Bank Deposit Accounts (BSBDAs) have been

added, taking the total no. of BSBDAs to 182 million. Share of ICT based

accounts have increased substantially – Percentage of ICT accounts to total

BSBDAs has increased from 25percent in March 10 to 45percent in March 13

• With the addition of nearly 9.48 million farm sector households during this

period, 33.8 million households have been provided with small entrepreneurial

credit as at the end of March 2013

• With the addition of nearly 2.25 million non farm sector households during this

period, 3.6 million households have been provided with small entrepreneurial

credit as at the end of March 2013.

• About 4904 lakh transactions have been carried out in ICT based accounts

through BCs during the three year period

It is important to analyze this progress against some disconcerting trends that

were noticed in the run up to the structured Financial Inclusion initiatives that the banks

launched since 2010 onwards. First, the number of banked centres in the country

between 1991 and 2007 had actually come down (from 35236 to 34471). Second, the

number of rural branches during the same period had also declined significantly (from

35206 to 30409).

Against this backdrop, the progress made during 2010-13 is certainly

remarkable. In order to continue with the process of ensuring access to banking services

to the excluded, banks have now been advised to draw up a fresh 3 year Financial

Inclusion Plan for the period 2013-16. Banks have also been advised that the FIPs

prepared by them are disaggregated and percolated down up to the branch level. The

disaggregation of the plans is being done with a view to ensure involvement of bank

staff across the hierarchy, in the FI efforts and also to ensure uniformity in the reporting

structure under the Financial Inclusion Plan. The focus is also now more on the volume

of transactions in new accounts opened as a part of the financial inclusion drive.

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Table 2.2

Bank-Branch and ATM Net-work

No. of Branches of Scheduled Commercial Banks as on 31st March, 2013

Bank Group-wise Number of Branches as on 31.03.2013

Bank Group Rural Semi-urban Urban Metropolitan Total

Public Sector Banks 23286 18854 14649 13632 70421

Private Sector Banks 1937 5128 3722 3797 14584

Foreign Banks 8 9 65 249 331

Regional Rural Banks 12722 3228 891 166 17007

Total 37953 27219 19327 17844 102343

Table 2.2 provides some extent of financial inclusion in India. It is revealed

from the table the expansion of Bank Group wise number of Branches till 31 March

2013. These banks include public section banks, private sector banks, foreign banks and

regional rural banks. There are 37953 bank branches in rural area, 27219 branches in

semi-urban areas, and 19327 branches in metropolitan area. The total numbers of

branches are 102343 till 31 March 2013.

Table 2.3

No. of functioning branches of Scheduled Commercial Banks: 2009-2013

As on Rural Semi-urban Urban Metropolitan Total

March 31, 2009 31476 19126 15273 14325 80200

March 31, 2010 32493 20855 16686 15446 85480

March 31, 2011 33905 23114 17599 16419 91037

March 31, 2012 36356 25797 18781 17396 98330

March 31, 2013 37953 27219 19327 17844 102343

Table 2.3 shows the number of functioning branches of scheduled commercial

banks from 2009 to 2013. The number of functioning branches in 2009 in rural areas

was 31476 which increased to 37953 till 31 March 2013. Also the number of branches

increased from 19126 to 27219 in semi-urban areas during the period 2009 to 2013. In

urban area, the numbers of branches increased from 15273 to 19327 till March 2013.

Number of branches has also shown a change in metropolitan areas by increasing from

14325 to 17844 till 2013. The total number of functioning branches of scheduled

commercial banks was 80200 in 2009 which increased to 102343 in 2013

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Table 2.4

No. of branches of Scheduled Commercial Banks opened: 2008-09 to 2012-13

Year Rural Semi-urban Urban Metropolitan Total

2008-09 706 1290 1046 953 3995

2009-10 1021 1729 1417 1139 5306

2010-11 1422 2258 919 981 5580

2011-12 2453 2686 1186 982 7307

2012-13* 1598 1422 546 451 4017

*provisional

Table 2.4 depicts the number of branches of scheduled commercial banks which

were opened during the time period of 2009 to 2013. Through this table we can see that

in 2009 the number of branches was 706 which increased to 1598 in 2013. The number

of branches in semi-urban area was also increased from 1290 in 2009 to 1422 in 2013.

In urban area the number of branches was 1046 in 2009 which declined to 546 in 2013.

There was also decline in number of branches in metropolitan area. The number of

branches in 2009 was 953 which declined to 451 in 2013. The total numbers of

branches in different areas increased from 3995 in 2009 to 4017 in 2013.

Table 2.5

No. of villages and Average Population per Branch (APPB)

Number of villages in India as per 2001 Census 600,000 (approx.)

Average Population per Bank Branch (APBB) as on

31.03.2013

12,100

Table 2.5 shows the number of villages in India. As per 2001 Census it was

600,000 (approx) and also average population per bank branch (APBB) as on

31.03.2013 was 12,100.

Table 2.6

No. of bank branches of SCBs over the years

Number of scheduled commercial bank

branches as on 31st December, 1969

8,826

Number of scheduled commercial bank

branches as on 31st March, 1990

59,762

Number of scheduled commercial bank

branches as on 31st March, 2013

1,02,343

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Table 2.6 shows the number of bank branches of Scheduled Commercial Bank

ranches (SCB) from the time period of 1969 to 2013. Number of Scheduled

Commercial Bank Branches on 31 December 1969 was 8826 which increased to

1,02,343 in 31 March 2013.

Table 2.7

Number of ATMs in the country as on 31st March, 2013

Rural Semi-urban Urban Metropolitan Total

Public Sector Banks 8552 18445 22518 20137 69652

Old Private Sector Banks 768 2760 2354 1684 7566

New Private Sector Banks 2214 6484 10995 15842 35535

Foreign Banks 30 21 244 966 1261

Total 11564 27710 36111 38629 114014

Table 2.7 shows the expansion of number of ATM in the country till 31 March

2013. The number of ATMs in rural area was 11564 in 2013. In semi-urban area it was

2710. The number of ATM in urban and metropolitan areas was 36111 and 38629,

respectively, in 2013. The total number of ATM is 104014.

Crisil Inclusix

On June 25, 2013, CRISIL, India's leading credit rating and Research Company

launched an index to measure the status of financial inclusion in India. CRISIL Inclusix

is a one-of its- kind tool to measure the extent of inclusion in India, right down the 632

districts. CRISIL Inclusix is a relative index on a scale of 0 to 100, and combines three

critical parameters of basic banking services- branch penetration, deposit penetration,

and credit penetration – into one metric. A CRISIL Inclusix score of 100 indicates the

ideal state for each of the three parameters.

On the basis of the given review of literature, the researcher identified four

parameters to analyse impact of Financial Inclusions, namely; Bank Branches, Credit

Account, Savings Account, and Credit-Deposit Ratio. This chapter shows comparative

study among these parameters during the period 2000-2010.

74

Figure 2.2

Dimensions and Parameters used to measure Financial Inclusion

Parameters Significance Interpretation

No. of Bank Branches No. of Bank Branches

(all SCBs)

Per Thousand in a State

Measures the ease with which

people in a particular territory

can access banking services

The higher the better

Credit Accounts(CP)

No. of loan accounts per

thousand of population in a

State

Measures the extent of access

to loan products offered by

banks in a particular territory

The higher the better

No. of small borrower loan

accounts as defined by RBI per

thousand of population in a

State (small borrowers with a

sanctioned credit limit of upto

Rs. 2 akh)

Measures access to credit for

small borrowers, who typically

face financial non-inclusion

The higher the better

No. of agriculture advances per

lakh of population in a State

Measures farmers‟ access to

credit

The higher the better

Deposit Accounts (DP) No. of saving deposit accounts

per thousand of population in a

State

Measures the extent of access

to savings products offered by

banks in a particular territory

The higher the better

Credit –Deposit Ratio Ratio of Loan given to people

and saving deposited by the

people in bank

Gives the idea how much

amount is given by the bank to

the people and how much

money is deposited by the

people in the banks

The higher the better

*Source: CRISIL INCLUSIX, June 2013

75

Table 2.8

Bank Branches per 1000 population: 2000-2010

States 2000 2002 2004 2006 2008 2010

Northern Region 0.081 0.079 0.078 0.08 0.087 0.095

Haryana 0.072 0.072 0.072 0.074 0.083 0.096

Himachal Pradesh 0.129 0.125 0.122 0.126 0.136 0.15

Jammu & Kashmir 0.082 0.079 0.076 0.079 0.083 0.86

Punjab 0.104 0.106 0.107 0.104 0.113 0.123

Rajasthan 0.06 0.058 0.056 0.055 0.059 0.062

Chandigarh 0.22 0.021 0.21 0.21 0.22 0.22

Delhi 0.106 0.106 0.105 0.115 0.13 0.14

Northern -Eastern Region 0.05 0.048 0.047 0.046 0.048 0.051

Arunachal Pradesh 0.063 0.061 0.058 0.054 0.056 0.058

Assam 0.047 0.045 0.044 0.044 0.046 0.048

Manipur 0.038 0.033 0.031 0.03 0.028 0.029

Meghalaya 0.079 0.076 0.074 0.075 0.076 0.081

Mizoram 0.089 0.087 0.081 0.078 0.083 0.086

Nagaland 0.036 0.033 0.039 0.039 0.042 0.045

Tripura 0.057 0.056 0.055 0.054 0.057 0.063

Eastern Region 0.052 0.051 0.05 0.049 0.051 0.055

Bihar 0.062 0.042 0.04 0.03 0.039 0.042

Jharkhand NA 0.053 0.052 0.123 0.054 0.059

Orissa 0.061 0.06 0.059 0.059 0.063 0.069

Sikkim 0.086 85 0.085 0.096 0.118 0.121

West Bengal 0.056 0.055 0.054 0.054 0.057 0.06

Andaman & Nicobar Islands 0.086 0.083 0.08 0.079 0.08 0.075

Central Region 0.053 0.052 0.05 0.049 0.052 0.056

Chhattisgarh NA 0.04 0.047 0.04 0.04 0.05

Madhya Pradesh 0.076 0.056 0.0541 0.053 0.055 0.059

Uttar Pradesh 0.055 0.048 0.046 0.046 0.048 0.052

Uttarakhand NA 0.098 0.097 0.098 0.109 0.121

Western Region 0.071 0.069 0.067 0.067 0.071 0.078

Goa 0.241 0.24 0.23 0.234 0.24 0.25

Gujarat 0.074 0.072 0.07 0.069 0.073 0.08

Maharashtra 0.06 0.065 0.064 0.064 0.067 0.074

Dadra & Nagar Haveli NA NA NA NA NA NA

Daman & Diu NA NA NA NA NA NA

Southern Region 0.082 0.081 0.081 0.082 0.089 0.099

Andhra Pradesh 0.069 0.068 0.068 0.068 0.075 0.084

Karnataka 0.092 0.091 0.09 0.091 0.097 0.105

Kerala 0.104 0.105 0.106 0.109 0.117 0.127

Tamil Nadu 0.079 0.077 0.076 0.077 0.086 0.096

Lakshadweep NA NA NA NA NA NA

Pondicherry 0.08 0.08 0.08 0.08 0.1 0.12

ALL-INDIA 0.06 0.06 0.063 0.06 0.06 0.07

76

Table 2.8 depicts the bank branches expansion per 1000 population in different

regions of the country during the time period of 2000 to 2010. So far as northern region

of the country is concerned, in the year 2000, state of Haryana was at the level of 0.072

and it remained same in 2002 and 2004. It increased to 0.074 in 2006 and 0.08 in 2008

but in 2010 it achieved the level of 0.096. In case of the state of Himachal Pradesh it

was at the level of 0.129 in 2000 which declined to the level of 0.125 in 2002 and

further declined to 0.122 in 2004. In 2006 it increased slightly to the level of 0.126 and

further increased to the level of 0.136 in 2008. But in the year 2010 it fell to the level of

0.015. In case of Jammu & Kashmir, it was 0.082 in 2000, 0.079 in 2002, 0.079 in

2006, 0.083 in 2008 and 0.086 in 2010. In case of Punjab, it showed a significant

increasing trend in bank branches. It was 0.104 in 2000, 0.106 in 2002, 0.107 in 2004,

0.003 in 2008 and 0.123 in 2010.In North-East Region, the trend in bank branches per

1000 population has grown from the level of 0.05 in 2000 to 0.051 in 2010.As far as the

state of Arunachal Pradesh is concerned, it was at the level of 0.063 in 2000 which

declined to 0.061 in 2002. Again it increased to the level of 0.058 in 2004 and again

declined to the level of 0.054 in 2006. It again achieved the level of 0.056 in 2008 and

then 0.058 in 2010.In case of Assam, it was 0.047 in 2000 then declined in the year

2002 and kept on declining in the years 2004 and 2006. It started increasing in the years

2008 and 2010 by attaining the levels of 0.046 and 0.048, respectively. In Eastern

Region, the trend in bank branches per 1000 population has grown from the level of

0.052 in 2000 to 0.055 in 2010.So far as the state of Orissa is concerned, it was 0.061 in

the year of 2000 then it declined to the level of 0.060 in the year 2002 then again

declined to the level of 0.059 in 2004. After that it remained same in the year 2006 and

again started increasing and attained the level of 0.063 in 2008 and 0.069 in 2010.Same

trend was found in the state of West Bengal. In Central Region, the trend in expansion

of bank branches has grown from the level of 0.058 in 2000 to 0.056 in 2010.So far as

the state of Uttar Pradesh is concerned; it was at the level of 0.55 in 2000. Then it

declined to 0.048 in 2002 and 0.046 in 2004 and remained stable in 2006.Then again it

increased to the level of 0.048 in 2008 and then 0.052 in 2010. In case of Uttrakhand,

the bank branch expansion was 0.098 in the year 2002 then it declined to 0.09 in 2004.

It again increased to the level of 0.098 in 2006, 0.109 in 2008 and 0.121 in 2010.In

77

Western Region, the trend in expansion of bank branches has grown from the level of

0.071 in 2000 to 0.078 in 2010. So far the state of Goa is concerned it was at the level

of 0.24 in 2000 which declined to the level of 0.240 in 2002. It increased to the level of

0.230 in 2004, 0.234 in 2006, 0.240 in 2008 and 0.250 in 2010.In Southern Region, the

trend of expansion of bank branches has grown from the level of 0.082 in 2000 to 0.099

in 2010. So far as the state of Kerala is concerned, it showed a significant increase in

this trend. It was 0.104 in 2000, 0.105 in 2002, 0.106 in 2004, 0.109 in 2006, 0.117 in

2008 and 0.127 in 2010.In case of Tamil Nadu, it was 0.079 in 2000. It declined to the

level of 0.077 in 2002, 0.076 in 2004. It increased to the level of 0.77 in the year 2006

and kept on increasing by attaining the level of 0.086 in 2008 and 0.096 in 2010.In case

of All India, it has grown from the level of 0.06 in 2000 to 0.07 in 2010. It was 0.06 in

2006, 0.063 in 2004, 0.06 in 2006 and 0.06 in 2008.

78

Table 2.9

Credit Accounts per 1000 Population: 2000-2010

States 2000 2002 2004 2006 2008 2010

Northern Region 49.2 51.81 49.09 62.65 70.14 70.4

Haryana 50.7 48.4 48.46 60.8 62.8 76.3

Himachal Pradesh 58.2 55 57.9 67.5 72.4 81.3

Jammu & Kashmir 30.03 35.63 33.9 42.84 57.97 51.8

Punjab 64.04 67.9 60.7 66.9 70.5 77.2

Rajasthan 37.5 38.1 37.38 46.13 51.8 55.8

Chandigarh 167.4 109.4 101.9 143.8 164.5 193.6

Delhi 70.47 91.3 80.96 131.6 155.2 106.6

Northern -Eastern Region 34.19 29.65 30.06 39.48 46.02 51.44

Arunachal Pradesh 35.7 25.8 26.9 32.5 41.22 45.2

Assam 27.6 23.8 26.33 35.6 42.5 49

Manipur 22.02 14.34 15.78 25.6 28.46 31.4

Meghalaya 35.08 29.95 32.09 48.99 50.58 49.42

Mizoram 26.1 28.2 37.11 41.17 53.7 61.9

Nagaland 16.4 12.5 17.4 29.8 45.2 50

Tripura 108.7 101.8 76.7 82.2 85.2 88.3

Eastern Region 43.44 39.82 37.98 44.8 46.47 50.25

Bihar 41.65 25.82 26.19 31.27 34 42.3

Jharkhand NA 37.6 34.2 43.3 43.3 46.21

Orissa 65 62.54 60.94 72.43 78.02 80.63

Sikkim 32.07 30.35 43.85 60.34 68.33 72.13

West Bengal 50.07 44.87 41.19 45.45 45.13 45.95

Andaman & Nicobar Islands 33.3 32.43 35 46.51 43.47 53.06

Central Region 35.22 34.96 36.72 43.06 45.53 50.38

Chhattisgarh NA 24.7 27.2 34.5 38.1 40.04

Madhya Pradesh 44.9 34.53 34.22 45.1 46.96 54.45

Uttar Pradesh 37.94 35.56 37.95 42.14 44.64 48.79

Uttaranchal NA 51.4 53.8 67.4 71.3 78.8

Western Region 47.04 47.55 57.9 75.72 174 168.5

Goa 94.7 91.4 83.1 117.1 123.3 130.2

Gujarat 40.67 40.7 37.85 48.61 55.76 59.65

Maharashtra 49.6 50.41 68.05 89.23 236.8 226.1

Dadra & Nagar Haveli NA NA NA NA NA NA

Daman & Diu NA NA NA NA NA NA

Southern Region 93.94 98.12 128.04 163.9 164.5 193.4

Andhra Pradesh 87.2 92.4 98.3 124.4 142.7 161.5

Karnataka 97 104.1 108 135.3 135.8 147

Kerala 111.9 115.8 123 186.2 167.2 174.4

Tamil Nadu 90.2 90.9 184.6 226.7 215.1 283.4

Lakshadweep NA NA NA NA NA NA

Pondicherry 95.8 85 97.1 135.1 167.8 211.1

ALL-INDIA 53.3 53.3 60.9 76.1 92.7 100

79

Table 2.9 shows the trend in credit account in India from the year 2000 to 2010.

In Northern Region, the trend in credit account per 1000 population has grown from the

level of 49.2 in 2000 to the level of 70.4 in 2010 following the corresponding levels of

51.81. 49.09. 62.65 and 70.14 in the years of 2002, 2004, 2006, and 2008, respectively.

So far as the state of Haryana is concerned it was at the level of 50.7 in 2000 which

declined to the level of 48.4 in 2002 and retained the same level of 48.4 in 204 also.

After 2004, it increased interestingly and reached the level of 60.8 in 2006, 62.8 in 2008

and 76.3 in 2010. Similar trend was found in respect of the state of Himachal Pradesh

which was 58.2 in 2000, 55 in 2002, 57.9 in 2004, 67.5 in 2006 72.4 in 2008 and 81.3 in

2010. In North-East Region, the trend in credit account per 1000 population has grown

from the level of 34.19 in 2000 to 51.44 in 2010. So far as the state of Arunachal

Pradesh is concerned it was at the level of 35.7 in 2000 which declined to the level of

25.8 in 2002. From the year 2004 to 2010 there was found an increasing trend in this

regard by attaining the level of 26.9, 32.5, 41.22 and 45.2 during the years 2004, 2006,

2008 ad 2010, respectively. Almost the same trend was followed in the states of Assam

and Manipur. In case of the state of Mizoram, a significant increasing trend was found.

It was at the level of 26.1 in 2000, 28.2 in 2002, 37.11 in 2004, 41.17 in 2006, 53.7 in

2008 and 61.9 in 2010. The state of Nagaland has followed almost the same trend. But

in case of the state of Tripura it was completely adverse. A declining trend was there in

this regard. It was at the level of 108.7 in 2000, 101.8 in 2002 and 76.7 in 2004. After

2004, it started increasing by attaining the level of 82.2 in 2006, 85.2 in 2008 and 88.3

in 2010. In Eastern Region, the trend in credit account per 1000 population has grown

from the level of 43.44 in 2000 to 50.25 in 2010. In case of the state of Bihar, it was at

the level of 41.65 in 2000 which declined to the level of 25.82 in 2002. From the year

2004 there was an increasing trend till 2010 in this regard by attaining the level of

26.19, 31.27, 34 and 42.3 during the years 2004, 2006, 2008 and 2010, respectively.

Almost the same trend was found in case of the states of Orissa and Sikkim. In Central

Region, the trend in credit account per 1000 population has grown from the level of

35.22 in 2000 to the level of 50.38 in 2010. So far as the state of Chhattisgarh in

concerned, an increasing trend was found there in this regard. It was 24.7 in 2002, 27.2

in 2004, 34.5 in 2006, 38.1 in 2008 and 40.04 in 2010. Almost the same trend was

80

found in case of the state of Uttaranchal. In case of the state of Uttar Pradesh, it was

37.94 in 2000, which declined to the level of 35.56 in 2002. From the year 2004 to

20110 there was an increasing trend with regard to credit accounts per 1000 population

by attaining the level of 37.95, 42.14, 44.64 and 48.79 during the years 2004, 2006,

2008 and 2010, respectively. Almost the same trend was found in case of the state of

Madhya Pradesh. In Western Region, the trend in credit accounts per 1000 population

has grown significantly from the level of 47.04 in 2000 to the level of 168.5 in 2010.So

far as the state of Goa is concerned; it was at the level of 94.7 in 2000, which declined

to 91.4 in 2002 and 83.1 in 2004. From the year 2006 to 2010 a significant increasing

trend was there in this regard by attaining the level of 117.1, 123.3 and 130.2 during the

years 2006, 2008 and 2010, respectively. In Southern Region the trend in credit account

per 1000 population has grown from the level of 93.94 in 2000 to 193.4 in 2010. So far

as the states of Andhra Pradesh and Karnataka are concerned, a significant increasing

trend was there. In case of Andhra Pradesh, it was at the level of 87.2 in 2000, 92.4 in

2002, 98.3 in 2004, 124.4 in 2006,142.7 in 2008 and 161.5 in 2010. In case of

Karnataka, it was 97 in 2000, 104.1 in 2002, 108 in 2004, 135.3 in 2006, 135.8 in 2008

and 147 in 2010. In case of the state of Kerala, it was 41.9 in 2000 which declined to the

level of 115.8 in 2002. From the ear 2004 to 2010, there was almost an increasing trend

in this regard by attaining the level of 123, 186.2, 167.2 and 174.4 and during the years

2004, 2006, 2008 and 2010, respectively. Almost the same trend was found in case of

the state of Pondicherry. In case of All India, the trend in credit accounts per 1000

population has grown from the level of 53.3 in 2000 to 1000 in 2010.

81

Table 2.10

Saving Accounts per 1000 Population: 2000-2010

States 2000 2002 2004 2006 2008 2010

Northern Region 357.1 350.6 368 396.9 466.7 592.5

Haryana 347.6 326.4 356.7 388.5 466.2 546.5

Himachal Pradesh 379.1 354.5 373.8 411 474.3 552.1

Jammu & Kashmir 271.6 264.7 278.3 332.5 386.6 485.1

Punjab 538.5 535.6 547.9 547.8 627.1 617.3

Rajasthan 181.1 184.4 199.6 224.2 280.5 326..0

Chandigarh 1264 1103.1 1104.9 1044.7 1126.7 1009.8

Delhi 764.9 754.4 769.8 843.7 947.1 1753.3

Northern -Eastern Region 184.2 171.9 170.2 197 241.9 338.3

Arunachal Pradesh 171.5 216.9 181.7 201.5 257.2 348.9

Assam 195.7 181.4 178.9 207.3 252.2 349.9

Manipur 103.9 89.02 81.37 97.27 122.8 206.4

Meghalaya 196.9 191.5 188.8 202 250.9 319.9

Mizoram 126.1 118.6 121.6 162.7 219.4 308.8

Nagaland 107.2 92.5 109.5 129.8 170 234.1

Tripura 204.3 190.4 190.4 225.9 278.1 417.2

Eastern Region 199.5 197.4 198.7 221 260.7 334

Bihar 213.3 144.8 149.1 158.7 192.6 245.8

Jharkhand NA 209.1 204.2 230.5 278.5 354

Orissa 162.6 167.6 183 208.5 269.6 367.7

Sikkim 154.7 176.7 219.2 298.2 335 462.2

West Bengal 268.7 261 255.78 289 322.5 405.9

Andaman & Nicobar Islands 325 302.7 290 346.5 408.6 448.9

Central Region 232 230.6 233.5 251.7 306.1 397.8

Chhattisgarh NA 143.7 150 165.7 206.2 307.7

Madhya Pradesh 218.7 167.3 180 197.4 231.3 320.7

Uttar Pradesh 277.9 256.6 256.1 274.5 337.3 428.6

Uttaranchal NA 385.9 374.1 401.8 472.6 562.7

Western Region 295.4 302 314.7 351.5 412.2 470.2

Goa 100.5 1020.7 1070.2 1113.8 1180.3 1210.8

Gujarat 269 279 301.5 341.7 397 465.7

Maharashtra 298.2 302.7 309.1 343.9 408.1 457.8

Dadra & Nagar Haveli NA NA NA NA NA NA

Daman & Diu NA NA NA NA NA NA

Southern Region 327.5 330.4 358.1 391 502.1 653.6

Andhra Pradesh 256.2 268.3 303.1 348.2 465.3 629.1

Karnataka 315.7 323.2 346.8 390.1 501.3 623.7

Kerala 491.6 487.9 534.3 493.4 588 696.1

Tamil Nadu 337.4 328.9 342.4 389.5 501.2 683.9

Lakshadweep NA NA NA NA NA NA

Pondicherry 465.9 486 499 569.4 729.4 901.7

ALL-INDIA 269.2 268.1 279.4 306.1 371.8 471.7

82

Table 2.10 shows that the saving accounts in Northern Region, Northern -

Eastern Region, Eastern Region, Central Region, Western Region and Southern Region

are 592.5 percent, 338.3 percent, 334 percent, 397.8 percent, 470.2 percent and 653.6

percent respectively in 2010. Further it shows trend in savings account in India from the

year 2000 to 2010. In North Region, the trend in savings account per 1000 population

has grown from the level of 357.1 in 2000 to 592.5 in 2010.So for the state of Haryana

in concerned it was 357.1 in 2000 which declined to 350.6 in 2002. From 2004 to 2010

there was an increasing trend in saving account by attaining the level at 368, 396.4,

466.7 and 592.5 in the years 2004, 2005, 2006, 2008 and 2010, respectively. Almost the

same trend was followed in the state of Himachal Pradesh, Jammu and Kashmir, Punjab

and Delhi. In case of the state of Rajasthan, a significant increasing trend was found. It

was 181.1 in 2000, 124.4 in 2002, 199.6 in 2004, 224.2 in 2006, 280.5 in 2008 and

326.0 in 2010.In North East Region, the trend in savings account per 1000 population

has grown from the level of 184.2 in 2000 to 338.3 in 2010.So far as the state of Assam

is concerned, it was 195.7 in 2000 which declined to 181.4 in 2002 and again declined

to 178.9 in 2004. From 2006 to 2010 there was an increasing trend in savings account

by attaining the level at 207.3, 252.2 and 349.9 in the years 2006, 2008 and 2010,

respectively. Almost same trend was followed in the states of Manipur and Meghalaya.

In Eastern Region, the trend in savings account per 1000 population has grown from the

level of 199.5 in 2000 to 334 in 2010.So far as the state of Bihar is concerned; it was at

213.3 in 2000 which declined to 144.8 in 2002. From 2004 to 2010 there was an

interesting trend in savings account by attaining the level at 149.1, 158.7, 192.6 and

245.8 in the years 2004, 2006, 2008 and 2010, respectively. In case of states of Orissa

and Sikkim, a significant increasing trend was found. In Orissa, it was 162.6 in 2000,

167.6 in 2002, 183.0 in 2004 208.5 in 2006, 269.6 in 2008 and 367.7 in 2010. In

Sikkim, it was 154.7 in 2000, 176.7 in 2002, 219.2 in 2004, 298.2 in 2006, 335 in 2008

and 462.2 in 2010.In Central Region, the trend in savings account per 1000 population

has grown from the level of 232.0 in 2000 to 397.8 in 2010.So far as the state of

Chhattisgarh is concerned, it shows a significant increasing trend. It was 143.7 in 2002,

150.0 in 2004, 165.7 in 2006, 206.2 in 2008 and 307.7 in 2010.In case of state of

Madhya Pradesh; it was at a level of 218.7 in 2000. It declined at the level of 167.3 in

83

the year of 2004. But from the year 2004 it started increasing by attaining the level of

180.5 and reached at the level of 197.4 in 2006, 231.3 in 2008 and 320.7 in 2010. In

Western Region, the trend in savings account per 1000 people has grown from the level

of 295.4 in 2000 to 470.2 in 2010. In the case of Goa and Gujarat states, a significant

increasing trend was found. It was 1005.2 in 2000, 1020.7 in 2002, 1070.2 in 2004,

1113.8 in 2006, 1180.3 in 2008 and 1210.8 in 2010 in case of the state of Goa. In case

of the state of Gujarat, it was 269.0 in 2000, 279 in 2002, 301.5 in 2004, 341.7 in 2006,

397.0 in 2008j and 465.7 in 2010. Almost the same trend was followed in the state of

Maharashtra. In Southern Region, the trend in savings account per 1000 population has

grown from the level of 327.5 in 2000 to 653.6 in 2010.So far as the state of Kerala is

concerned it was 491.6 in 2000 which declined to 487.9 in 2002. From 2004 to 2010

there was an increasing trend in savings account by attaining the levels of 534.3, 493.4,

588.0 and 696.1 during the years 2004, 2006, 2008 and 2010, respectively. Almost

same trend was found in the state of Tamil Nadu. In case of the state of Andhra Pradesh

and Karnataka, a significant increasing trend was found. In the state of Andhra Pradesh,

it was 256.2 in 2000, 268.3 in 2002, 303.1 in 2004, 348.2 in 2006, 465.3 in 2008 and

629.1 in 2010. In the state of Karnataka, it was 315.7 in 2000, 323.2 in 2002, 364.8 in

2004, 390.1 in 2006, 501.3 in 2008 and 623.7 in 2010. In all India, the trend in savings

account per 1000 population has grown from the level of 269.2 in 2000 to 471.7 in

2010. It was at the level of 268.1 in 2002, 279.4 in 2004, 306.0 in 2006 and 371.8 in

2008.

84

Table 2.11

Credit-Deposit Ratio in India: 2000-2010

States 2000 2002 2004 2006 2008 2010

Northern Region 51.1 56.2 56.9 64.6 67.7 74.4

Haryana 42.4 43.7 47.9 57.4 60.1 63.3

Himachal Pradesh 23.8 23.4 29.7 41 43.4 42.2

Jammu & Kashmir 33.5 36.8 39.2 47.2 56.4 46.4

Punjab 39.4 41.8 43.4 56.8 67.2 71.5

Rajasthan 46.4 48.4 57.2 77.3 82.4 88.4

Chandigarh 82 102.8 142 76.8 96.2 131.1

Delhi 60.5 67.6 61.2 67.4 66.9 74.6

Northern -Eastern Region 28.1 27.2 29.8 40.7 40.7 35.5

Arunachal Pradesh 15.7 15.8 17.3 26.5 31.7 27.5

Assam 32 31.7 30.8 42.6 42.4 37.8

Manipur 37.4 26.4 29 50.1 48.4 42.1

Meghalaya 16.3 18.3 36.9 48.1 33.2 25.6

Mizoram 23.3 26.4 16.8 51.2 62.9 53.2

Nagaland 15.3 12.8 25.5 22.3 34 30.3

Tripura 25.7 21.5 … 32.8 36.1 30.7

Eastern Region 37 37.6 42.1 49.2 51.5 50.8

Bihar … 21.3 25.6 30.3 28.2 29

Jharkhand 22.5 25.1 27.4 31.2 35.3 35.1

Orissa 41.5 44.5 54.3 66 56.3 54.4

Sikkim 15.1 16 23.3 45.3 46.8 37.2

West Bengal 45.5 45.8 49.3 56.3 62.4 61.5

Andaman & Nicobar Islands 16.8 18.5 25 29 30.7 36.5

Central Region 33.9 33.9 35.9 44.2 46.1 47.3

Chhattisgarh … 44 39.8 45.5 49.8 52.3

Madhya Pradesh 49.1 46.6 47.7 60.5 60.1 60.6

Uttar Pradesh 28.2 29.9 33.2 41 43.7 43.3

Uttaranchal … 23.7 20.4 25.8 26.2 33.7

Western Region 75.4 79.7 72 92 88.6 79.1

Goa 23.8 25.3 21.8 23.2 29.4 26.5

Gujarat 49 44.1 43.3 55.6 66.5 65.3

Maharashtra 86.4 92.3 81.4 102.2 93.9 82.9

Dadra & Nagar Haveli 18.8 20.9 19.6 49.3 23.9 60

Daman & Diu 15.7 9.9 9.7 11.4 15 20.2

Southern Region 66.2 64.6 68.1 84.4 89.1 92.7

Andhra Pradesh 64.2 61.9 66 81.3 90.4 105.1

Karnataka 63.3 61.6 62.9 75.9 78.1 77.6

Kerala 41.5 43.3 47.3 61.4 63.4 63.1

Tamil Nadu 88.6 85.4 89.6 110.5 114.7 113.8

Lakshadweep 7.5 7.9 7.4 11.5 7.5 7.3

Pondicherry 33.6 32.3 33.9 45 49.7 57.2

ALL-INDIA 56 58.4 58.7 72.4 74.4 73.3

85

Table 2.11 depicts the credit deposit ratio per 1000 population in different

regions of the country during the time period of 2000 to 2010. So far as northern region

of the country is concerned, in the year 2000, it was at the level of 42.4 in Haryana

which increased slightly to the level of 43.7 in 2002 and further kept of increasing at the

level of 47.9 in 2004, 57.4 in 2006, 60.1 in 2008 and 63.3 in 2010. In case of Jammu &

Kashmir, there was an increasing trend in credit deposit ratio. It was 33.5 in 2000, 36.8

in 2002, 39.2 in 2004, 47.2 in 2006, 56.4 in 2008 and 46.4 in 2010. A significant

increasing trend was found in the State of Punjab, Rajasthan and Chandigarh. In case of

Rajasthan 46.4 in 2000, 48.4 in 2002, 57.2 in 2004, 77.3 in 2006, 82.4 in 2008 and 88.4.

So far as the northern-eastern region is concerned in the year 2000 it was 15.7 in

Arunachal Pradesh which slightly increased to 15.8 in 2002. It was 17.3 in 2004, 26.5 in

2006, and 31.7 in 2008 and again it declined to 27.5 in 2010. There was a trend of credit

deposit ration in State of Nagaland. It was 15.3 in 2000 which declined to 12.8 in 2002.

It increased to 25.8 in 2004 declined to 22.3 in 2006. Similarly it increased to 34 in

2008 and declined to 30.3 in 2010. Almost same trend was found in other States of

Northern-Eastern Region. So far as the eastern region is concerned, in the year 2000,it

was at the level of 22.5 in the state of Jharkhand which further increased to 25.1 in

2002.There was an increasing trend in the credit deposit ratio after that year. It was 27.4

in 2004, 31.2 in 2006, and 35.3 in 2008 and again slightly declined to 35.1 in

2010.Same kind of trend was found in the state of west Bengal. In case of state of

Andaman & Nicobar, an increasing trend was found. It was16.8 in 2000,which

increased to 18.5 in 2002.it further increased and attain the level of 25 in 2004,29 in

2006,30.7 in 2008 and 30.5 in 2010. So far as central region is concerned, in the year

2000,it was 28.2 in the state of Uttar Pradesh which further increased to 29.9 in

2002.after that it kept on increasing and attain the level of 33.2 in 2004,41 in 2006,43.7

in 2008and 43.3 in 2010. So far as the western region is concerned, in the year 2000, it

was at the level of 23.8 in the state of Goa which slightly increased 25.3 in 2002.after

that it further declined to 23.2 in 2006.After that it increased to 29.4 in 2008 and 26.5 in

2010. In case of state of Maharastra , it was 86.4 in 2000 which increased to 92.3 in

2002 after that it declined to 81.4 in 2004.and again increased to 102.2 in 2006.then it

kept on declining and it was at the level of 939 in 2008 and 82.9 in 2010. In case of

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state of Daman and Diu, it was 15.7 in 2000 which declined to 9.9 in 2002 and kept on

declining and reached at the level of 9.7 in 2004.After that it started rising and it was

11.4 in 2006,15 in 2008 and 20.2 in 2010.So far as the southern region is concerned, in

the year 2000, it was at the level of 64.2 in the state of Andhra Pradesh which slightly

decline to 61.9 in 2002.after that it kept on increasing and achieve the level of 62.9 in

2004,75.9 in 2006 ,78.1 in 2008 and 77.6 in 2010.same kind of trend was found in the

state of Pondicherry. In case of the state of Tamil Nadu, it was 88.3 in 2000, which

decline to 85.4 in 2002.after that it increased to 89.6 in 2004,110.5 in 2006 and 114.1 in

2008. In the year 2010 it again decline to 113.8. In case of all India, the credit deposit

ratio was 56 in 2000, which increased to 58.4 in 2002, 58.7 in 2004, 72.4 in 2006 and

74.4 in 2008.in the year 2010 it declined to 73.3.

Progress of Financial Inclusion in India

Tables 2.8 to 2.11 show the progress of Financial Inclusion in India from 2000

to 2010 in various parameters. It shows commendable progress in all the parameters like

total number of branches, total number of rural branches, banking outlets in population

greater than 2000 and banking outlets in population lesser than 2000, brick and mortar

branches, banking outlets through BCs, no frill accounts and amount in no frill

accounts. In spite of all the progress it has been observed that the progress is much less

in comparison to the vastness of the country and this made RBI to come with mobile

banking as a tool of financial inclusion.

It clearly shows increase in number of branches in the country over the years

but increase in number of rural branches is comparatively less. There is good progress

in all the parameters in order to achieve the objective of Financial Inclusion. There is

comparatively good progress in banking outlets with population greater than 2000.

Banking outlets through brick and mortar branches have not expanded much. There is

impressive increase in total banking outlets. There is some increase in no frill accounts

and amount in no frill accounts but since the number is less it is not reflected in the

diagram.

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Extent of Exclusion

As per the NSSO data, 45.9 million farmer households in the country (51.4 per

cent), out of a total of 89.3 million households do not have accesses to credit,

either from institutional or non-institutional sources.

Only 27 per cent of total farm households are indebted to formal sources (of

which one-third also borrow from informal sources).

Farm households‟ not accessing credit from formal sources as a proportion to

total farm households is especially high at 95.91 per cent, 81.26 per cent and

77.59 per cent in the North Eastern, Eastern and Central Regions respectively.

Thus, apart from the fact that exclusion in general is large, it also varies widely

across regions, social groups and asset holdings. The poorer the group, the

greater is the exclusion.

Demand Side

While financial inclusion can be substantially enhanced by improving the supply

side or the delivery systems, it is also important to note that many regions,

segments of the population and sub-sectors of the economy have a limited or

weak demand for financial services.

In order to improve their level of inclusion, demand side efforts need to be

undertaken including improving human and physical resource endowments,

enhancing productivity, mitigating risk and strengthening market linkages.

However, the primary focus of the Committee has been on improving the

delivery systems, both conventional and innovative.

Major Schemes for Financial Inclusion in India

1. National Mission on Financial Inclusion

The Committee feels that the task of financial inclusion must be taken up in a

mission mode as a financial inclusion plan at the national level.

A National Mission on Financial Inclusion (NaMFI) comprising representatives

from all stakeholders may be constituted to aim at achieving universal financial

inclusion within a specific time frame.

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The Mission should be responsible for suggesting the overall policy changes

required for achieving the desired level of financial inclusion, and for supporting

a range of stakeholders – in the domain of public, private and NGO sectors - in

undertaking promotional initiatives.

2. National Rural Financial Inclusion Plan (NRFIP)

A National Rural Financial Inclusion Plan (NRFIP) may be launched with a

clear target to provide access to comprehensive financial services, including

credit, to at least 50% of financially excluded households, say 55.77 million by

2012 through rural/semi-urban branches of Commercial Banks and Regional

Rural Banks.

The remaining households, with such shifts as may occur in the rural/urban

population, have to be covered by 2015.

Semi-urban and rural branches of commercial banks and RRBs may set for

themselves a minimum target of covering 250 new cultivator and non-cultivator

households per branch per annum, with an emphasis on financing marginal

farmers and poor non-cultivator households.

3. Handling Cost through Funds

There is a cost involved in this massive exercise of extending financial services

to hitherto excluded segments of population. Such costs may come down over a

period of time with the resultant business expansion.

However, in the initial stages some funding support is required for promotional

and developmental initiatives that will lead to better credit absorption capacity

among the poor and vulnerable sections and for application of technology for

facilitating the mandated levels of inclusion.

The Committee has, therefore, proposed the constitution of two funds with

NABARD – the Financial Inclusion Promotion & Development Fund and the

Financial Inclusion Technology Fund with an initial corpus of Rs. 500 crore

each to be contributed in equal proportion by GoI/RBI/NABARD. This

recommendation has already been accepted by the Government of India.

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4. Business Correspondent Model

The Rangarajan Committee recommended that extending outreach on a scale

envisaged under NRFIP would be possible only by leveraging technology to

open up channels beyond branch network.

Adoption of appropriate technology would enable the branches to go where the

customer is present instead of the other way round. This, however, is in addition

to extending traditional mode of banking by targeted branch expansion in

identified districts.

The Business Facilitator/Business Correspondent (BF/BC) models riding on

appropriate technology can deliver this outreach and should form the core of the

strategy for extending financial inclusion.

The Committee has made some recommendations for relaxation of norms for

expanding the coverage of BF/BC. Ultimately, banks should Endeavour to have

a BC touch point in each of the 6, 00,000 villages in the country.

5. Procedural Simplification

Procedural Changes like simplifying mortgage requirements, exemption from

Stamp Duty for loans to small and marginal farmers and providing agricultural /

business development services in the farm and non-farm sectors respectively

will help in extending financial inclusion.

6. New Role of Regional Rural Banks (RRBs)

Regional Rural Banks, post-merger, represent a powerful instrument for

financial inclusion. Their outreach vis-à-vis other scheduled commercial banks

particularly in regions and across population groups facing the brunt of financial

exclusion is impressive.

RRBs account for 37 per cent of total rural offices of all scheduled commercial

banks and 91 per cent of their workforce is posted in rural and semi-urban areas.

They account for 31 per cent of deposit accounts and 37 per cent of loan

accounts in rural areas.

Regional Rural Banks have a large presence in regions marked by financial

exclusion of a high order.

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They account for 34 per cent of all branches in North-Eastern, 30 per cent in

Eastern and 32 per cent in Central regions.

Out of the total 22.38 lakh Self Help Group Bank Linkage Scheme credit linked

by the banking industry as on 31st March 2006, 33 per cent of the linkages were

by RRBs which is quite impressive to say the least.

Significantly the more backward the region the greater is the share of Regional

Rural Banks which is amply demonstrated by their 56 per cent share in the

North-Eastern, 48 per cent in Central and 40 per cent in Eastern region.

RRBs are, thus, the best suited vehicles to widen and deepen the process of

financial inclusion. However, there has to be a firm reinforcement of the rural

orientation of these institutions with a specific mandate on financial inclusion.

The Committee recommended that the process of merger of RRBs should not

proceed beyond the level of sponsor bank in each State. The Committee has also

recommended the recapitalization of RRBs with negative Net Worth and

widening of their network to cover all unbanked villages in the districts where

they are operating, either by opening a branch or through the BF/BC model in a

time bound manner. Their area of operation may also be extended to cover the

87 districts, presently not covered by them.

Self Help Group Bank Linkage Scheme

There are a large number of SHGs in the country which are well established in

their savings and credit operations. The members of such groups want to expand and

diversify their activities with a view to attain economies of scale. Many of the groups

are organizing themselves into federations and other higher level structures. To achieve

this effectively, resource centres can play a vital role. Federations of Self Help Group

at village and taluk levels have certain advantages. Federations, if they emerge

voluntarily from amongst SHGs, can be encouraged. However, the Committee felt that

they cannot be entrusted with the financial intermediation function.

The Committee has recommended amendment to NABARD Act to enable it to

provide micro finance services to the urban poor.

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Joint Liability Groups

Self Help Group Bank bank linkage has emerged as an effective credit delivery

channel to the poor clients. However, there are segments within the poor such as

share croppers/oral lessees/tenant farmers, whose loan requirements are much

larger but who have no collaterals to fit into the traditional financing approaches

of the banking system.

To service such clients, Joint Liability Groups (JLGs), an upgradation of Self

Help Group Bank model, could be an effective way. NABARD had piloted a

project for formation and linking of JLGs during 2004-05 in 8 States of the

country through 13 RRBs.

Based on the encouraging response from the project, a scheme for financing

JLGs of tenant farmers and oral lessees has also been evolved. The Committee has

recommended that adoption of the Joint Liability Groups concept could be another

effective method for purveying credit to mid-segment clients such as small farmers,

marginal farmers, tenant farmers, etc. and thereby reduce their dependence on informal

sources of credit.

Micro Finance Institutions - Non Banking Finance Companies

The committee recommended a greater legitimacy, accountability and

transparency for Micro Finance Institutions which only enable MFIs to source

adequate debt and equity funds, but also eventually enable them to take and use

savings as a low cost source for on-lending.

The committee also recommended that there was a need to recognize a separate

category of Micro finance – Non Banking Finance Companies (MF–NBFCs),

without any relaxation on start-up capital and subject to the regulatory

prescriptions applicable for Non Banking Finance Companies. Such Micro

Finance Institutions could provide thrift, credit, micro-insurance, remittances

and other financial services up to a specified amount to the poor in rural, semi-

urban and urban areas.

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Such Micro finance – Non Banking Finance Companies may also be recognized

as Business Correspondents of banks for providing only savings and remittance

services and also act as micro insurance agents.

Cooperative System

In terms of number of agricultural credit accounts, the Short Term Cooperative

Credit System (STCCS) has 50% more accounts than the commercial banks and RRBs

put together.

On an average, there is one Primary Agricultural Societies for every 6 villages;

these societies have a total membership of more than 120 million rural people

making it one of the largest rural financial systems in the world.

However, the health of a very large proportion of these rural credit cooperatives

has deteriorated significantly.

For this segment, the Rangarajan Committee reiterated the need to implement

the recommendation of the Vaidyanathan Committee Report, which had suggested an

implementable Action Plan with substantial financial assistance.

Concluding Remarks

On the basis of above discussion it may be concluded that despite significant

growth of financial sector in India a vast segment of population especially low income

groups or underprivileged section of society have not been covered under financial

inclusion. Availability of banking services to the entire population without any

discrimination is the prime objective of financial inclusion. In India there are many

reasons for financial exclusion and it may bring many negative effects on individual as

well as on the society. The main reason for low financial inclusion are lack of adequate

supportive infrastructure, absence of appropriate technology, financial illiteracy, lack of

suitable financial products and its inflexibility. The Reserve Bank of India and

Government of India has been making many efforts to increase financial inclusion. The

emergence of Self Help Group as financial intermediaries in recent year has raised

hopes that excluded people and rural India could be effectively financial linked. The

Self Help Group Bank Linkage Programme is playing a very important role in the

process of financial inclusion in India. Keeping in view the role of financial inclusion in

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the process of inclusive growth, its effective expansion is a must. When people become

aware of the proper use and benefits of the financial services they start getting

themselves associated with the development schemes run by the government and others.

This has a positive impact on the process of inclusive growth. Financial inclusion is a

necessary condition for inclusive growth and in order to achieve it, we should remove

or reduce all regional imbalance of financial infrastructure. Financial inclusion should

be used as a tool for inclusive growth and Banks, and Micro Finance Institutions, and

Non Government Organisations can play a simultaneous major role to achieve it. Banks

should redesign their business strategies to incorporate specific plans to promote

financial inclusion of low income group treating it both as a business opportunity and as

a corporate social responsibility. Banks should also ensure wide publicity about their

financial products and policies to enhance financial literacy.