The Reserve Bank of India (RBI) has statedthat financial inclusion is a process of delivering financial services at areasonable cost to the people especially from the most down sided sections inthe society. The financial services such as timely credit facilities andaccessing financial products like small saving deposits reach the rural peopleeasily by the formal financial institutions such as banking industries. Due to the non-availability of bankingfacilities, people from remote villages face several hindrances to meet theirbasic necessities. Financial Inclusion is an activity offacilitating financial services to the un banked and un reached segments in thesociety. Rural India captures a salient role in our country’s economic growththrough services, agriculture, self-employment, construction1.
But thepenetration and effectiveness of banking services were implemented successfullyin the region of semi-urban and metropolitan areas. The awareness aboutfinancial services and access towards financial services were still lacking inthe region of rural areas. Rural people and low income group peoplecould not get timely credit to meet their basic and emergency needs. Thefinancial institution like banking industries can only give a path for the ruralas well as low income group people to satisfy their credit needs.
The ReserveBank of India (RBI) has stated that entry of more bank branches in the ruraland semi-urban areas will cultivate the saving habits of rural people; thisindirectly helps to improve the status of financial inclusion in the society. The RBI has developed Business CorrespondentModel, which is the mediator between the poor people and commercial banks inorder to increase the saving habits and create awareness about the banking productstowards rural people in the society. This BC Model cultivates the rural peopleabout the banking credit facilities like agriculture loan to the farmers, smallborrowings and basic savings deposit account facilities to the rural people.India is a country with huge amount of rural population and highly engaged inrural activities financial services should be facilitated to the rural peoplein a transparent and balanced manner by the formal financial institutions.Since 1960’s Banking Institutions acts as a gateway in enhancing and promotingthe degree of financial inclusion in our country. Moreover banking industrieshas adopted new technologies which makes banks to increase its potential tosatisfy the demand needs of its customers through the delivery of financialproducts and services. Banks has designed a Mobile Banking Technologies toreach its financial services and products to the customers in rural area at avery low transaction cost.
CRISIL Inclusix in June 2015 has released the report of financialinclusion which covers the entire 625 districts of India. It has taken threedifferent parameters to measure the level of financial inclusion such as bankpenetration, deposit and credit penetration to measure the index of financialinclusion at national level, State, Regional and District Levels for the fiscalyear 2013. As per the CRISIL Report, India has scored 50.1 IFI (Index ofFinancial Inclusion). Demand and supply side factors have to be considered tomeasure the level of financial inclusion.
RBI INITIATIVESThe Reserve Bank is navigating the path to financial inclusion by means ofregulations and guidance. It has initiated several measures to helpbank the unbanked:No-frills accounts:People in the financially excluded zone find it quite difficult to meet the requirementsof normal savings accounts. Recognizing this problem, the RBI has made itmandatory for banks to provide no-frills savings accounts without a minimumbalance requirement.
The transaction charges are reasonable and smalloverdrafts are alsoallowed.Overcoming languagebarrier:Large sections of the Indian population are notconversant with English and Hindi, the languages mostly used in bank forms. Banks are therefore required to provide formspertaining toaccount opening, disclosure etc. in the regionallanguage as well.Simplification of KYCnorms:Most rural inhabitants don’t have any of theidentity documents that are required for account opening and compliance with Know Your Customer(KYC) norms.
For that reason,the account opening process has been simplified for people who intend tokeep balances not exceeding Rs.50,000 andwhose total creditin all the accounts takentogether is not expected to exceed Rs. 100,000in a year. Smallaccounts can now be opened onthe basis of an introduction from another account holder who has satisfied all the KYC norms.
RuralIntermediaries:In January 2006, the RBI permitted banks to appointthe following organizations as business intermediaries:· Non Governmental Organizations (NGOs/SHGs),· Micro FinanceInstitutions (MFI), and· Other civilsociety organizations Theycan be employed as business facilitators or correspondents, the differencebetween the two being that the former provide education regarding financial productsand collect documents on the bank’s behalf whereas the latter providerestricted financial and banking services such as deposit collection and moneylending, again on behalf of the bank.However,there is a general opinion that rural outreach programs depend excessively onbusiness correspondents (BCs) and that bank branches should play a greater role.Information andCommunications Technology (ICT):TheReserve Bank has also encouraged banks toharness the power of technology for maximizing reach andenhancing viability. ICT has thus enabled even illiterate customers to operatebank accounts using biometrics, rendering the signature redundant.
Bank correspondents carry handheld ICT devices so that customers may transact at their doorstep. By ensuring security, technology-based bankinginfuses confidence in the mindsof the customers.Electronic banktransfers:ICTbanking also facilitates electronic transfer of social security benefitsdirectly to the beneficiaries. This reducesdependence on cash, therebylowering transaction cost and minimizing chances of fraud by unscrupulous middlemen. Easier creditBanks have been advisedto introduce a generalpurpose credit card facility, General Credit Cards (GCCs), to be precise, witha Rs. 25,000 limit in their rural and semi-urban branches. For customers, thistranslates to easy access to revolving credit sansthe need to furnish security or statement of purpose.
Financial educationFinancial literacywill go a long way in achieving financial inclusion.Accordingly, the RBI has initiatedseveral financial education measures. For example, it publishes comic strips to explainthe concept of savings. Simplified branchauthorizationWith the objective of facilitating uniformbranch growth, the RBI has permitted banks to freely open branches intier III to tier VI centers with population less than 50,000, subject toreporting. On the other hand, banks can open branches in any center – rural, semi-urban or urban – in the Northeast without applying forpermission each time,again subject to reporting.It was felt that the use of BCs should besupplemented by establishing branches in ruralareas to improvebanking access. A bank is therefore obliged to locateone in four branches opened duringa year, in an unbanked region. Three year plan forfinancial inclusionBankswere also advised to submit a three year Financial Inclusion Plan (FIP) beginningApril 2010.
These board-approved plans had to set their own targets in terms ofrural branches to be opened, BCsto be employed, banking services to be provided in unbankedvillages, number of Kisan and General Credit Cards to be issued and products tobe exclusively designed for thefinancially excluded segments. FinancialInclusion is the roadmap to bring the rural people from the unbanked andunreached segments in the society into the formal financial system. TheGovernment of India has extracted diverse step to improve the status offinancial inclusion in our society. But the rural areas of all the districts inevery states of our country have to be taken for in-depth consideration.