Financial Inclusion in India: Recent Initiatives

Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost (The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan).

The government and the central bank (RBI) have been making concerted efforts for many years to promote financial inclusion and this has picked up in recent years with major reforms. Some of the major efforts made in the last five decades include – nationalization of banks, building up of robust branch network of scheduled commercial banks, co-operatives and regional rural banks, introduction of mandated priority sector lending targets, lead bank scheme, formation of self-help groups etc.

Extent of Financial Exclusion in India before 2014:

  1. According to World Bank’s Global Financial Inclusion Survey (2012), only 35% of adults in India had access to a formal bank account and only 8% borrowed from institutional and formal sources.
  2. As per Census 2011, only 58.7% of households are availing banking services in the country. However, as compared with previous Census 2001, availing of banking services increased significantly largely on account of increase in banking services in rural areas.
  3. According to the World Bank ‘Financial Access Survey’ Results, in our country, financial exclusion measured in terms of bank branch density, ATM density, bank credit to GDP and bank deposits to GDP is quite low as compared with most of developing countries in the world.


Some recent major initiatives:


Pradhan Mantri Jan Dhan Yojana-2014

With a view to increasing banking penetration and promoting financial inclusion and with the main objective of covering all households with at least one bank account per household across the country, a National Mission on Financial Inclusion named as Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched in August 2014.


Objectives of PMJDY:

Besides providing universal access to banking facilities for all households across the countrythrough a bank branch or a fixed point Business Correspondent (BC) within a reasonable distance, the Mission also envisages expansion of Direct Benefit Transfer undervarious Government Schemes through bank accounts of the beneficiaries.

The scheme also provides Basic Bank Account with RuPay Debit card having inbuilt accident insurance covers of Rs.1 lakh and a life cover of Rs.30,000.


Roaring Success:

The ‘Household Survey on India’s Citizen Environment & Consumer Economy’ (ICE 360° survey) conducted last year shows that PMJDY has been an ultimate success with 99% of total households in both rural and urban India have at least one member with a bank account. However, the survey also shows that a significant chunk of households which have access to banking still don’t use banking instruments to save or invest.


Pradhan Mantri Suraksha Bima Yojana-2015

Pradhan Mantri Suraksha Bima Yojana (PMSBY) is a General Insurance Scheme to promote insurance penetration in India. In spite of so many insurance companies operating in India with their product and services, there are a majority of people in rural areas, who are not at all covered under any kind of insurance.

The scheme covers the death benefits of Rs.2 lakhswith a simple premium of Rs.12 pa. so that most of the poor people could afford.

Atal Pension Yojana-2015

Another important part of financial services which can be provided to the poor peopleis an old age income security. In 2015, Atal Pension Yojana(APY) was launched to address the longevity risks among the workers in the unorganised sector and to encourage the workers in unorganised sector to voluntarily save for their retirement.


Under the APY, the subscribers would receive the fixed pension of Rs.1000 per month to

Rs.5000 per monthThe Central Government would also co-contribute 50% of the subscriber’scontribution or Rs.1000 per annum, whichever is lower, to each eligible   subscriber account, for a period of 5 years.


Small Finance Banks and Payments Bank

The above schemes discussed have been introduced before in the past by many governments and is a result of many modifications done on the previous schemes. But the Financial Inclusion issue still remain persistent. Therefore, a new and revolutionary concept was required to provide banking and financial services to every Indian. As a result, a revolution is taking place in Indian banking services with licences are being granted to a number of companies to start small &payments bank. These are the way forward for India to achieve Financial Inclusion.


Small Finance Banks

“Great things come in Small Packages”. Small Banks are the next big thing in Indian banking. Small banks are much smaller than large commercial banks. Unlike commercial banks, small banks deal in basic banking services. They operate in mainly rural interior areas of the country and do not have large employees, therefore operate extensively on technology.

Majority of loans lent by Small Banks (50% of its portfolio) is of loan size up to Rs.25 Lakhs.

Payment Banks

These banks are peculiar in nature. You can open a savings account, deposit up to Rs.1lakh per customer, make remittances, pay bills or even issue a cheque. They can also market Insurance and Mutual Funds products but cannot avail loans or credit cards. Payment banks are not allowed to lend.Then how does Payment Banks promote Financial Inclusion?

Payment banks are all about innovation. They use technology to provide optimum and highly efficient banking services. The licenses are issued to companies which are supermarket chains and have large distribution network e.g. Airtel, Paytm, and Indian Post etc.

                                                                                                                             Gaurav Gambhir

Member- Alumni Relations Team


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