FINANCE CONCLAVE 2013

FINANCIAL INCLUSIONIN INDIA

Source: rbidocs.rbi.org.in, worldbank

HISTORY OF FINANCIAL INCLUSION

FINANCIAL EXCLUSION

CoinedIn 1993 in UK

Limited Physical Access to Banking services

Priority Areas identified by UK

1. Access to Banking2. Access to affordable credit3. Transparency in Advisory

Services

Initiatives by UK Government

1. Credit Unions2. Post Office Card Account3. Savings Gateway4. Community Finance Learning Initiatives

3Source: world-finance-conference.com/papers_wfc/138.pdf: Rangarajan Committee Report

FINANCIAL INCLUSION

AFFORDABILITY

ACCESSIBILITY

AVAILABILITY

ADEQUACY

AWARENESS

WHAT IS FINANCIAL INCLUSION

OBJECTIVES

BANK ACCOUNT

FINANCIALLITERACY

CREDIT PRODUCTSKCCs, GCCs etc

FINANCIAL INCLUSION REMITTANCES

(Money Transfer

Facilities)

CAPITAL

MARKET

PARTICIPATION

•Economic:-Equitable growth-FIs can boost the development process

•Mobilisation of Savings- Capital formation and economic

growth

•Larger Market for the financial system- Emergence for new players- Participation of retail investors

•Social -Poverty Eradication - Financial Literacy

•Sustainability- To improve income generation by

low income groups

•Institutional- Effective implementation

Source: Rangarajan Committee Report

INSURANCEPENSON

5Source: rbidocs.rbi.org.in

Aprox. 50% of people in India don't have bank accounts

90 % of the people do not have borrowings from the banks

11% of bank branches in India are limited to the metros.

38% of the branches of the SCBs are in the rural areas

Nearly 85% of the population don’t have access to

insurance services.

INDIAN STORY

FIIs hold a stake 10.45% in the Indian capital market

2% of retail investors in India participate in the Indian

capital market

•The Term Financial Inclusion In India was coined in 2004 by the then RBI Governor YV Reddy.

•In 2008, the Government of India appointed a Committee on Financial Inclusion under the Chairmanship of Dr. C .Rangarajan

Why???

DEMAND SIDE

Financial Illiteracy

SUPPLY SIDE

Financial Inclusion

Inaccessibility of Bank

Cumbersome Banking procedure

Inappropriate Design of products & services

High transaction cost and attitude of bank officials

THE TARGET GROUPSPeople who are Not Availing Financial Services

RURAL WOMEN FARMERS SOCIALLY EXCLUDED

GROUPSMIGRANTSSENIOR

CITIZENS

Lack of Knowledge of products

Dependence on informal sources of credit

Low Incomes

Social Exclusion

Source: Rangarajan Committee Report

7Source: rbi.org.in

Setting up of Rural

Cooperatives

1904

1969

Nationalization of 14 Commercial Banks

Setting up of RRBs

1975

1990

Introduction to Self Help Group

2005

Opening of No Frill Accounts

2006

Allowance by RBI for BC/BF to act as agents of banks

2011

NPCI launched Interbank Mobile Payment System (IMPS)

FINANCIAL INCLUSION : IMPORTANT MILESTONESPHASE I

2000

Rural Development Programme

PHASE II PHASE III

Setting up of Local Area

Banks

1999

INSTITUTIONS INVOLVED

Key Institutions

NABARD

RBI, RRBs,SCBs

United NationsDevelopment Programme

India post,NGOs etc

Microfinance Institutions

MEASURES TAKENIntroduction of ‘No-Frills’ account•Low-cost bank accounts•“Zero” or very low minimum balances.

General Credit Cards & Kisan Credit Cards•Credit Cards with a credit limit of Rs 25,000 in all rural and semi rural bank branches.•Success: March 2013 •36.39lakhs GCC accounts•337.89lakhs KCC accounts

Simplification of KYC norms•Simplified KYC procedure for low income groups without documents of identity and proof of residence to open banks accounts.

Financial Inclusion Technology Fund NABARD•To meet the cost of technology adoption•An overall corpus of Rs.500cr each (enhanced to Rs.600cr in Union Budget for 2010-11)

Source: world-finance-conference.com

Source: world-finance-conference.com

MEASURES contd…

• Business Correspondent : An individual or a committee acting as an intermediary between the bank and the customer.

i. Delivering all products of the bank ii. ICT based Business Correspondent Model for low cost.

• Mandatory requirement of opening 25% branches in Unbanked Areasi. Progress stimulation through “New Bank Licenses”ii. To initiate Financial Stability through Financial Literacy.

• Direct Benefit Transfer Schemes:i. Increasing significance of DBT scheme and Adhaar Card.

• Financial Inclusion Plans (FIPs) for banks implemented by RBI (started from April 2010)i. Increase in number of Regional Rural Banksii. Issuing more KCCs and GCCsiii. Specially designed products for financially excluded segments.iv. Interest rates on advances totally deregulated.v. Setting up of Ultra Small Branches

10Source: CRISIL Inclusix 2013, rbidocs.rbi.org.in

INDIA FACTSHEET – FINANCIAL INCLUSION1. Scoring considers 618 districts

of total 632 districts in India.

2. Top 3 states : Kerala, Andhra Pradesh, Himachal Pradesh

3. Bottom 3 states : Bihar, Assam, West Bengal

4. 11 of Kerala’s 14 districts figure in the top 50 scoring district

5. The Financial Inclusion in India has increased by CAGR of 7% from 2008 to 2013.

6. Future potential may be seen due to rise in tele-density (grew from 1% to 40% between 2001 to 2010)

62.2

38.2

37.1

28.6

28.5

40.1

INCLUSIX SCORES

*Data as per 2011-12

Branch Penetration

Credit Penetration

DepositPenetration

FINANCIAL INCLUSION – CHALLENGES AND WAY AHEAD…

a) Increasing Reach by Banks

b) Effective Intermediation by Business Correspondents

c) Increasing transactions by target group

d) Technological Challenge

e) Cost optimization by Banks

f) Implementation Challenge- Profit vs. Social Welfare

g) Financial Literacy

Thank You !