The document discusses the history and current state of financial inclusion in India. It notes that while rural penetration of banking has increased, it is still not sufficient. Various government and RBI initiatives are aimed at improving access to banking, credit, insurance and other financial services for rural and low-income populations. Key programs include no-frills accounts, self-help groups, business correspondents, and linking welfare schemes to banks. Financial inclusion is seen as beneficial for both the poor as well as overall economic growth.

1. Dr. V.A. Joseph M.D. & CEO, South Indian Bank 01/21/12 Trivandrum Management Association Silver Jubilee Convention 5 th February, 2011 @ Thiruvananthapuram

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9. 01/21/12 East Asia (China– 42%) South Asia (India -22%) Financial Inclusion – A Global Picture

10. 01/21/12 Source: IIFL Number of times China’s growth over India China’s Growth vs India’s

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12. Equal Growth Opportunities rather than skewed at the top No Geographical/cast/communal/gender barriers Reduction in poverty & disparities of income Ensuring basic minimum standard of living (education, health, finance, housing, employment etc.) Financial Empowerment 01/21/12 Inclusive Growth

13. Financial Inclusion Measures to ensure each house-hold/individual is financially literate Each house-holds/individual (urban/rural poor) have access to banking system (Deposits , Loans , Remittances, Insurance) Affordable for the poorest of poor Enables beneficiaries of Govt. welfare schemes to enjoy timely payment 01/21/12 Financial Inclusion

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15. RBI which was set up in 1935, nationalized on 1949 Banking Regulation Act, 1949 State Bank of India (Bank of Calcutta & later Imperial Bank) in 1806 & its subsidiaries were constituted later 14 banks were nationalized in 1969 6 more were nationalized in 1980. (At that point almost 90% of banking business was under Govt. control) Old Generation Private Sector banks started functioning from beginning of 1900s In 1990s, new generation private sector banks were introduced 01/21/12 Indian Banking History

16. In 1969, 1833 rural bank branches ( 22% ) out of total of 8262 In 2010, rural branches are 32494 ( 38% ) out of a total of 84604 01/21/12 Indian Banking History

17. In 1980, for SCB, Total Deposit accounts in rural areas was 2.83 Crore, which increased to 19.97 Crore in 2009 In 1980, for SCB Total Deposit amount in rural areas was 3,975.27 Crore, which increased to 3,63,910.19 Crore in 2009 01/21/12 Indian Banking History

18. SCB, Total Loan accounts in rural areas in 1980 was 76 Lakhs which increased to 3.38 Crore in 2009 SCB, Total Loan amount in rural areas in 1980 was 2,051.54 Cr, which increased to 3,09,627 Crore in 2009 01/21/12 Indian Banking History

19. Total Domestic Savings contribution of household sector was 578 Cr in 1950, which has increased to 11,50,135 Cr in 2008 Total agricultural credit by SCB was 378 Cr in 1970 & is 3,75,595 Cr in 2008-09 In 1973-74 period, people below poverty line was around 54% which in 2004-05 has come down to 27.50% 01/21/12 Indian Banking History

20. The story thus far, Out of 6,00,000 habitations only 30,000 have commercial bank branch Only 40% of population across country have bank accounts Out of the above many are dormant accounts Proportion of people with life insurance 10% Proportion of people with non life insurance 0.6% People with debit cards 13% People with credit cards 2% 51% of 90 million house-holds did not have credit from institutional/non-institutional sources Only 27% had credit from formal financial sources 01/21/12 Financial Inclusion – Indian Story

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22. The rural penetration of banking even though good has not been sufficient mainly because it is perceived as not cost effective The rural finance sector is still being dominated by non-institutional factors such as money-lenders who offer tailor made products They do not fall under normal credit worthiness parameters denying them opportunities of normal institutional credit 01/21/12 Reasons for financial exclusion

23. High cost & burdensome procedures drive poor further away Low Literacy hinders creating awareness on healthy financial planning at rural centres Economic Growth has not trickled down The gap between haves & have nots has increased significantly 01/21/12 Reasons for financial exclusion

24. Basic infrastructure facilities are lacking in rural areas especially electricity & communication Vast amount of migration has created a new segment of Urban Poor The poor whose primary source of income is agrarian, is highly susceptible to vagaries of nature 01/21/12 Reasons for financial exclusion

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26. RBI& Govt. have been a real driving force in promoting Financial Inclusion RBI liberalized licensing norms for Tier-III centres and lower.(below 50,000 pop) 1/3 rd of branches opened in Tier-III centre should be underbanked districts/states for priority in Tier-I&II centres No prior requirement of license to open branches in North-East ATMs can be opened by banks without prior approval Opening Loan Counselling Centres Adoption of villages by banks 01/21/12 Measures for Inclusion

27. RBI has been very strong in promoting FI By 2012, all villages with population more than 2000 will have access to financial services through a banking outlet of any one bank Each Bank to have a board approved policy for rolling out Financial Inclusion All banks have been urged to include criteria regarding financial literacy and financial inclusion in performance evaluation of their field staff Promotion of financial literacy 01/21/12 Measures for Inclusion

28. No Frills Accounts – simplified KYC norms General/Kissan Credit Cards (GCC) – small ticket credit facility upto Rs. 25,000, cash withdrawal, revolving credit, for crop cultivation Targetted financial inclusion drive by RBI based on ICT (Information & Communication Technology) products Business Correspondent Model takes banks to masses UID Project shall be a key catalyst in easy KYC Education Loans for eligible candidates with staggered repayment options and interest rate subvention 01/21/12 Banking Products/Services for FI

29. A Bank can appoint individuals, groups, agencies etc. permitted as per RBI as Business Correspondents The BC is allotted a village within 30 kms of branch. BC provided with hand-held devices with biometric authentication In areas with connectivity, Hand held devices are connected to branch/CBS data centre Else it works in offline model, using smart cards 01/21/12 Business Correspondent Model

30. Allows customer enrollment, debit & credit transactions, statements etc. Savings Account /Recurring Deposit Schemes provided Loans based on pre-sanctioned limits provided Customer need not come to a bank branch Soon inter-bank remittances may also be possible Flexibility of banking times as BC mostly resides in the village High level of security to remove middle-men 01/21/12 Business Correspondent Model

31. New Pension System (NPS) & NPS Lite Banks have been allowed to act as points of presence NPS Lite targets weaker & economically disadvantaged sections of society & promotes small savings for providing annuity (i.e. pensions) at old age Mahatma Gandhi National Rural Employment Guarantee Act(NREGA) Scheme Govt. assures 100 days of employment to adult members of rural house-holds Now payments done through banks using EBT (Electronic Benefit Transfer) relying on smart cards Ensures transparency and elimination of middle-men Timely wage payment to beneficiary 01/21/12 Bank linked Govt. Welfare Schemes

32. NABARD – Self Help Group (SHG) linkage program NABARD provides assistance to NGOs Facilitates SHGs to access credit from formal banking channels Started in 1992 and currently has more than 26 lakh SHG & 4 crore households RIDF (Rural Infrastructure Development Fund) To finance rural infrastructure development Banks which have not met their Priority sector sub targets invest in RIDF 01/21/12 Bank linked Govt. Welfare Schemes

33. Priority Sector Advances (40% of Net Bank Credit) Agriculture Advances (18% of Net Bank Credit) Advance to weaker sections (10% of Net Bank Credit) Education Loan Schemes to Students Liberalized norms on collateral security Interest Rate subsidies Staggered repayment 01/21/12 Bank linked Govt. Welfare Schemes

34. The banks using low cost methods get access to the most lucrative un-targetted population in the country Access to cheap float funds Small charges for services rendered can give reasonable revenue Once, the poor (urban/rural) have responsible access to financial services, they will become better income earners, thereby increasing the savings portfolio In short, it is a win-win for all stakeholders & the ultimate catalyst for real economic growth 01/21/12 Win – Win Situation

35. We have come a long way, especially for a country with a very high population and diverse geographical, cultural barriers Unless we seriously pursue the literacy programs we cannot create awareness & stimulate demand Measures to revive Real sectors of economy From the supply side, we have to constantly improvise & leverage technology to reduce costs Basic infrastructure such as power & communication should be spruced up. 01/21/12 To sum up

36. 01/21/12 Data Courtesy : RBI speeches, articles, database & other public sources Experience Next Generation Banking