This document summarizes a study that analyzes the determinants of financial inclusion in India using state-level panel data from 1995 to 2008. The study finds that increasing bank branch networks, as measured by average population per branch, has a beneficial impact on deposit penetration but a weaker impact on credit penetration. Higher state income levels are also found to have a positive impact on both credit and deposit penetration. Additionally, states with higher proportions of factories and employees tend to have greater banking activity and financial inclusion. The study concludes that policy attention should focus on low-performing regions to help close gaps in financial inclusion compared to better-performing regions.
Research Inventy : International Journal of Engineering and Scienceresearchinventy
Research Inventy : International Journal of Engineering and Science is published by the group of young academic and industrial researchers with 12 Issues per year. It is an online as well as print version open access journal that provides rapid publication (monthly) of articles in all areas of the subject such as: civil, mechanical, chemical, electronic and computer engineering as well as production and information technology. The Journal welcomes the submission of manuscripts that meet the general criteria of significance and scientific excellence. Papers will be published by rapid process within 20 days after acceptance and peer review process takes only 7 days. All articles published in Research Inventy will be peer-reviewed.
IOSR Journal of Business and Management (IOSR-JBM) is an open access international journal that provides rapid publication (within a month) of articles in all areas of business and managemant and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications inbusiness and management. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
Perceptions of People from Economically Backward Section towards Financial In...iosrjce
Financial Inclusion aims to provide the financial services to the people from economically backward
section of the society. The objective is to assist them in their economic improvement and achieve the sustainable
growth. In this study, an effort has been made to examine the views of the people from economically backward
sectionregarding the important aspects of financial inclusion. Views of 53 respondents are analyzed. ChiSquare,
nonparametric statistical technique, has been used to examine whether the views of the different
categories of the respondents about the important aspects of financial inclusiondiffer. Based on the views of the
respondents we found that bank employees are encouraging people from economically weaker sections to open
their accounts and people also found these accounts useful. Respondents are also of the view that education
level, income level, age and period of association of the account holder with the bank directly affects the quality
of services rendered. To further enhance the utility of the scheme and ensure its success, there is a need to
provide training to bank staff so that the quality of services rendered is not differentiated between different
categories of customers. Further, whereas this study pertains to the views of the economically weaker section,
there is a need to examine the views of bankers also, so that this scheme can be made more useful.
Financial Inclusion and Micro and Small Enterprises GrowthDr. Amarjeet Singh
The persons or firms linked with the either way of
financial transaction are known as participants of financial
inclusion financially included otherwise financially
excluded. The normal way of flow of money is routed
through banking system, post office, insurance and FBFC
channels. The MSE is financially included with operation of
saving account, current account or loan account with banks;
financial transaction with other government financial
agencies as well as some private sector NBFC. Recent
initiatives of Government of India and Indian Banking
system have accelerated the performance of financial
inclusion through various schemes such as MNREGS,
Jandhan, Atal Pension Yojna, MUDRA and so forth. The
MUDRA scheme, credit scheme for MSE, credit scheme for
KVIC & Coir firm, Kishan credit card, General Credit
Card are exclusive financial inclusion scheme for MSE
credit. Out of total size of MSEs, less than forty percent
units are getting benefits from schedule commercial banks;
as on 2017-18 only Rs. 1337 billion credit facilities given by
the lending institutions. The paper examines the current
status and potential prospect of financial inclusion at given
numbers of units and employment.
Financial Inclusion in India – A Road Map towards Growth of Initiatives and A...iosrjce
Finance has become an essential part of an economy for development of the society as well as
economy of nation. For, this purpose a strong financial system is required in not only in under-developed
countries and developing countries but also developed countries for sustainable growth. Through Financial
inclusion we can achieve equitable and inclusive growth of the nation. Financial inclusion stands for delivery of
appropriate financial services at an affordable cost, on timely basis to vulnerable groups such as low income
groups and weaker section who lack access to even the most basic banking services. In this paper, the
researcher attempts to understand financial inclusion and its importance for overall development of society and
Nation’s economy. This study focuses on approaches adopted by various Indian banks towards achieving the
ultimate goal of financial inclusion for inclusive growth in India and analyses of past years progress and
achievements. The relevant data for this study has been collected with the help of from various Research
journals, Articles, reports of RBI, reports of NABARD and online resources
Research Inventy : International Journal of Engineering and Scienceresearchinventy
Research Inventy : International Journal of Engineering and Science is published by the group of young academic and industrial researchers with 12 Issues per year. It is an online as well as print version open access journal that provides rapid publication (monthly) of articles in all areas of the subject such as: civil, mechanical, chemical, electronic and computer engineering as well as production and information technology. The Journal welcomes the submission of manuscripts that meet the general criteria of significance and scientific excellence. Papers will be published by rapid process within 20 days after acceptance and peer review process takes only 7 days. All articles published in Research Inventy will be peer-reviewed.
IOSR Journal of Business and Management (IOSR-JBM) is an open access international journal that provides rapid publication (within a month) of articles in all areas of business and managemant and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications inbusiness and management. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
Perceptions of People from Economically Backward Section towards Financial In...iosrjce
Financial Inclusion aims to provide the financial services to the people from economically backward
section of the society. The objective is to assist them in their economic improvement and achieve the sustainable
growth. In this study, an effort has been made to examine the views of the people from economically backward
sectionregarding the important aspects of financial inclusion. Views of 53 respondents are analyzed. ChiSquare,
nonparametric statistical technique, has been used to examine whether the views of the different
categories of the respondents about the important aspects of financial inclusiondiffer. Based on the views of the
respondents we found that bank employees are encouraging people from economically weaker sections to open
their accounts and people also found these accounts useful. Respondents are also of the view that education
level, income level, age and period of association of the account holder with the bank directly affects the quality
of services rendered. To further enhance the utility of the scheme and ensure its success, there is a need to
provide training to bank staff so that the quality of services rendered is not differentiated between different
categories of customers. Further, whereas this study pertains to the views of the economically weaker section,
there is a need to examine the views of bankers also, so that this scheme can be made more useful.
Financial Inclusion and Micro and Small Enterprises GrowthDr. Amarjeet Singh
The persons or firms linked with the either way of
financial transaction are known as participants of financial
inclusion financially included otherwise financially
excluded. The normal way of flow of money is routed
through banking system, post office, insurance and FBFC
channels. The MSE is financially included with operation of
saving account, current account or loan account with banks;
financial transaction with other government financial
agencies as well as some private sector NBFC. Recent
initiatives of Government of India and Indian Banking
system have accelerated the performance of financial
inclusion through various schemes such as MNREGS,
Jandhan, Atal Pension Yojna, MUDRA and so forth. The
MUDRA scheme, credit scheme for MSE, credit scheme for
KVIC & Coir firm, Kishan credit card, General Credit
Card are exclusive financial inclusion scheme for MSE
credit. Out of total size of MSEs, less than forty percent
units are getting benefits from schedule commercial banks;
as on 2017-18 only Rs. 1337 billion credit facilities given by
the lending institutions. The paper examines the current
status and potential prospect of financial inclusion at given
numbers of units and employment.
Financial Inclusion in India – A Road Map towards Growth of Initiatives and A...iosrjce
Finance has become an essential part of an economy for development of the society as well as
economy of nation. For, this purpose a strong financial system is required in not only in under-developed
countries and developing countries but also developed countries for sustainable growth. Through Financial
inclusion we can achieve equitable and inclusive growth of the nation. Financial inclusion stands for delivery of
appropriate financial services at an affordable cost, on timely basis to vulnerable groups such as low income
groups and weaker section who lack access to even the most basic banking services. In this paper, the
researcher attempts to understand financial inclusion and its importance for overall development of society and
Nation’s economy. This study focuses on approaches adopted by various Indian banks towards achieving the
ultimate goal of financial inclusion for inclusive growth in India and analyses of past years progress and
achievements. The relevant data for this study has been collected with the help of from various Research
journals, Articles, reports of RBI, reports of NABARD and online resources
“Financial Inclusion in SHG-bank Linkage Model under SGSY with special refere...iosrjce
Financial Inclusion is a very big challenge to banking sector. Till now most of the banking facilities
are not reaching to deprive. Micro financing through SHGs is a vital weapon for poverty eradication. But due to
lack of uniformity it is not complete its target efficiently. In this paper try to focus on the financial inclusion in
SHGs-Bank Linkage Programme under SGSY scheme in Jhansi district. SBLP is the banking link with poors to
uplift their socio-economoc, health, nutrition, insurance, saving, education aspects. It is an attempt to clarify
how much this programme reach to beneficiaries of SHGs.
The present study differs from previous studies as it is focused its basic cause for reduction in quality numbers
of SHGs come out after complete all stages. Further, this paper tries to access the grass root issues relating to
SHGs and the normal course in decrease the number of SHGs at last stage in the study area. The study is
undertaken in four development blocks of jhansi Districts of Uttar Pradesh during 2009-13. It is observed that
due to fast growing of the SHG-bank linkage programme, quality credit linked SHG has not cover all stages of
the programme.. Some of the factors affecting the decline of SHGs are the target oriented approach of the
government in preparing group, inadequate incentive to NGO’s for nurturing their groups etc.
Indian agriculture sector experiences vicious circle of poverty which decelerate economic growth. Financial exclusion is one of the main reason of it. In India marginals and weaker sections are excluded from main stream of the economy. To achieve sustainable development, all sections of the people need to be come into main stream. This study is an attempt to understand the concept of financial inclusion, financial inclusion in India and micro finance. RBI defines “Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players”. The present study also tries to understand how micro finance lending facilitates the acceleration of financial inclusion. Micro finance lending is a strong weapon of financial inclusion. Micro credit provided by banks emerged as a major policy tool of financial assistance in the rural credit, particularly to the poor sections of the society. Micro finance by providing small loans and savings facilities to those who have been excluded from other formal services, acting as a key strategy for reducing poverty and discrimination.
Inclusive development means empowerment of weaker sections, SC/STs and women. In this context “financial inclusion “ owns its significance.
Financial Inclusion Summit 2016 - Background & Current Status - Part - 1Resurgent India
Financial Inclusion is a key enabler to economic, social and transaction security of a country, thereby driving inclusive growth. It is for this reason that financial inclusion has been one of the key government priorities over the years, through various initiatives like Nationalization of Banks, Expansion of Banks branch network, Lead Bank Scheme, Business Correspondent Model, Mobile banking, Aadhaar enabled banking accounts, e-KYCs etc. Despite these various measures, poverty and exclusion continue to dominate socio-economic and political discourse in India even after six decades of post economic independence era.
A Little World: Facilitating Safe and Efficient M-Banking in Rural IndiaAshley Metz
The initiative is led by a private sector organization, A Little World (ALW) and its sister entity, a non-profit organization, ZERO Microfinance and Savings Support Foundation (ZMF). ALW and ZMF act as intermediaries between rural communities at one end, and mainstream financial institutions and the government at the other end. ALW offers a secure, low‐cost technology driven delivery platform for financial services through special mobile phones that store and help manage a vast amount of customer bank account data, authenticates account holders through photo and biometric identification and allows access to the bank accounts as Point of Service terminals. Since its pilot project in 2006, ALW and ZMF have rapidly grown and are now present in 22 states, with over four million rural customers, 8,314 points of presence and an average of 25,000 new account openings every day.
Role of Technology in driving Financial Inclusion 2016 - Part - 5Resurgent India
The banking sector has made rapid strides largely because of the rapid advancement of technology. Automated teller machines, internet and mobile banking, payment wallets, and other advancements have made significant improvements to consumer experience and have also helped banks widen their reach.
A research article that touches upon the everlasting issue of rising Non-Performing Assets ( Stressed Assets) in the Indian Banking Industry.
It explores macro economic concepts coupled with evolving legal regulations that may have just given passage to a lucrative debt market in India.
This presentation discusses the causes of Andhra Pradesh crisis, how it all started and the possible after-effects. It also examines how the Indian MFIs and the government should respond post this crisis. The presentation concludes with reactions from the clients.
The State of Financial Inclusion – An Overview and AdvancementIJLT EMAS
Financial Inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. The main focus of financial inclusion in India is to promote sustainable development and generating employment in rural areas for the rural population. In India, few households have access to banking services. There are many factors affecting access to financial services by weaker section of society in India. Several steps have been taken by the Reserve Bank of India and the Government to bring the financially excluded people to the fold of the formal banking services. Financial Access Survey for 2016 released by International Monetary Fund (IMF) shows that in India there only 13 commercial bank branches per 1,00,000 individuals. PM Jan Dhan Yojna (PMJDY) was highly successful in opening bank accounts in which more than 97% of the accounts were opened with the public banks, but around 72% of these accounts show 'zero balances'. More than 1 crore bank accounts have been opened under PMJDY. However, despite the opening of such accounts, access has been lower. Access to banking is an important indicator of the level of financial inclusion in the country. India's urban and semi-urban region performs fairly well, however rural region is still underdeveloped in banking. Digital India campaign recently launched schemes like MUDRA, startup India, PMJDY, initiation of new banks like payment banks, PSL certificates trading etc. are in the right direction. With government moving towards DBT for subsidies financial inclusion becomes very critical. Focus should shift to increase coverage, reach of services and ease of availing credit.
Improving Gender Targeting of Public ExpendituresDr Lendy Spires
Improving Gender Targeting of Public Expenditures educational outcomes is an ideal can- didate. The education sector reviews that formed part of the DRC PER FY08 and Liberia PEMFAR FY08 provide good examples. This does not mean that gender issues cannot be analyzed elsewhere in your PER. It all depends on the pov- erty focus of the PER, the objective of integrating gender analysis, and the resources available to conduct it. For example, a PER that wants to integrate gender in a comprehen- sive manner can try to answer this question: What are the key gender problems of the country, and are public expenditures being used in an efficient way to address them? The answer to this question will require analyzing expenditures across differ- ent sectors using a variety of techniques. (For an example of this type of approach, task team leaders (TTLs) can refer to the Saint Vincent and the Gren- adines PER conducted in 2004.2 The next section offers some practical recommendations on how to integrate gender into your PER, using a selective approach. A STEP-BY-STEP PROCESS TO INTEGRATE GENDER INTO THE DESIGN OF YOUR PER CONCEPT NOTE Step 1. Ask these questions: What is the objective of undertaking gender analysis in the context of this PER? Why do you want to conduct gender anal- ysis this time? There are several answers to these questions, including (but, by no means, restricted to) the following: to explore the gender impact of 2. World Bank. 2005. “Saint Vincent and the Grenadines: OECS Fiscal Issues: Policies to Achieve Fiscal Sustainability and Improve Efficiency and Equity of Public Expenditures.” Report 30885-SVG, Caribbean Country Management Unit and Poverty Reduction & Economic Management Unit, Latin America and the Caribbean Region, World Bank, Washington, DC. http://go.worldbank.org/PCP9P49FE0. (See chapter 8 on Gender.) specific public expenditures and to answer these questions: How are pub- lic expenditures distributed among men and women? Who benefits more from a particular/several public expenditure/s? Does a particular pub- lic expenditure contribute to closing or widening gender gaps in a sector? And so forth. • Ask for the help of sector specialists on your team. Early on in the process of concept note preparation, an upstream discussion among the PER team about how gender fits into the poverty and equity/distributional aspects of pub- lic expenditures and how to approach it in the PER can help identify priority areas of analysis. Step 2. Identify gender and public expenditure issues for analysis.
“Financial Inclusion in SHG-bank Linkage Model under SGSY with special refere...iosrjce
Financial Inclusion is a very big challenge to banking sector. Till now most of the banking facilities
are not reaching to deprive. Micro financing through SHGs is a vital weapon for poverty eradication. But due to
lack of uniformity it is not complete its target efficiently. In this paper try to focus on the financial inclusion in
SHGs-Bank Linkage Programme under SGSY scheme in Jhansi district. SBLP is the banking link with poors to
uplift their socio-economoc, health, nutrition, insurance, saving, education aspects. It is an attempt to clarify
how much this programme reach to beneficiaries of SHGs.
The present study differs from previous studies as it is focused its basic cause for reduction in quality numbers
of SHGs come out after complete all stages. Further, this paper tries to access the grass root issues relating to
SHGs and the normal course in decrease the number of SHGs at last stage in the study area. The study is
undertaken in four development blocks of jhansi Districts of Uttar Pradesh during 2009-13. It is observed that
due to fast growing of the SHG-bank linkage programme, quality credit linked SHG has not cover all stages of
the programme.. Some of the factors affecting the decline of SHGs are the target oriented approach of the
government in preparing group, inadequate incentive to NGO’s for nurturing their groups etc.
Indian agriculture sector experiences vicious circle of poverty which decelerate economic growth. Financial exclusion is one of the main reason of it. In India marginals and weaker sections are excluded from main stream of the economy. To achieve sustainable development, all sections of the people need to be come into main stream. This study is an attempt to understand the concept of financial inclusion, financial inclusion in India and micro finance. RBI defines “Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players”. The present study also tries to understand how micro finance lending facilitates the acceleration of financial inclusion. Micro finance lending is a strong weapon of financial inclusion. Micro credit provided by banks emerged as a major policy tool of financial assistance in the rural credit, particularly to the poor sections of the society. Micro finance by providing small loans and savings facilities to those who have been excluded from other formal services, acting as a key strategy for reducing poverty and discrimination.
Inclusive development means empowerment of weaker sections, SC/STs and women. In this context “financial inclusion “ owns its significance.
Financial Inclusion Summit 2016 - Background & Current Status - Part - 1Resurgent India
Financial Inclusion is a key enabler to economic, social and transaction security of a country, thereby driving inclusive growth. It is for this reason that financial inclusion has been one of the key government priorities over the years, through various initiatives like Nationalization of Banks, Expansion of Banks branch network, Lead Bank Scheme, Business Correspondent Model, Mobile banking, Aadhaar enabled banking accounts, e-KYCs etc. Despite these various measures, poverty and exclusion continue to dominate socio-economic and political discourse in India even after six decades of post economic independence era.
A Little World: Facilitating Safe and Efficient M-Banking in Rural IndiaAshley Metz
The initiative is led by a private sector organization, A Little World (ALW) and its sister entity, a non-profit organization, ZERO Microfinance and Savings Support Foundation (ZMF). ALW and ZMF act as intermediaries between rural communities at one end, and mainstream financial institutions and the government at the other end. ALW offers a secure, low‐cost technology driven delivery platform for financial services through special mobile phones that store and help manage a vast amount of customer bank account data, authenticates account holders through photo and biometric identification and allows access to the bank accounts as Point of Service terminals. Since its pilot project in 2006, ALW and ZMF have rapidly grown and are now present in 22 states, with over four million rural customers, 8,314 points of presence and an average of 25,000 new account openings every day.
Role of Technology in driving Financial Inclusion 2016 - Part - 5Resurgent India
The banking sector has made rapid strides largely because of the rapid advancement of technology. Automated teller machines, internet and mobile banking, payment wallets, and other advancements have made significant improvements to consumer experience and have also helped banks widen their reach.
A research article that touches upon the everlasting issue of rising Non-Performing Assets ( Stressed Assets) in the Indian Banking Industry.
It explores macro economic concepts coupled with evolving legal regulations that may have just given passage to a lucrative debt market in India.
This presentation discusses the causes of Andhra Pradesh crisis, how it all started and the possible after-effects. It also examines how the Indian MFIs and the government should respond post this crisis. The presentation concludes with reactions from the clients.
The State of Financial Inclusion – An Overview and AdvancementIJLT EMAS
Financial Inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. The main focus of financial inclusion in India is to promote sustainable development and generating employment in rural areas for the rural population. In India, few households have access to banking services. There are many factors affecting access to financial services by weaker section of society in India. Several steps have been taken by the Reserve Bank of India and the Government to bring the financially excluded people to the fold of the formal banking services. Financial Access Survey for 2016 released by International Monetary Fund (IMF) shows that in India there only 13 commercial bank branches per 1,00,000 individuals. PM Jan Dhan Yojna (PMJDY) was highly successful in opening bank accounts in which more than 97% of the accounts were opened with the public banks, but around 72% of these accounts show 'zero balances'. More than 1 crore bank accounts have been opened under PMJDY. However, despite the opening of such accounts, access has been lower. Access to banking is an important indicator of the level of financial inclusion in the country. India's urban and semi-urban region performs fairly well, however rural region is still underdeveloped in banking. Digital India campaign recently launched schemes like MUDRA, startup India, PMJDY, initiation of new banks like payment banks, PSL certificates trading etc. are in the right direction. With government moving towards DBT for subsidies financial inclusion becomes very critical. Focus should shift to increase coverage, reach of services and ease of availing credit.
Improving Gender Targeting of Public ExpendituresDr Lendy Spires
Improving Gender Targeting of Public Expenditures educational outcomes is an ideal can- didate. The education sector reviews that formed part of the DRC PER FY08 and Liberia PEMFAR FY08 provide good examples. This does not mean that gender issues cannot be analyzed elsewhere in your PER. It all depends on the pov- erty focus of the PER, the objective of integrating gender analysis, and the resources available to conduct it. For example, a PER that wants to integrate gender in a comprehen- sive manner can try to answer this question: What are the key gender problems of the country, and are public expenditures being used in an efficient way to address them? The answer to this question will require analyzing expenditures across differ- ent sectors using a variety of techniques. (For an example of this type of approach, task team leaders (TTLs) can refer to the Saint Vincent and the Gren- adines PER conducted in 2004.2 The next section offers some practical recommendations on how to integrate gender into your PER, using a selective approach. A STEP-BY-STEP PROCESS TO INTEGRATE GENDER INTO THE DESIGN OF YOUR PER CONCEPT NOTE Step 1. Ask these questions: What is the objective of undertaking gender analysis in the context of this PER? Why do you want to conduct gender anal- ysis this time? There are several answers to these questions, including (but, by no means, restricted to) the following: to explore the gender impact of 2. World Bank. 2005. “Saint Vincent and the Grenadines: OECS Fiscal Issues: Policies to Achieve Fiscal Sustainability and Improve Efficiency and Equity of Public Expenditures.” Report 30885-SVG, Caribbean Country Management Unit and Poverty Reduction & Economic Management Unit, Latin America and the Caribbean Region, World Bank, Washington, DC. http://go.worldbank.org/PCP9P49FE0. (See chapter 8 on Gender.) specific public expenditures and to answer these questions: How are pub- lic expenditures distributed among men and women? Who benefits more from a particular/several public expenditure/s? Does a particular pub- lic expenditure contribute to closing or widening gender gaps in a sector? And so forth. • Ask for the help of sector specialists on your team. Early on in the process of concept note preparation, an upstream discussion among the PER team about how gender fits into the poverty and equity/distributional aspects of pub- lic expenditures and how to approach it in the PER can help identify priority areas of analysis. Step 2. Identify gender and public expenditure issues for analysis.
OVERVIEW Five years after the onset of the global financial crisis the world economy remains in a state of disarray. Strong expansionary monetary policies in the major developed economies have not succeeded in fostering credit creation and strengthening aggregate demand. Fiscal austerity and wage compression in many developed countries are further darkening the outlook, not only for the short term, but also for the medium term. The burden of adjustment of the global imbalances that contributed to the outbreak of the financial crisis remains with the deficit countries, thus strengthening deflationary forces in the world economy. The dominance of finance over real economic activities persists, and may even have increased further. Yet financial reforms at the national level have been timid at best, advancing very slowly, if at all. In 2008 and 2009, policymakers of several economically powerful countries had called for urgent reforms of the international monetary and financial system. However, since then, the momentum in pushing for reform has all but disappeared from the international agenda. Consequently, the outlook for the world economy and for the global environment for development continues to be highly uncertain. Some developing and transition economies have been able to mitigate the impact of the financial and economic crises in the developed countries by means of expansionary macroeconomic policies. But with the effects of such a response petering out and the external economic environment showing few signs of improvement, these economies are struggling to regain their growth momentum. Prior to the Great Recession, exports from developing and transition economies grew rapidly owing to buoyant consumer demand in the developed countries, mainly the United States.
EMERGING TRENDS IN BANKING SECTOR – A COMPARATIVE STUDY FROM FINANCIAL INCLUS...IAEME Publication
Financial inclusion of the entire population is an important vehicle for development in a country The number of financially excluded people in a developing country like India is much higher than many developed countries in spite of the several initiatives taken by the Government of India for the rising middle class in the towns and villages investment in banking products is not a default choice. A preliminary investigation has been carried outin one such district in India pertaining to the banking products. The study is exploratory and analytical in nature. The main objective is to study the present scenario in banking.
This paper has referred to research done over the years and tries to study the trend of average
amount of loan disbursed to SHGs, amount of bank loans outstanding and its associated gross NPA from 2015
to 2020, agent-wise
Implementing the aspects of financial inclusion in the phase of demonetisatio...IJLT EMAS
The concept of ‘financial inclusion’ was introduced by
the reserve bank of India in April 2005 with an objective of
delivering financial services to the economically challenged and
underdeveloped segment of the society at an affordable rate. RBI
encouraged the formal banking sector as well as the microfinance
sector to provide soft loans and savings facilities especially to the
poor with a flexible documentation process to attract them under
the umbrella of RBI. This will not only improve the financial
stake of the low-income group of the country, but also ensure
them a safe investment and will increase the portfolio size of the
bank and NBFCs. In 2014, The Government of India announced
‘Pradhan Mantri Jan Dhan Yojna” to expand the financial
inclusion project by bringing more people under banking and
banking spread sector. On 8th November 2016, Mr Narendra
Modi, Prime minister of India ceased 500 and 1000 rupee notes
as legal tender which can be termed as demonetization. Although
the immediate mission was to eradicate black money, fake money
and terror financing; it can be considered as a way forward to
the ‘Jan Dhan Yojna” and hence can be used as a strategy
instrument of imposing financial inclusion across the country.
This paper examines the advantages and disadvantages of
demonetization in implementing financial inclusion in India. In
spite of the fact that demonetization will force the people to make
their transaction through bank and NBFCs , there are serious
challenges like the liquidity crunch of the cash based segment of
the economy, the bank and digital literacy issues etc. In this
paper the challenging issues have been addressed as well as the
bottleneck of financial inclusion in post-demonetization period
has been discussed by identifying the crucial parameters like
percentage of people having bank account, the percentage of
people uses mobile and /or internet, the literacy percentage of the
country, the policy of the banks, the documentation requirement
of the bank and feasibility of the poor section etc.
Inclusive growth is possible only through proper mechanism which channelizes all the resources from top to bottom. Financial inclusion is an innovative concept which makes alternative techniques to promote the banking habits of the rural people because, India is considered as largest rural people consist in the world. Financial inclusion is aimed at providing banking and financial services to all people in a fair, transparent and equitable manner at affordable cost. Households with low income often lack access to bank account and have to spend time and money for multiple visits to avail the banking services, be it opening a savings bank account or availing a loan, these families find it more difficult to save and to plan financially for the future. This paper is an attempt to discuss the overview of financial inclusion in India.
Financial inclusions a pavement towards the future growthTapasya123
India’s economic growth rates higher than most developed countries in recent years, a
majority of the country’s population still residue unbanked. Financial Inclusion is a relatively
new socio-economic concept in India that aspire to change this dynamic by providing
financial services at affordable costs to the underprivileged, who might not otherwise be
aware of or able to afford these services. Global trends have revealed that in order to achieve
inclusive development and growth, the expansion of financial services to all sections of society
is of utmost importance. As a whole, financial inclusion in the rural as well as financially
backward pockets of cities is a win-win opportunity for everybody involving – the
banks/NBFC’s intermediaries, and the left-out urban population. Banks will handle core
infrastructure and services while intermediaries known as Business Correspondents (BC’s)
will be the executors and act as the face of these banking & financial institutions in dealing
with end-users. Therefore, it is assumed that financial inclusion can initiate the next
revolution of growth and prosperity. In the 21st century, India has been pulling all the right
levers to advance financial inclusion and economic citizenship by channelling its own
transactions to lubricate the system. India’s journey towards economic ascension relies on
how the 65% unbanked population of India (conservative 2012 estimate by World Bank) is
enabled with financial infrastructure.
Rani Singh-Financial Inclusion Issues and Challenges
Financial inclusion and its determinants nitin
1. Financial Inclusion and its determinants: Evidence from state level
Page 1 of 23
empirical analysis in India
Nitin Kumar1
RBI, C-9/6 Bandra Kurla Complex,
Bandra (E), Mumbai, India
Mobile: +91-9867713600
Abstract
Financial institutions are the catalyst in the economic growth and progress in the modern era. In
this respect, there is a rapid thrust for financial inclusion, more so in emerging economies, such
as, India.
The study utilizes state-wise panel data spanning over a period from 1995 to 2008 in an attempt
to assess the behaviour and determinants of financial inclusion in India. In line with the economic
intuition, increase in bank branch network (captured by average population per branch) is having
a beneficial impact on deposit and credit penetration. Although, the strength of causality weakens
in case of credit penetration. The income level has a positive impact on both credit and deposit
penetrations. The finding validates the importance of regional economic conditions on the
betterment of financial inclusion. Further, the factory proportion and employee base are coming
out to be significant variables indicating that income and employment generating schemes lead
the public to be more active, aware, interested with regard to banking activities, which contributes
towards financial inclusion. Using test for convergence it is found that the states tend to maintain
their respective level of banking activity vis-à-vis the rest with the policy implication that more
attention is required to be paid in the low performing regions to enable them to close the gap with
respect to better performing regions.
KEY WORDS: Financial Inclusion; Panel data; Banks
JEL Classification: G21; C23
1. Introduction
A strong and sturdy financial system is a pillar of economic growth, development and progress of
an economy. A financial system, which is inherently strong, functionally diverse and displays
efficiency and flexibility, is critical to our national objectives of creating a market-driven,
productive and competitive economy. A mature system supports higher levels of investment and
promotes growth in the economy with its depth and coverage.
In the contemporary era of achieving economic power and self reliance, it is imperative for any
regime to create congenial conditions for individuals, households and private institutions. The
availability of banking facilities and strong bank branch network are the major facilitators of
developmental and expansionary activities. In turn the economic agents facilitate in growth,
1 The author is Research Officer at the Reserve Bank of India, Mumbai, India. The views
expressed in the paper are those of author and need not necessarily belong to the organization to
which he belongs. All the errors, omissions, if any, are the responsibility of the author. The author
can be contacted at: nkumar@rbi.org.in
2. development, investment, employment generation, infrastructure improvement, which are now
well established in the literature (Feldstein and Horioka, 1980; Brunetti et al., 1997; Ford and
Poret, 1991; Hartog and Oosterbeek, 1993).
India has a functioning financial market/system comprising of money market, forex market, capital
market, debt market to cater to financial needs and requirements of various participants and
segments of society. It ensures a smooth and efficient flow of monetary resources, meeting the
funding needs required for growth and prosperity.
India has a historic and well-structured banking system to cater to the financial needs of
individuals and households' and contribute towards the improvement and advancement of the
nation. Towards these needs, necessary reforms, supervision and continuous monitoring are
envisaged to ensure a modern and up-to-date banking practices, healthy competition, financial
inclusion and well calibrated de-regulation. The Indian banking sector consists of the Reserve
Bank of India (RBI), which is the central bank, commercial banks and co-operative banks. Bank
nationalization in India marked a paradigm shift in the focus of banking as it was intended to shift
the focus from class banking to mass banking. The rationale for creating Regional Rural Banks
was also to take the banking services to poor people.
The banking industry has shown tremendous growth in volume and complexity over the last
decade or so. Despite making significant improvements in all the areas relating to financial
viability, profitability and competitiveness, there are concerns that much needed banking services
have not reached a vast segment of the population, especially the underprivileged sections of the
society. Internationally, also efforts are being made to study the causes of financial exclusion and
designing strategies to ensure financial inclusion of the poor and disadvantaged. The reasons
may vary from country to country and hence the strategy could also vary but all out efforts are
being made as financial inclusion can truly lift the financial condition and standards of life of the
poor and the disadvantaged.2
With the objectives discussed as above, the present study is an attempt to understand the
behaviour and determinants of financial inclusion in India. Standard econometric techniques are
employed for state-wise panel data spanning over a period from 1995 to 2008. The findings
corroborate persistence of a negative influence of average population per branch (APPB) on
deposit penetration, signifying thereby how the population growth and concentration are
outpacing the rate of banking expansion presently taking place in India. It is, anyway, insignificant
2 See Leeladhar (2006).
Page 2 of 23
3. in case of credit penetration. It is interesting to note that income is unambiguously having a
positive and significant role in determining the level of financial inclusion. Further, the employee
base is coming out to be a significant variable indicating that employed people seem to be more
active, aware, interested with regard to banking activities. Using test for convergence it is found
that the states tend to maintain their respective level of banking activity vis-à-vis the rest with the
policy implication that more attention is required to be paid in the low performing regions.
The rest of the article is organized as follows. Section 2 briefly discusses the scope of financial
inclusion, its description and utility. An exposition about the data and key variables is provided in
section 3. Section 4 is devoted to the econometric model and methodology employed for the
analysis. The results of the basic exploratory investigation are discussed in section 5 followed by
section 6, which argues the results of the empirical analysis. The section 7 concludes with overall
summary and major findings of the study.
2. The scope of financial inclusion
As per the Rangarajan Committee report (2008) Financial Inclusion is defined “as the process of
ensuring access to financial services and timely and adequate credit where needed by vulnerable
groups such as the weaker sections and low income groups at an affordable cost”. Broadly
speaking, Financial Inclusion is the delivery of banking services at an affordable cost to the vast
sections of disadvantaged and low income groups. Unrestrained access to public goods and
services is the sine qua non of an open and efficient society. As banking services are in the
nature of public good, it is essential that availability of banking and payment services to the entire
population without discrimination is the prime objective of the public policy.
The goals of financial inclusion can be met by initiative of banking sector to cut across various
strata of society, regions, gender, income and encourage the public to embrace banking habit.
Also, Reserve Bank of India, as the chief regulator has intervened for the success of financial
inclusion by various enactments3, financial literacy drives, leveraging technology etc.
3 The RBI has asked banks to make a basic banking 'No-frills' account available for low-income
individuals, with either zero or low minimum balances and charges. The RBI has also urged all
banks to give extensive publicity to such 'No-frills' accounts to enable financial inclusion. Several
banks have since introduced such ‘no-frills’ account with and without value-added features. The
RBI has also eased the 'Know your customer' (KYC) norms to keep the procedural hassles
involved in opening a bank account to the minimum. This is to enable those belonging to low-income
groups to open bank accounts without documents of identity and proof of residence. To
extend hassle-free credit to bank customers in rural areas, the guidelines on general credit card
(GCC) schemes are simplified to enable customers’ access credit on simplified terms and
Page 3 of 23
4. In India the focus of the financial inclusion has the objective of ensuring at least a bare minimum
access to a savings bank account without frills, to all the sections of society. However, there
exists a wider horizon for financial inclusion. At one of the ends is the section of the society which
is denied and/or ignorant of the most basic banking services of the bank. Whereas, at the other
extreme is a segment of population who are active and aware of a wide range of financial
services and products at their disposal. In between these two extremes is the public who utilize
the banking services only for basic deposit and withdrawal of their money.
Consequences of financial exclusion will vary depending on the nature and extent of services
denied. It may lead to increased travel requirements, higher incidence of crime, general decline in
investment, difficulties in gaining access to credit or getting credit from informal sources at
exorbitant rates, and increased unemployment, etc. The small business may suffer due to loss of
access to middle class and higher-income consumers, higher cash handling costs, delays in
remittances of money. According to certain researches, financial exclusion can lead to social
exclusion, which has an effect on poverty and output4.
A vast segment of India's population exists on the margins of India's financial systems. Whilst the
per-capita savings of this class may not be very high their sheer number means that taken
together their savings are of a considerable amount. If their entry in the formal financial sector is
made easier these savings can be channelized for an inclusive growth with a distributive justice.
Also savings cum risk products that are their primary need can be structured for them once they
are part of the formal banking system.
Among the developed nations, UK was one of the earliest to realize the importance of financial
inclusion (Kempson 2004, Collard et al. 2001). Around 8 per cent of the households lacked any
kind of deposit account. Account holding is lowest for people aged under 20 and over 80 years.
Reasons for exclusion vary from low credit scoring, legislation to prevent bank accounts for
'money laundering', mistrust by people on the margins of society, terms and condition of the
banks, physical access problems among others. In Australia, the prevalence of unbanked adults
is much lower than in other developed nations, with estimates of just three per cent of adults
lacking a bank account. There is however growing concern about people being ‘under-banked’ –
conditions, without insistence on security, purpose or end-use of credit. With a view of providing
hassle free credit to customers, banks were allowed to issue general credit cards akin to Kisan
credit cards. Also, the banks are encouraged to increase IT infrastructure for increasing the scope
and coverage of financial inclusion (Mohan, 2006).
4 See Burgess and Pande (2003).
Page 4 of 23
5. that is people who hold an account but make little use of it. Despite the wide access to banking
there are clusters of excluded people – most particularly in the indigenous communities. Among
the reasons for exclusion are, affordability. Bank pricing for varied services are such that will
dissuade potential applicants with low incomes from becoming customers. Documentation
requirements by the banks also have a role to discourage account opening. Problems of access
and charges are the reasons for banking exclusion in United States also. Access to transaction
pertain to difficulty in opening transaction account for consumers without a good credit history.
Access to financial services for people, especially poor and deprived, is critical. Also, access to
finance by micro-entrepreneurs is imperative for inclusive and overall growth of the economy. The
Indian legislature has been conscious of this fact since early. Bank nationalization in India gave
the first vigorous focus of banking to mass banking. The rationale for creating Regional Rural
Banks was also to take the banking services to poor people. The branches of commercial banks
and the RRBs have increased from 8321 in the year 1969 to 84,504 branches as at the end of
March 2010. The average population per branch office has decreased from around 64,000 to less
than 14,000 during the same period. The number of 'No frill' accounts have also registered a
growth over the last few years (Thorat, 2007). In view of their vast branch network, public sector
banks and the regional rural banks have been able to scale up their efforts by merely leveraging
on the existing capacity. However, there are still many areas under-banked, particularly in Bihar,
Orissa, Rajasthan, Uttar Pradesh, West Bengal and a large number of North-Eastern states,
where the average population per branch office continues to be quite high compared to the
national average.5 In this respect, the new branch authorization policy of Reserve Bank of India
encourages banks to open branches in the under banked regions. The new policy also places a
lot of emphasis on the efforts made by RBI to achieve, inter alia, financial inclusion and other
policy objectives. To measure financial inclusion, a multidimensional Index of Financial Inclusion
(IFI) has been proposed by Sarma (2008). It The IFI is an index that captures information on
various dimensions of financial inclusion in one single digit lying between 0 and 1. It captures the
penetration of the banking system, its availability to users and its actual usage. Chakravarty and
Pal (2010) employ the axiomatic measurement approach for the measurement of financial
inclusion. It improves upon the IFI proposed by Sarma (2008) such that the index can be utilized
to determine the percentage contributions by the various factors.
3. Data source and key variables
Annual data from varied sources has been utilized for the analysis. The study is a state-wise
panel data analysis spanning over a period from 1995 to 2008.
5 See Figure 6
Page 5 of 23
6. Sarma (2008) has proposed ratio of number of bank accounts to population as an indicator of
penetration of banking system. In those lines number of deposit accounts per thousand of
population, number of credit accounts per thousand of population have been constructed as a
measure of financial inclusion, which constitutes our dependent variable6. The number of
deposit/credit accounts7 has been collected from Basic Statistical Returns of Scheduled
Commercial Banks in India published by Reserve Bank of India. The state-wise population figures
has been gathered from the Office of the Registrar General and Census Commissioner of India.
Among the explanatory variables, the foremost is the population density. The population density
is the population per square kilometer to capture the region-wise demographics and understand
the role of population concentration on the penetration of banking system.
A vital variable to examine the segment of population to which a branch caters is the average
population per bank branch (APPB, henceforth). The APPB is the ratio of population (in
thousand) to the total number of branches in the specific territory. The bank offices devoted solely
for administrative purpose were excluded while deriving the number of bank branches. The
information on branches has been sourced from Branch Banking Statistics published by Reserve
Bank of India.
Income is measured by per capita net state domestic product (NSDP) at 1999-00 constant prices.
The logarithm of per capita NSDP has been included to understand the influence of states’
economic and financial position on the penetration of banking system. The data on NSDP has
been collected from Handbook of Statistics on Indian Economy published by Reserve Bank of
India.
Credit deposit ratio (CD ratio) is an elementary indicator of how efficiently the deposits are
mobilized and is utilized to carry out investment and capital formation activities. A high CD ratio is
usually associated with higher investment and growth.
The proportion of factories has been taken as a proxy for the level of industrialization and
sociological modernization. Usually advanced economies with greater industrialization are
expected to have greater role for banking and financial activities.
6 Ideally adult population figure should have been employed. However, due to absence of a
comprehensive state-wise adult population database for non census years, total population
figures have been utilized. The total deposit accounts has been utilized instead of savings
accounts as by its broad meaning financial inclusion is not limited to opening savings accounts
only but availing other banking services also.
7 Credit figures are as per place of utilization.
Page 6 of 23
7. Employment status represents the employment status of individuals. Those of a more secure
status economically are less likely to be financially excluded (Devlin, 2005). The relevant
information along with the data on factories has been collated from Annual Survey of Industries.
Both factories and employee information has been normalized by the respective population
figures for comparability purposes.
4. Econometric model and methodology
Due to the peculiarities of pooled dataset, observations for an individual may not be independent
and the usual ordinary least squares method may provide biased estimates. Hence, we employ
the panel data estimation techniques (fixed-effects model and random-effects model) to control
for the fixed or random individual differences. The hausman test has been applied to test for the
appropriateness of the fixed or random effects model. The basic functional form of the regression
equation is as follows,
Page 7 of 23
. . . (1)
Here, Yij represents the value of endogenous variable for the ith state at the tth period. β0 stands
for the intercept term and Xij is the matrix of exogenous variables. β1 is the vector of associated
parameters. αi is treated as a random variable with a specified probability distribution (usually
normal, homoscedastic, and independent of all measured variables) in case of random effects
model, whereas a set of fixed parameters in fixed effects model. εij is the usual stochastic
disturbance term following normal distribution with mean 0 and variance σ2.
Separate regressions have been performed for deposit and credit penetration indices. The
common set of explanatory variables are population density, APPB, income level, credit deposit
ratio, proportion of factories to capture industrialization, employee base. With this we move on to
next section which describes the exploratory results based on the summarized data followed by
analytical outcomes and explanations.
5. Exploratory results
As per Sarma (2008) index of penetration has been constructed separately for deposit and credit
accounts as percentage of deposit/credit accounts to population. The figure 1 displays the trend
of ratio of credit accounts to population (credit penetration index). During 1995 to 1999 there has
8. been decline in the ratio from 5.9 to 5.0 per cent. However, it has continuously improved from 5.1
in 2001 to 9.3 per cent in 2008. The ratio of deposit accounts to population (deposit penetration
index) recorded a slight dip during the latter half of the previous decade from 40.1 per cent in
1995 to 38.8 per cent in 19998. However, afterwards the percentage of population having deposit
account has more or less shown a continuous improvement with nearly half of the population
having some kind of a deposit account during 2008.
Average population per branch (APPB, henceforth) has been long considered a vital indicator of
accessibility of banks' branches (Subba Rao, 2007; Burgess and Pande, 2003; Leeladhar, 2006).
The movement of APPB is depicted in figure 3, which exhibits a worsening of APPB from 15501
individuals being catered by a single branch in 1995 to 15980 in 1999. The parameter portrayed
an inverted U-shape with improvement during the recent years at 15067 people being served per
branch in 2008.
A graphical representation of credit penetration index for the year 2008 is illustrated in figure 4 to
provide a glimpse of the variation of credit penetration across the various states of India. The
states, such as, Maharashtra, Tamil Nadu, Kerala have the highest credit penetration at 22.6,
21.7 and 16.8 per cent respectively, far above the national average at 9.3 per cent. Whereas, the
states performing poorest in terms of credit penetration are observed to be Bihar and Assam at
3.6 and 4.2 per cent.
The graph is slightly different in terms of deposit penetration where the states of Delhi and Punjab
peaked with 131.4 and 91.7 per cent (Figure 5). The All-India figure stood at 50.7 per cent,
pointing that nearly half of the population is utilizing the various financial services related to
deposits of one form or another. The states at the bottom of the table are Bihar, Madhya Pradesh
at 24.6 and 32.0 respectively followed by 32.7 per cent for Assam, which creates a somewhat
similar picture as that of credit penetration.
The figure 6 portrays the APPB. The average All-India APPB in 2008 stood at 15067 per branch.
As observed in case of penetration indexes, in case of APPB also Bihar and Assam had the
lowest branch network, both catering to more than 20,000 persons per branch. A high branch
density with less than 10,000 persons per branch have been computed for Delhi, Punjab and
Kerala.
A snapshot of variables for few selected years is provided in table 1. From the table it is evident
that the number of branches of Scheduled Commercial Banks in India rose by around 14000
8 See figure 2.
Page 8 of 23
9. during the period of the study. The number of credit accounts marked a slight decline of around
57 lakhs in 1999 as compared to 1995. However, there after it has consistently swelled and
crossed the figure of 10 crore in 2008. Overall, other variables have risen in magnitude except
some minor decline shown by the statistics, viz., number of factories and employment.
The table 2 presents the state-wise means of the variables used in the study. It is evident from
the table that the state with largest number of branches and number of deposit accounts is Uttar
Pradesh. In case highest number of average credit accounts, it is the state of Andhra Pradesh.
However, it is interesting to note that in terms of amount it is Maharashtra, which scores the
highest in terms of both credit and deposit amounts.
To examine the relationship between the two indices, the coefficient of correlation between
deposit and credit penetration indices is tabulated in table 3. It is observed from the table that
although some of the states do have negative and/or insignificant relationship but most of the
states have a positive and significant relationship between the two indices. The computed value
of All-India correlation coefficient is more than half and also significant. The results indicate that
the regions having high credit penetration are also the regions having high deposit penetration
and vice versa.
One vital doubt which arises is whether there exists a wide variation of penetration indices across
the states. In this regard the coefficient of variation is computed in table 4. It is observed that
penetration indices do considerably vary across states. For instance, the deposit index varied
from as low as 3.9 per cent for West Bengal to a high of 30.3 per cent for Nagaland. The variation
seems to be wider in case of credit index. The credit penetration for Uttar Pradesh was lowest at
around 10 per cent whereas for Maharashtra the index hovered around 68 per cent.
A closer look reveals that the ranking of the various states also varies according to the
penetration index. This has an important bearing as it implies that the utility of banking services
may also vary across regions as per the local needs, perceptions, habits, convenience and so on.
6. Empirical analysis
The results of the fixed effects9 panel data estimation are provided in table 5. The dependent
variable in case of model 1 and 2 is the number of deposit accounts per thousand of population,
which measures the deposit penetration. The model 1 consists of fixed state effects to control for
9 The hausman test concluded in favour of fixed effects model both in case of deposit and credit
penetration models.
Page 9 of 23
10. state-wise heterogeneity owing to variations in economic, social and demographic fabric across
the regions. The model 2 consists of both state and time fixed effects as policy amendments over
time may also have a key role to play in banking industry, which needs to be controlled for a
better fit. A better fit is actually reflected in an improved R2 statistics in model 2 compared to
model 1. Qualitatively the results of both model 1 and 2 are quite similar. Contrary to our
expectations the population density seems to be having a negative influence on the deposit
penetration index. It seems to imply that the branch density in high population concentrated
regions is, in fact, lesser compared to more sparsely occupied sections. In line with the intuition,
APPB is, actually having a negative and significant impact on deposit penetration in both models
1 and 2. A unit decline in APPB leads to improvement of deposit penetration by approximately 7.2
accounts per thousand of population. The income effect, which is proxied by NSDP (constant
prices) is having a positive and significant affect on the dependent variable. An improvement of
thousand rupees is enhancing the proportional deposit accounts by approximately 6 units. The
credit deposit ratio is coming out to be insignificant in the determination of deposit penetration.
The level of industrialization, which is captured by the proportion of factories is turning out to be
significant. The employee base is positively and significantly related to the deposit activities.
Overall, these findings suggest that state level development and social characteristics have an
important bearing on banking activity.
The models 3 and 4 have credit penetration as the dependent variables, focusing on the credit
side activity of banking. Unlike, deposit penetration, the population density is having a positive
and significant influence on the credit penetration. A unit increase in population density is leading
to expansion of credit penetration by around 9.5 credit accounts per thousand of population.
APPB is having a negative influence on the credit penetration. However, the level of significance
seems to decline with the introduction of time effects. The finding seems to imply that branch
density does not seem to be a vital parameter for the public to engage in credit led services. Like
deposit penetration, income parameter, is significant with respect to credit penetration also. An
increase of thousand rupees in the income is enhancing the proportional credit accounts by
approximately 2 units. Credit deposit ratio is having a direct relationship with credit penetration,
albeit it becomes insignificant in case of model 4. Similar findings are observed in case of
proportion of factories and employees. It points to the fact that although the regional social and
developmental factors have positive implications for proliferation of credit activities, its
significance is low when controlled for time effects. The usual F-test was performed to test if the
restricted form of our model is adequate representation of the data. The test was performed
between model 1 and model 2, and model 3 and model 4. In both the cases the results indicate
that time effects are significant in explaining the penetration indices (See table 6). Additionally,
test of structural change was performed, which indicated a structural change in the year 2001.
Page 10 of 23
11. The shift could be due to multiple factors, such as phased implementation of the Narasimham
Committee report (1998), which emphasized increase of branch network and encouraged private
and foreign banks' entry, among other. Additionally, 2001 being a census year is the sole year for
which actual population figures are available unlike the rest of the period. The difference in
methodologies for projected population figures pre and post 2001 could have a role for the
census year being the point of structural change.
Last but not the least, a natural query which arises is that whether the rankings of the states
according to their level of credit or deposit penetration indices vary significantly over the years i.e.
is there any evidence that the states displaying a lower banking activity in terms of credit or
deposit, in the initial years have shown improvement over the years or not10. To address the
issue, we compute the Kendall’s index of rank concordance11.
Kendall’s index of rank concordance is calculated as follows,
Var AR E
Page 11 of 23
T
t
it
( )
1
[ ] i
t Var T AR E
KI
* ( )
=
Σ=
. . . (2)
where, AR(E)it depicts the actual rank of the ith state in the year t. AR(E)i1 is the actual rank of the
ith state in the initial year t=1, and T is the number of years for which the data is used for
construction of the index.
The value of rank concordance index ranges from zero to one. The closer the index value is to
zero the greater the extent of mobility within the distribution and vice versa. The statistic is
distributed as chi-squared and we test the null hypothesis of no association among ranks
obtained over different years. The test statistics is χ2 = t*(N − 1)*KI, with (N - 1) degrees of
freedom, where t is the number of years of ranking, N is the number of cross sections and KI is
the calculated Kendall’s index of rank concordance.
The Kendall's index for credit penetration is tabulated in table 7. It may be seen that the null
hypothesis of no association among ranks of different years is rejected decisively for all the years
at 5 per cent level of significance. Thus, cross sectional dispersion of credit penetration is not
diminishing over time and the laggards are not showing any indication of improvement over the
10 In other words, it is attempted to test for the convergence hypothesis.
11 See Boyle and McCarthy (1997) for a detailed discussion on Kendall's index of rank
concordance.
12. years. Similar interpretation may be deduced for the deposit penetration index (Table 8). From
the results it is clear that there exists stability in ranks obtained by the various states with regard
to their level of deposit penetration. So, overall the gap among the states is not showing any
evidence of narrowing down.
7. Conclusion
The issue of financial inclusion has acquired a substantial attention in the Indian context since
some time now. However, quantitative analysis to understand the behavior and its determinants
are scant. The study is an attempt to formally probe the level and causal factors of financial
inclusion in India. The study utilizes panel data for the period 1995 to 2008 at the state level. The
prominent findings include the continuous improvement of credit and deposit penetration in the
current decade. At All-India level the credit penetration and deposit penetration are positively
correlated implying that the regions having high credit penetration are also the regions having
high deposit penetration and vice versa.
The results from the empirical analysis indicate a negative influence of population density on
deposit penetration. The finding implies that although deposit accounts have improved over time,
but its growth has not matched with respect to the population increase. But, the relationship is not
as clear in case of credit penetration as the coefficient is insignificant. The average population per
branch is having a negative influence on deposit penetration. It confirms the beneficial impact of
improvement of branch network on financial inclusion drive, which occurs due to greater
accessibility and convenience. The income level is unambiguously having a positive influence on
both penetration proportions. It points to the fact that level of economic condition is a vital
determinant of financial inclusion efforts. The outcome corroborates the phenomenon of higher
usage and requirement for financial services with increase in the standard of living. Both
proportion of factories and employees to population are having a significant and positive influence
on deposit penetration. It implies that region's structural and environmental setup has a role in
determining the deposit penetration. A positive coefficient for the employee proportion indicates
that employed people seem to be more active, aware, interested with regard to banking activities
related to both credit and deposit activities. Using test for convergence it is found that the states
tend to maintain their respective level of banking activity vis-à-vis the rest. This has an important
implication for the regions performing low in terms financial inclusion. It seems that due to certain
inherent structural characteristics low performing states are unable to close the gap.
Page 12 of 23
13. References
Boyle, G.E., McCarthy, T.G. (1997), ‘A simple measure of beta convergence’, Oxford Bulletin of
Economics and Statistics, 59(2), 257-264.
Brunetti, A., Kisunko, G., Weder, B. (1997), 'Credibility of Rules and Economic Growth: Evidence
from a Worldwide Survey of the Private Sector', World Bank
Burgess, R., Pande, R., (2003), 'Do Rural Banks Matter? Evidence from the Indian Social
Banking Experiment', CMPO Working Paper Series No. 04/104.
Central Statistical Organisation, various volumes, Annual Survey of Industries, Government of
India.
Chakravarty, S.R., Pal, R. (2010), ‘Measuring financial inclusion: An Axiomatic approach’, Indira
Gandhi Institute of Development Research, Mumbai Working Papers 2010-03.
Collard, S., Kempson, E., Whyley, C., (2001), 'Tackling financial exclusion', Bristol: Policy Press.
Devlin, J. F., (2005), 'A Detailed Study of Financial Exclusion in the UK', Journal of Consumer
Policy 28, pp 75 - 108.
Feldstein, Martin and Charles Horioka (1980) 'Domestic Saving and International Capital Flows',
Economic Journal 90, pp. 314-329.
Ford, R., Poret, P. (1991), 'Infrastructure and private-sector productivity', Economic Studies (17),
pp. 63-89
Kempson E., A. Atkinson and O. Pilley, (2004), 'Policy level response to financial exclusion in
developed economies: lessons for developing countries', Report of Personal Finance Research
Centre, University of Bristol.
Leeladhar, V., (2006), 'Taking Banking Services to the Common Man - Financial Inclusion',
Reserve Bank of India Bulletin.
Mohan, R., (2006), 'Economic Growth, Financial Deepening and Financial Inclusion', Reserve
Bank of India Bulletin.
Page 13 of 23
14. Narasimham, M. (1998), ‘Report of the Committee on Banking Sector Reforms’, Reserve Bank of
India, Mumbai.
Rangarajan Committee, (2008), 'Report of the Committee on Financial Inclusion', Committee
Report.
Reserve Bank of India, various volumes, Basic Statistical Returns for Commercial Banks,
Mumbai.
Reserve Bank of India, various volumes, Branch Banking Statistics, Mumbai.
Reserve Bank of India, 2009, Handbook of Statistics on Indian Economy, Mumbai.
Subba Rao, K. G. K., (2007), 'Financial Inclusion: An Introspection', Economic Political Weekly,
pp. 355 - 360.
Sarma, M., (2008), ‘Index of Financial Inclusion’, Working Paper No. 215, Indian Council for
Research on International Economic Relations.
Thorat, U., (2007), 'Financial Inclusion-the Indian Experience', Reserve Bank of India, Bulletin,
July, Vol LXI (7)
Page 14 of 23
15. Page 15 of 23
Appendix
Figure 1: Trend of credit accounts
4
5
6
7
8
9
10
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Percent of credit accounts to
population
Figure 2: Trend of deposit accounts
Percent of deposit accounts to
37
39
41
43
45
47
49
51
1995
1996
1997
1998
1999
2000
2001
2002
Year
2003
2004
2005
2006
2007
2008
population
16. 16.1
15.9
15.7
15.5
15.3
15.1
14.9
14.7
Page 16 of 23
Figure 3: Behaviour of average population per branch
14.5
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Average population per branch (in
thousands)
18. Table 1: The summary statistics of variables for select years
Year Statistics
Page 18 of 23
Number of
branches
Number of credit
accounts
Credit amount
outstanding (Rs
thousand)
Number of
deposit accounts
Deposit amount
(Rs thousand)
1995 Sum 62670 58097104 2109391191 390035696 3791741411
Average 1790.571429 1815534.5 65918474.72 12188615.5 118491919.1
Standard
deviation 2039.454386 2284442.01 106735017.7 14721910.98 168619493.4
1999 Sum 65458 52305456 3824250335 405907925 6981690772
Average 1870.228571 1634545.5 119507823 12684622.66 218177836.6
Standard
deviation 2122.487873 2043680.743 194445728.9 15486975.98 296017171.8
2003 Sum 66657 59491187 7559688154 446080712 12761957017
Average 1904.485714 1699748.2 215991090.1 12745163.2 364627343.3
Standard
deviation 2150.825018 2278415.942 374019517.8 15620973.75 519474007.4
2006 Sum 69885 85435381 15138421296 485097771 20911742362
Average 1996.714286 2441010.886 432526322.7 13859936.31 597478353.2
Standard
deviation 2243.793906 3524318.613 765104531.6 16768732.95 954627266.6
2008 Sum 76169 106990180 24170065173 581658012 32499461730
Average 2176.257143 3056862.286 690573290.7 16618800.34 928556049.4
Standard
deviation 2437.248598 5062679.974 1220429710 20245528.43 1627451723
Year Statistics
Number of
factories
Per capita NSDP
at constant prices
(Rs)
Population
(thousand) Employment
1995 Sum 122285 971448 913670
Average 5095.208333 15272.71822 35141.15 382365.125
Standard
deviation 5826.603403 6749.52458 38118.52 400780.3148
1999 Sum 130893 984240 8548188
Average 5235.72 18202.86887 37855.38 341927.52
Standard
deviation 6032.241979 9202.374362 41244.62 379322.3856
2003 Sum 127219 1062436 7908697
Average 5088.76 20200.21875 30355.31429 316347.88
Standard
deviation 5601.320382 10718.13587 38787.41455 351494.705
2006 Sum 140160 1114201 9111679
Average 4521.290323 23749.625 31834.31429 293925.129
Standard
deviation 5831.848273 12603.16151 40819.21156 376634.0599
2008 Sum 146384 1147677 10452533
Average 4722.064516 27415.51852 32790.77143 337178.4839
Standard
deviation 5940.16016 16111.76379 42141.27579 420622.5798
19. Table 2: Key indicators of the study: State-wise averages of the values
State
Page 19 of 23
Number
of
branches
Number of
credit
accounts
Credit amount
outstanding
(Rs thousand)
Number of
deposit
accounts
Deposit amount
(Rs thousand)
ANDHRA PRADESH 5286.14 7884403.64 577276266.9 33538636.29 712057600.1
ASSAM 1241.14 900369.64 61092635.79 7971979.43 127813362.4
BIHAR 3566.07 3392572.14 114657104.8 22150252.71 346622168.2
CHHATTISGARH 1049.29 703872.63 92947813.13 5237491.75 169871199.9
DELHI 1516 1378898.5 959811018.4 18206136.79 1549895169
GUJARAT 3679.93 2278914.36 465996926 23435848.21 680790713.1
HARYANA 1582.79 1131610.93 175181116.1 11237949.57 280834278.4
KARNATAKA 4816.21 5703168.86 644219332.2 28473608 781956299.3
KERALA 3377.57 4171214.79 282194709.8 22258624.64 527802886.4
MADHYA PRADESH 3463.36 2744087 218416694.7 18988409.79 372609798.3
MAHARASHTRA 6328.21 7340337.64 2170453818 48124595 2871399351
ORISSA 2262.29 2558559.14 124278573.9 10260317.79 200844228
PUNJAB 2597.93 1606236.21 261028369.3 19745249.07 499091596.7
RAJASTHAN 3359.5 2412259.36 232544127.1 17094797.21 325327465.2
TAMIL NADU 4902.93 8789012.21 849125345.1 33956844.64 821917095.4
UTTAR PRADESH 8252.14 6993198.64 421466436.8 64623439 1026354563
WEST BENGAL 4473.14 3990307.93 464314771.8 35641466.07 826839865
State
Number
of
factories
Per capita
NSDP at
constant
prices (Rs)
Population
(thousand) Employment
ANDHRA PRADESH 15754.14 17376.48 76720.43 994565.43
ASSAM 1646.14 13175.71 27065.93 125718.21
BIHAR 2112.79 6365.47 91946.07 137710.93
CHHATTISGARH 1419.3 12783.61 22219.5 109704.3
DELHI 3463 41588.01 14223 136911.29
GUJARAT 13847.64 20124.54 50602.71 840295.71
HARYANA 4206.36 26853.42 21021.14 348377.14
KARNATAKA 7230.86 17956.8 53115.86 560022.36
KERALA 5010.07 21835.56 32420.36 323295.43
MADHYA PRADESH 3444.29 11561.14 69829.86 308632.57
MAHARASHTRA 18813.57 24002.74 96261.57 1305140.07
ORISSA 1727.57 11471.59 36952.14 154058.29
PUNJAB 7471.29 26113.26 24336.71 415566.5
RAJASTHAN 5326.5 13946.86 56645.93 274175.64
TAMIL NADU 20331.57 20815.91 62626.07 1270091.43
UTTAR PRADESH 10059.71 10007.91 171303.64 658499.93
WEST BENGAL 6169.07 16965.43 80843.93 620707.07
20. Table 3: Correlation coefficient between
deposit penetration and credit penetration
index
State
Page 20 of 23
Pearson
Correlation
Coefficient
Spearman
Correlation
Coefficient
ANDHRA PRADESH 0.92623* 0.76703*
ASSAM 0.71442* 0.67033*
BIHAR 0.82422* 0.74066*
DELHI -0.39189 -0.21319
GUJARAT 0.88079* 0.3978
HARYANA 0.72287* 0.81538*
KARNATAKA 0.80541* 0.78462*
KERALA 0.80533* 0.84615*
MADHYA PRADESH 0.60883** 0.52967***
MAHARASHTRA 0.86123* 0.75385*
ORISSA 0.23986 -0.09011
PUNJAB 0.41489 -0.16484
RAJASTHAN 0.82367* 0.49011***
TAMIL NADU 0.71243* 0.68791*
UTTAR PRADESH 0.30639 0.0989
WEST BENGAL 0.3077 0.29231
All - India 0.53688* 0.64415*
* significant at 1 per cent
** significant at 5 per cent
*** significant at 10 per cent
21. Table 4: Coefficient of Variation of penetration indexes
across states
State
Page 21 of 23
Deposit
penetration
Credit
penetration
ANDHRA PRADESH 17.0 20.0
ASSAM 6.1 21.2
BIHAR 10.1 27.9
DELHI 7.6 34.8
GOA 12.0 21.2
GUJARAT 11.2 15.4
HARYANA 6.1 12.7
HIMACHAL PRADESH 8.4 17.2
JAMMU & KASHMIR 5.4 18.0
KARNATAKA 10.4 21.2
KERALA 9.6 19.3
MADHYA PRADESH 7.3 12.7
MAHARASHTRA 7.5 67.6
MANIPUR 15.6 27.7
MEGHALAYA 10.6 22.3
NAGALAND 30.3 39.7
ORISSA 12.3 12.5
PUNJAB 3.9 11.7
RAJASTHAN 7.6 12.7
TAMIL NADU 9.5 42.4
TRIPURA 10.1 16.2
UTTAR PRADESH 4.6 10.0
WEST BENGAL 3.9 13.3
22. Table 5: Results of fixed effects panel estimates
Dependent
variable
Page 22 of 23
Deposit
penetration
(Model 1)
Deposit
penetration
(Model 2)
Credit
penetration
(Model 3)
Credit
penetration
(Model 4)
Intercept 443.7922 497.93 3.32 32.67
(<.0001) (<.0001) (0.8567) (0.1941)
Population
density -76.0926 -64.11 7.67 9.49
(<.0001) (<.0001) (0.1265) (0.0670)
APPB -8.6382 -7.16 -1.50 -1.34846
(<.0001) (0.0013) (0.0751) (0.1437)
Per capita nsdp 0.007757 0.005718 0.002 0.001594
(<.0001) (<.0001) (<.0001) (0.0019)
CDR 0.256765 -0.09983 0.421 0.189994
(0.3221) (0.7359) (<.0001) (0.1239)
Proportion of
factories 585.6864 655.8228 -99.08 -42.8414
(0.0001) (<.0001) (0.0990) (0.5007)
Proportion of
Employee 4.205584 4.85 2.26 1.272009
(0.0089) (0.0132) (0.0004) (0.1179)
Model
diagnostics
R-square 0.9880 0.9900 0.8405 0.8502
Time effects NO YES NO YES
State effects YES YES YES YES
Number of cross sections: 29
Number of time periods: 14
Total number of observations: 338
Figures in brackets denote the p-value
Table 6: Model selection test
Model 2 v/s
Model 1
Model 4 v/s
Model 3
Calculated F-statisitcs
[13,290] 4.98* 1.65***
* Significant at 1 per cent level.
** Significant at 5 per cent level.
*** Significant at 10 per cent level.
23. Table 7: Kendall's index of rank concordance for credit penetration
Year Kendall's index Chi-square statistics
1995 1.00 22.00
1996 0.98 43.33
1997 0.98 64.67
1998 0.98 86.32
1999 0.97 106.57
2000 0.97 127.47
2001 0.95 146.15
2002 0.94 166.15
2003 0.94 186.83
2004 0.94 207.28
2005 0.94 227.62
2006 0.94 246.99
2007 0.93 266.24
2008 0.92 284.03
Note: The tabulated value of Chi-square at 5 per cent level of significance is
33.92
Table 8: Kendall's index of rank concordance for deposit penetration
Year Kendall's index Chi-square statistics
1995 1.00 22.00
1996 1.00 43.91
1997 0.99 65.62
1998 0.99 87.29
1999 0.99 108.99
2000 0.99 130.66
2001 0.99 152.19
2002 0.99 173.58
2003 0.98 194.87
2004 0.98 215.90
2005 0.98 236.77
2006 0.98 258.12
2007 0.98 279.25
2008 0.98 300.60
Note: The tabulated value of Chi-square at 5 per cent level of significance is
33.92
Page 23 of 23