By Nageshwar Patnaik in Bhubaneswar, January 11, 2020: India is inching toward becoming the most populous country in the world with a growing population of more than 1.3 billion. But a large section of this population still has no access to basic banking services hindering economic growth at the bottom of the pyramid.

Unless the financially weak become part of the mainstream financial system, they would have no access to microcredit to generate additional income streams; to channel their savings into investments, create assets and live decently.

When the first Global Findex Database was released by the World Bank in 2011, it stated that only 40% of adult Indians had a bank account. An overwhelming majority of Indians, especially in rural areas, were financially weak and were effectively excluded from the formal economy. Seven years later, almost 80% of adult Indians have bank accounts, according to the Global Findex Database published in April 2018.

The roll out of ‘Pradhan Mantri Jan Dhan Yojana (PMJDY) in August 2014 has accelerated access to various financial services like basic savings bank accounts, affordable, need-based credit, remittances facilities, and insurance and pension for excluded sections.

Such deep penetration at affordable cost can only be possible with effective use of technology. Hence, the banking ecosystem operating on core banking mode, and ability of National Payments Corporation of India (NPCI) to scale-up issue of debit cards has enabled effective implementation of PMJDY.

In the last five years, 336.6 million new Jan Dhan bank accounts have been opened expanding the base of new basic saving account to 536 million by March 2018. There have been massive efforts to expand the scope of financial inclusion, driven with strong policy and regulatory measures. However, the outcome of these is yet to deliver optimum results and the truth is that half of them are rarely used. According to the World Bank, 48 per cent of the country’s bank accounts have had no transactions in the last one-year. Globally, the percentage of inoperative accounts stands at 25.

According to the International Monetary Fund (IMF) only 13 per cent of Indian adults borrow through formal channels. Despite priority sector lending norms, hardly 35 per cent of Indian farmers utilise institutional loans. The rest primarily rely on alternative sources, including moneylenders and chit funds, paying high interest rates. One of the primary aims of financial inclusion is to develop entrepreneurship that can be nurtured only when bank customers can save, borrow, and remit/receive funds.

The banking infrastructure comprising bank branches, ATMs, digital kiosks, customer service points (CSP), business correspondents (BCs), point of sale (PoS) terminals and mobile ATM vans currently cover 5,69,547 villages out of the total of close to 6,60,000. But, of them, 5,15,317 villages (90.47 per cent) are covered by BCs offering limited services. Mobile penetration is expected to reach 90% by 2020.

According to The Economist Intelligence Unit’s 2019 Global Microscope on Financial Inclusion report, the overall environment for financial inclusion has improved globally with India, Colombia, Peru, Uruguay and Mexico having the most favourable conditions for inclusive finance.

The report identifies four basic enablers – allowing non-banks to issue e-money, presence of financial service agents, proportionate customer due diligence and effective financial consumer protection.

With access to banks and digitization taking over, the scenario has certainly changed from what it was a decade ago. The National Strategy for Financial Inclusion (2019-24) prepared by the RBI has been approved by the Financial Stability and Development Council (FSDC). It sets forth the vision and key objectives of financial inclusion policies in India and aims to provide access to formal and affordable financial services; broaden and deepen financial inclusion; and promote financial literacy and consumer protection, according to RBI Governor Shaktikanta Das.

Das also underscores the need to focus on the fundamentals and create an ecosystem that facilitates inclusive growth with structural reforms as the underlying theme. A sound financial system with healthy banks and NBFCs can play an important role in meeting the credit requirements of the bottom of the pyramid. “Therefore, we have been focussing on strengthening regulation and supervision to develop a robust framework of financial stability where banks and NBFCs are able to fulfill expectations of the society,” he remarked.

Even though with widespread reach, the banks haven’t been able to extend more than basic financial services to most sections. Today, 90% of Indians have a unique Aadhar identity, which is vital for meeting anti-money laundering “know your customer” (KYC) requirements. Mobile penetration is expected to reach 90% by 2020. Internet penetration has soared, and the use of digital payments is also rising significantly.

It is true that the government has laid foundations of financial inclusion by facilitating a unique identity, opening of a bank account and using digital payments. But now the challenge before the government and private sector is to build a superstructure of economic prosperity. In particular, the Banks must harness immense rural potentiality for business growth along with financial and digital literacy.

However, there has been a decline in the number of newly opened bank branches – from 8,749 in FY15 to 3,948 in FY18. But the fall is more perceptible in rural centres with population below 9,999 (Tier-5 and Tier-6). The number of new branches opened in such centres has dropped from 3,274 to 1,067 during the three-year period. Banks are increasingly opting to deliver banking through digital mode due to rising operating costs of branches.

NGOs, corporate sector, banks, NBFCs (Non-Banking Financial Companies), and government departments currently engaged in financial inclusion should have a relook to the entire gamut of issues and unless using FI infrastructure becomes a mass agenda, the real benefit cannot accrue to the society.

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