Promoting Financial Inclusion - United Nations Development ...

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The intermediation costs of banks in India are still higher than those of developed banking markets. Further, as stated in the latest annual report 4 of RBI, even in the 26 districts that were declared 100% financially included by the State Level Bankers Committees (SLBCs), actual financial inclusion was not achieved to the full extent in all the districts. An RBI-sponsored evaluation study indicated that most of the accounts that were opened in these districts under the financial inclusion drive remained inoperative for various reasons and awareness with regard to no-frills accounts continued to be virtually non-existent in many districts. 3.2 CREDIT – NEEDS A HUGE IMPETUS In another paper, 5 Mrs Usha Thorat, Deputy Governor, RBI admitted that while FIGURE 3.1 Credit: Coverage of the Adult Population, by Region. 35% there has been positive growth in covering excluded households, a vast majority of the population remains un-served. The growth in the number of small credit (borrowal) accounts shows that: • The number of such accounts of size ‘`25,000 & below’ in the banking system rose from 36.8 million in 2004 to 39.2 million in 2009 – an increase of 2.4 million (just 6.5%). • The number of borrowers with credit accounts of ‘less than `200,000’ increased from 61.9 million in 2004 to 95.8 million in 2009 – an increase of nearly 34 million (or 54.8%). It becomes apparent that for the coverage of those borrowing less than `200,000 to increase to at least 50% of the adult population in the next three years, the number of credit accounts would have to increase annually by at least 41.3%. 32.7% 30% 26.1% 25% Mar-04 20% 15% 10% 14.9% 9.2% Mar-09 9.0% 9.9% 18.3% 5% 0% North Northeast East Central West South All India Note: No. of Borrowal accounts is as per place of sanction as on 31st March 2004 & 2009; Adult population estimate is on the basis of Census 2001 and assuming a growth rate of 1.3% (World Bank, World <strong>Development</strong> Indicators, 2008). 4 RBI, Annual Report 2009–10. 5 Panel Session on ‘Setting New Paradigm in Regulation’ at the FICCI-IBA Conference on ‘Global Banking: Paradigm Shift’ on September 8, 2010. 6 PROMOTING FINANCIAL INCLUSION
The analysis of region-wise credit (borrowal) accounts in Figure 3.1 shows an improvement in all regions. In terms of the number of such accounts relative to the adult population in the region, the western region showed significant improvement from 10.2% (credit accounts/adult population) in 2004 to 32.7% in 2009. The southern region consolidated its coverage from 21.2% in 2004 to 26.1% in 2009. The coverage in other regions remained quite low, and yet this assumes that each borrowing adult has just one account. The proportion is likely to be much lower considering that many individuals have multiple accounts. THE PRIORITY SECTOR LENDING SCHEME GROWS AND GROWS – BUT IS IT GOOD NEWS? India’s ‘priority sector’ lending has helped in imparting resilience to the agricultural sector. Despite the global financial crisis, this lending requirement has maintained the flow of institutional credit to agriculture. Cumulative lending by the banks (public, private and foreign) increased at a compound annual growth rate of 25.4% p.a. from 2004 to `965,773 crore by end-March 2009. Although as groups, different categories of banks had achieved the overall target for priority sector lending in 2008–09, 3 out of 27 public sector banks, 5 out of 22 private sector banks and 4 out of 27 foreign banks had not achieved the overall targets of 40% for Indian and 32% for foreign banks. Overall priority sector lending constituted 42.7% of the total by the banks but since it includes activities such as lending for export and lending to small enterprises this does not necessarily indicate increase in financial inclusion. The growth in priority sector lending is illustrated in Figure 3.2. THE KISAN CREDIT CARD HAS MADE SOME CONTRIBUTION The target of `280,000 for credit to the agricultural sector for the year 2008-9 was also exceeded with `287,000 crore disbursed by all banks (including RRBs). However, neither public sector banks nor private sector banks, as groups, achieved the agriculture lending target of 18%. The Kisan Credit Card (KCC) scheme, introduced in 1998-99, to enable farmers to purchase agricultural inputs and draw cash for their production needs, had 37.1 million FIGURE 3.2 Growth in Priority Sector Lending. Rs Crore 1,000,000 50% 750,000 500,000 250,000 40% 30% 20% 10% - 2004 2005 2006 2007 2008 2009 0% Total bank lending under priority sector % of overall lending Growth p.a. Analysis based on priority sector lending data in RBI Annual Report 2008-9. PROMOTING FINANCIAL INCLUSION 7
Page 2 and 3: Disclaimer: FICCI The information a
Page 4 and 5: Please contact FICCI at: E-mail: fi
Page 6 and 7: 4.13 Conclusions - inclusion constr
Page 8 and 9: to this study is greatly acknowledg
Page 10 and 11: FITF FLCC FMCG FSM GCC GoI HDI ICAI
Page 12 and 13: x EXECUTIVE SUMMARY
Page 14 and 15: metropolitan centres so this does n
Page 16 and 17: • Historical problems such as the
Page 18 and 19: FIGURE Yields in the Banking System
Page 21 and 22: 1 Background Inclusive economic gro
Page 23 and 24: financial services as it has implic
Page 25: • Providing financial services ac
Page 29 and 30: …WHILE PROGRESS UNDER OTHER GOVER
Page 31 and 32: The contribution of SBLP to financi
Page 33 and 34: provide remittance services due to
Page 35 and 36: terms of number of borrowers, the S
Page 37 and 38: 4 The Policy Conundrum - Is It Prud
Page 39 and 40: BCs. These BCs have been able to op
Page 41 and 42: 4.3 MICRO-INSURANCE REGULATIONS 14
Page 43 and 44: crore as grant support for promotio
Page 45 and 46: IMPROVING THE QUALITY OF MANAGEMENT
Page 47 and 48: norms. However, the banks still nee
Page 49 and 50: at the prime lending rates of banks
Page 51 and 52: exchange, loan products and card pr
Page 53 and 54: prefer to transact with banks only
Page 55 and 56: use of smart cards, mobile technolo
Page 57 and 58: • Limited number of FLCCs: One of
Page 59 and 60: savings, and this has ultimately af
Page 61 and 62: 6 The Way Forward The Government of
Page 63 and 64: price for those provided services o
Page 65 and 66: Case Studies of Financial Inclusion
Page 67 and 68: each located at least 1-2 km apart
Page 69 and 70: Officer (CEO) with support from the
Page 71 and 72: course fee to successful candidates
Page 73 and 74: • Commission structure: The BC ag
Page 75 and 76: on a single card. In the field, the
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Box C.7 Field Visit Observations fr
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operations management and portfolio
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convince new account openers to obt
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Annexes ANNEX 1: PRINCIPLES OF CLIE
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• Customers are informed of their
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Distance criterion Payment of commi
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Financial Inclusion Fund Promotion
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Package Key features Reforms in the
Page 93 and 94:
Activities Amendments of rules and
Page 95 and 96:
Activities Computerisation Status G
Page 97:
RBI, 2009, “Financial deepening b
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