Group 7 Vishal Agarwal 1 Karan Mehta 15 Neeta Pai 18 Kavita Shetty 27 Kishori Sawant 38

FINANCIAL INCLUSION
Meaning and Scope of Study International Experience Measures By RBI and GOI towards Financial Inclusion Current Indian Scenario Major Roadblocks to Financial Inclusion Consequences of Financial inclusion The Model for Financial Inclusion Profitable Financial Inclusion Models Initiatives By United Bank Of India Conclusion

WHAT IS FINANCIAL EXCLUSION?

No Savings No Insurance

No assets

Financial Exclusion No bank account

No affordable credit

No access to money advice

Extent of Financial Exclusion -Global

2.5 billion adults, just over half of worlds adult population, do not use formal financial services to save or borrow.

2.2 billion of these unserved adults live in Africa, Asia, Latin America, and the Middle East.
Of the 1.2 billion adults who use formal financial services in Africa, Asia, and the Middle East, at least two-thirds, a little more than 800 million, live on less than $5 per day. In 2000, 147 nations (UN) agreed that, together, the citizens of the world must work to put an end to severe poverty by 2015. They drafted eight important goals [Millennium Development Goals] which, when achieved, will improve the lives of the three billion people living in dire poverty

Not an India specific problem but a global one.

Extent of Financial Exclusion -India

In India, almost half the country is unbanked. Only 55 per cent of the population have deposit accounts and 9 per cent have credit accounts with banks. India has the highest number of households (145 million) excluded from Banking. There was only one bank branch per 14,000 people. 6 lakh villages in India, rural branches of SCBs including RRBs number 33,495. Only a little less than 20% of the population has any kind of life insurance and 9.6% of the population has nonlife insurance coverage. Just 18 per cent had debit cards and less than 2 per cent had credit cards.

Definition of Financial Inclusion

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.
In advanced economies, Financial Inclusion is more about the knowledge of fair and transparent financial products and a focus on financial literacy. In emerging economies, it is a question of both access to financial products and knowledge about their fairness and transparency.

WHAT IS FINANCIAL EXCLUSION?

Bank A/Cs Savings Credit Cards Empowerment of SHGs

Payments Remittances

Financial Inclusion

Insurance

Financial Advice

Affordable Credit

Lack of Assets (for Collateral)

Setting the Stage For Building Inclusive Financial Sectors

World Savings Bank Institute Only global representative of savings and retail banks Founded in 1924, represents savings and retail banks and associations in thereof in 86 countries of the world (Asia-Pacific, the Americas, Africa and Europe via the European Savings Banks Group)At the start of 2005, assets of member banks amounted to more than 7,506 bn Euros

UNO : International Year of Micro Credit - 2005

Financial Inclusion Steps Taken in the Past

Co-operative Movement(1904) Setting up of State Bank of India(1955) Nationalization of banks(1969) Lead Bank Scheme(1969) Setting up of Regional Rural Banks(1975) Service Area Approach Self Help Groups(1992) Committee on Financial Inclusion Set up(2006)

What Are RBI s Contribution

No-Frill Accounts Overdraft in Saving Bank Accounts BC / BF Model KCC / GCC Guidelines Liberalized branch expansion Liberalized policy for ATM Introducing technology products and services Pre-Paid cards, Mobile Banking etc. Allowing RRBs / Co-operative banks to sell Insurance and Financial Products Financial Literacy Program Creation of Special Funds 431 districts identified by the SLBC convener banks for 100 per cent financial inclusion across various States/UTs and the target in 204 districts of 21 States and 7 UTs has reportedly been achieved

What are GOI s Contribution

Committee on Financial Inclusion (CFI) - June 2006 National Rural Financial Inclusion plan Financial Inclusion Fund with NABARD for meeting the cost of developmental and promotional interventions with overall corpus of Rs. 500 crore. Financial Inclusion Technology Fund to meet the costs of technology adoption with overall corpus of Rs. 500 crore. Initial funding to be contributed by the Central Government, RBI and NABARD. To add at least 250 rural household accounts every year at each of their rural and semi-urban branches of commercial banks (including RRBs) To allow individuals such as retired bank officers, ex-servicemen etc to be appointed as business facilitator or business correspondent or credit counselor.

Technological Banking to the Common Man

Opportunities Coverage Access to Diversified Financial Products and Services

Delivery Model- Day to day transactions

Availability of infrastructure

Dedicated software

Financial Inclusion with the help of Technology

Smart Card (to be provided to every Customer) and Point of Sales Machines (PoS) for reading and writing Smart Cards for transactions Laptop with webcam, biometric devices - for capturing the account opening details, thumb impression, photo and account details

Web Camera for Photograph

Optical Biometric scanner for Fingerprints

Pad for Signature capturing
Battery Power back-up for undisrupted enrolment

Business Process - Transactions

Cash
Cash/

Customer

Instant Receipt Transaction stored on card

Bank Branch
Agent Transaction Data transferred via phone lines

Updates for Customer

Transaction Data

Bank Systems

Service Providers Systems

Indian Scenario

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 branches of commercial banks and the RRBs have increased from 8,321 in the year 1969 to 68,282 branches as at the end of March 2005. The average population per branch office has decreased from 64,000 to 16,000 during the same period. The new Branch Authorization Policy of Reserve Bank encourages banks to open branches in these under banked states and the under banked areas in other states. The new policy also places a lot of emphasis on the efforts made by the Bank to achieve, inter alia, financial inclusion and other policy objectives. But the study of Distribution of Commercial Bank Branches-Region/State/Union Territory shows that , there are certain under-banked states in Northen region such as Bihar , Orissa, Rajasthan, Uttar Pradesh, Chhattisgarh, Jharkhand, West Bengal and a large number of North-Eastern states such as Assam, Manipur and Nagaland , where the average population per branch office continues to be quite high compared to the national average people per bank branch.

STATEMENT NO. 8 : STATE AND POPULATION GROUP-WISE DISTRIBUTION OF NUMBER OF REPORTING OFFICES, AGGREGATE DEPOSITS AND GROSS BANK CREDIT-PRIVATE SECTOR BANKS - JUNE 2011
(Amount in ` crore) RURAL REGION / STATE / UNION TERRITORY OFFICES 1 1. NORTHERN REGION 2. NORTH-EASTERN REGION 3. EASTERN REGION 4. CENTRAL REGION 5. WESTERN REGION 6. SOUTHERN REGION ALL-INDIA 418 6 44 48 164 622 1,302 DEPOSITS CREDIT 2 10,197 54 835 485 2,205 12,099 25,874 3 4,010 2 319 338 472 5,933 11,073 SEMI-URBAN OFFICES 4 598 73 219 283 508 2,123 3,804 DEPOSITS CREDIT 5 15,158 1,590 5,959 3,225 13,472 53,844 93,250 6 5,417 206 651 1,116 4,534 30,996 42,920

Villages Covered- Popu lation Group wise

120000 100000 80000 53397

No. of Villages

V il lages Covered >2000 V il lages Covered <2000

60000 40000 20000

27 014 0 Mar '10 Pe riod Mar '11 27 7 43 46443

Villages with above 2000 population covered by banking services increased from 27,743 at end Mar 10 to 53,397 at end Mar 11.
12

Villages Cov ered- Mode wise

120000 100000 80000 60000 100 21499 355 2268 4

Other modes like Mobile vans, rural ATMs etc. Villages covered through branches

No. of Villages

40000
20000

768 01

Villages covered th rough BCs

33158

0
M ar '10 Period Mar '11

No of v illage s cov ered thr ough BCs increased fr om 33,158 at e nd Mar 10 to 76 ,801 at e nd Mar 11.
13

Share of Rural Branches in Total Branches

Commercial Bank Branches incl RRBs
YEAR
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

RURAL
1
34791 35206 35269 35389 35329 33004 32995 32915 32878 32857 32734 32562 32380 32303 32121 32082 30579 30551 31002 31646 32494

SEMI-URBAN 2
11324 11344 11356 11465 11890 13341 13561 13766 13980 14168 14407 14597 14747 14859 15091 15403 15556 16361 17724 18969 20494

URBAN
3
8042 8046 8279 8562 8745 8868 9086 9340 9597 9898 10052 10293 10477 10693 11000 11500 12032 12970 14397 15439 16761

METRO
4
5595 5624 5666 5753 5839 7154 7384 7529 7763 8016 8219 8467 8586 8680 8976 9370 11304 11957 13019 13877 14855

TOTAL
5
59752 60220 60570 61169 61803 62367 63026 63550 64218 64939 65412 65919 66190 66535 67188 68355 69471 71839 76142 79931 84604

RURAL / TOTAL (%) 6 (=1/5)

58.2 58.5 58.2 57.9 57.2 52.9 52.4 51.8 51.2 50.6 50.0 49.4 48.9 48.6 47.8 46.9 44.0 42.5 40.7 39.6 38.4

Share of rural branches in total branches has been showing a declining trend

STATEMENT NO. 4 : STATE AND POPULATION GROUP-WISE DISTRIBUTION OF NUMBER OF REPORTING OFFICES, AGGREGATE DEPOSITS AND GROSS BANK CREDIT-STATE BANK OF INDIA AND ITS ASSOCIATES - JUNE 2011
(Amount in ` crore) URBAN /METROPOLITAN REGION / STATE / UNION TERRITORY OFFICES 7 1. NORTHERN REGION 2. NORTH-EASTERN REGION 3. EASTERN REGION 1,288 91 788 DEPOSITS CREDIT 8 156,509 19,466 114,953 9 153,706 5,627 62,036 OFFICES 10 3,294 538 2,863 TOTAL DEPOSITS CREDIT 11 12

225,216 191,649 41,104 195,603 14,203 89,141

4. CENTRAL REGION
5. WESTERN REGION 6. SOUTHERN REGION ALL-INDIA

1,120
1,090 2,042 6,419

107,289
196,113 190,748 785,079

50,707
216,623 200,629 689,328

3,439
2,639 5,277 18,050

178,303

78,931

249,715 243,800 294,721 289,823 1184,663 907,548

POPULATION GROUP WISE DISTRIBUTION OF OFFICES OPENED BY COMMERCIAL BANKS 2010-11

POPULATION GROUP WISE DISTRIBUTION OF OFFICES CLOSED BY COMMERCIAL BANKS 2010-11

Population Group Wise Distribution of Deposits and Credits of Scheduled Commercial Banks shows that the percentage of growth rate of deposits, is on the decline, in rural and semi-urban and urban areas. The percentage of growth of deposits is lower than that of credits in all regions Even after RBI`s emphasis to promote financial inclusion it is very surprising to see that rural area growth rate is only 17.6% , semi urban and urban 17.2% and 17.6% respectively where in metropolitan 19.0% in June 11. This reiterates the need to expand and consolidate the banking network and to adopt innovative measure to mobilize funds .

Consolidated FIP Data of SCBs excluding RRBs

Sl. No. Parameter 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
17

As at end March 2010 54,757 21,499 33,158 100 27,743 27,014 33,042 49.55 48952 0.14 91 19.5 10,75,187 0.67 8,398

As at end March 2011 99,840 22,684 76,801 355 53,397 46,443 58,351 74.39 65657 4.2 1987 22.49 14,38,622 0.95 13,077

Total Number of villages covered Villages covered through branches Villages covered through Business Correspondents (BCs) Other modes like Rural ATMs, Mobile Van,s etc. Number of villages > 2000 population covered Number of villages < 2000 population covered No. of BCs employed by banks Number of No-Frills Accounts (NFAs)opened (in million) Amount in NFAs (Rs. in million) Number of NFAs with Overdraft(OD) facility (in million) NFAs with OD- Amount outstanding (Rs. million) Number of Kisan Credit Cards (KCCs) issued (in million) Amount outstanding in KCCs (Rs. million) Number of General Credit Cards (GCCs) issued (in million) Amount outstanding in GCCs (Rs. million)

Road Ahead
RBI Plans for 2013 Coverage of Villages
Coverage of Villages - by 2013
348,283

400000 350000
300000

254,653

No. of Villages

250000 200000 150000 100000

223473

133816 89657
93,630

Number of villages > 2000 population covered Number of villages < 2000 population covered

50000 0
2012(Targets) Period 2013(Targets)

Total Number of villages covered

T otal V illages covered by banking services projected to increase to 2,23,473 in Mar 1 2 to 3 ,48,283 in Mar 13.

* Based on FIPs subm itted by Banks. May undergo a revision.

18

Road Ahead RBI Plans for 2013 Frill Accounts

No Frills Accounts (in millions)
153.33

180
160

No. of Accounts (in millions)

140

120
100 80

109.62

60
40 20

53.28

No Frill A/Cs (in millions) No Frill A/Cs with OD (in millions)

36.31

0
2012(Targets) Period 2013(Targets)

Number of No Frills Accounts projected to increase to 109.6 million at end Mar 12 and 153.3 million at end Mar 13.
19

Road Ahead- Plan for 2013

Consolidated FIP Data of SCBs excluding RRBs
Sl. No. Parameter 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
21

Mar 12 Targets 2,23,473 24,618 1,97,494 1361 89,657 1,33,816 1,25,988 109.6 93,110 36.3 14,458 32.3 15,21,135 4.68 32,291

Mar 13 Targets 3,48,283 25,694 3,20,412 2177 93,630 2,54,653 1,87,972 153.3 113,233 53.3 22,282 40.7 17,92,548 8.11 56,697

Total Number of villages covered Villages covered through branches Villages covered through Business Correspondents (BCs) Other modes like Rural ATMs, Mobile Van,s etc. Number of villages > 2000 population covered Number of villages < 2000 population covered No. of BCs employed by banks Number of No-Frills Accounts (NFAs)opened (in million) Amount in NFAs (Rs. in million) Number of NFAs with Overdraft(OD) facility (in million) NFAs with OD- Amount outstanding (Rs. million) Number of Kisan Credit Cards (KCCs) issued (in million) Amount outstanding in KCCs (Rs. million) Number of General Credit Cards (GCCs) issued (in million) Amount outstanding in GCCs (Rs. million)

Indian Approach

Broad based government-Central Bank commitment to financial inclusion. All villages above 2000 population being provided access to financial services by March 2012 Villages below 2000 population to be covered in an integrated manner. Also to provide banking services to entire population residing in Urban and Metro Centers Urban Financial Inclusion Approximately 3,50,000 villages could potentially be provided financial services by March 2013 under FIPs of banks submitted to RBI Indian approach on achieving planned, sustained and structured financial inclusion is spelt out in next few slides.

Major Roadblocks to Financial Inclusion

The interaction with the NGOs and the SHGs brought to light underpinning problems of financial inclusion, which are briefly stated as under : a) Poverty: Being on a low income, especially out of work and on benefits. b) c) Ignorance: Low levels of awareness and understanding of products caused of appropriate marketing or low levels of financial literacy. by lack

d)

Environment: lack of access to financial services caused by several factors, including geographic access to bank branches or remote banking facilities; affordability of products such as insurance, where premiums often price out those living in the most deprived and risky areas; suitability of products like current accounts, which offer an overdraft and an easy route to debt. Cultural and psychological barriers : Barriers such as language, perceived / actual racism and suspicion or fear of financial institutions. The lack of access by certain segments of the society to appropriate, low-cost, fair and safe financial products and services from mainstream providers actually results in Financial Exclusion.

Major Roadblocks to Financial Inclusion

This is a critical policy concern, because the options for operating a household budget, or a micro/small enterprise, without mainstream financial services can often be expensive. This process becomes self-reinforcing and can often be an important factor in social exclusion, especially for communities with limited access to financial products, particularly in rural areas. In addition to all these, there are other factors listed below: Perceived more as an obligation than a business opportunity. Business Model yet to evolve Delivery Model yet to be perfected especially when there is a glitch , hence, we are unable to scale up Banks are still engaged in Eco-System Development Need for more BCs Need for Training BCs and ensuring their financial viability Corporate BCs still need to be stabilized

Major Roadblocks to Financial Inclusion

Physical capacity of banks to deliver needs to be enhanced Infrastructure necessary for scaling up capacity - availability of handheld

devices, cards, technology partners, vendors, etc. Need for Intermediate Structure Digital and Physical Connectivity- needs to be strengthened Ensuring Collaborative Approach involving Govt, Banks, Technology Vendors, Service Providers, NGOs/Civic Society and Customers

Consequences of Financial Exclusion

A serious concern among low-income households as well as small businesses, mainly located in semi-urban and rural areas. Consequences of financial exclusion will vary depending on the nature and extent of services denied. Complicates day-to-day cash flow management - being financially excluded the low-income households as well as the micro and small enterprises deal entirely in cash and are susceptible to irregular cash flows. Incase of low-income households, the absence of access to bank accounts and other saving opportunities result in - Lack of savings - Low investments - Lack of financial planning and security for old age difficulties in gaining access to credit or getting credit from informal sources at exorbitant rates.

Consequences of Financial Exclusion

- Increased unemployment due to lack of self employment opportunities - Higher incidence of crime 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, lots of reliance on private money lenders for small credits.

It may thus be concluded that financial exclusion not only widens the Rich-Poor divide , it also lead to Social Exclusion.

The Model for Financial Inclusion

Government sponsored publicity Campaigns through all media

Educational drive by Graduate students

Profitable Models For Financial Inclusion

No Frills Accounts Banking

Branchless Banking (BC/BF)

Banking without a Bank (using mobiles as conduits for financial transactions) Micro Lending etc..

Initiative by United Bank of India

Branch network Sponsored RRBs Implementation Of Lead Bank Schemes No Frills Account Kisan Credit Card Special loan Products for neglected /unbanked segments Business Facilitator/Business Correspondent Self Help Group linkage Biometric Smart Card based Financial Inclusion Rural Development & Self Employment Training Institute Financial Literacy United Bank Socio Economic Development foundation trust Micro Insurance Role as convener bank in West Bengal & Tripura

Summing Up.
Financial inclusion is a win-win opportunity for the poor, for the banks and for the nation. Because of improving awareness levels aspirations of the poor are on the rise and banks will not be forgiven if they do not rise up to meet these aspirations. It is for the banks to convert what they see as a dead-weight obligation into an exciting opportunity and move on aggressively on financial inclusion that banking on the poor can actually be a rich banking proposition. -Dr . D . Subbarao, Governor RBI

Financial Inclusion is no longer an option; it is a compulsion. -Dr. C. Rangarajan

Thanks Group 7