Role of banks in financial inclusion process in India

Access to affordable financial services – especially credit and insurance – enlarges livelihood opportunities and empowers the people to take charge of their lives. Such empowerment aids social inclusion of such poor people and provides political stability. Financial inclusion imparts formal identity, provides access to payment system and brings poor people into savings and safety net. Hence, financial inclusion is considered to be critical for achieving inclusive growth of Indian economy.

India has the second largest financially exclusive population in the world, only next to China. As per National Sample Survey Organization‘s (NSSO) Survey (59th round), in general category 51.4% of farmer households are financially excluded from both formal and informal sources. Of the total farmer households, only 27% have access to formal sources of credit, one third of this group also borrow from non-formal sources.

Region wise, exclusion is most acute in Central, Eastern and North Eastern regions – having a concentration of 64% of all financially excluded farmer households in the country. Moreover, only 59% of adult population in the country has bank account and 41% of the population is unbanked. In rural areas, the coverage is 39% against 69% in urban areas.

The extent of exclusion from credit is much more. Number of loan accounts constituted only 14% of adult population. In rural areas, the coverage is 9.5% against 14% in urban areas. These kinds of financial exclusion of low income people are the constraints for the development of any economy especially developing economy like India. This article makes an attempt to assess the role of banks in financial inclusion process in India with the help of available data.