Financial Inclusion-An Overview

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 banking industry has shown tremendous growth in volume and complexity during the last few decades. Despite making significant improvements in all the areas relating to financial viability, profitability and competitiveness, there are concerns that banks have not been able to include vast segment of the population, especially the underprivileged sections of the society, into the fold of basic banking services. The period 1969 to 1991 saw a huge increase in the branch outreach in India as reflected in the average population covered by a bank branch fell from 64, 000 to 13, 711 numbers. In 1991 along with reforms for liberalizing and opening up of the economy, financial sector reform aimed at deregulation, increased competition and strengthening of the banking sector through recapitalization and adoption of prudential measures.

The rationale for creating Regional Rural Banks was also to take the banking services to poor people. Estimates reveal that 24 per cent of the total population that constitutes 245 million adults in rural India does not have a bank account and 60 million out of 245 million may not need banking services because they are below the poverty line. About 185 million potentially bankable people do not use formal banking services because of reasons like poor access or usage. In India, as per the Census of 2001, the ratio of deposit accounts (data available as on March 31, 2005) to the total adult population was only 59 per cent. Efforts are being made to study the causes of financial exclusion and designing strategies to ensure financial inclusion of the poor and disadvantaged.