Financial Inclusion for Inclusive Growth - Challenges and Opportunities

Although the growth of banking sector has been quite commendable during the last decade, unfortunately the extent of financial exclusion has also kept pace with the growth. Today, it is an acknowledged fact that financial and banking sector reforms will remain incomplete if the system fails to take care of the basic banking requirements of the vulnerable sections of the society. Also, basic banking services are of the nature of the public good and therefore, the focus of the public policies in all countries has been on inclusive banking. Financial inclusion assumes greater importance in India as access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction, social cohesion and inclusive growth. Paradoxically, though financial sector policies in India have long been driven by the objective of increasing financial inclusion, the goal of universal inclusion still remains a distant dream. What is disturbing is, increasing exclusion in the recent years. This paper also raises an important question as to whether increasing competition in the banking sector on account of reforms, in terms of tightening prudential standards and risk management standards results in increasing financial exclusion. This apart, the paper also discusses the approaches and strategies for an inclusive banking system.