Impediments to Inclusive Financing in India: Evidence from a Study of ‘No Frills'Accounts of Banks
Sathyanarayana1, Gowda M.V. Srinivasa2
1Junior Research Fellow, State Bank of Mysore Chair, DoS in Economics and Co-operation, Manasagangothri, University of Mysore, Mysore, Karnataka, India. E mail: firstname.lastname@example.org.
2Adjunct Professor, National Institute of Advanced Studies, Bangalore, Karnataka, India. E mail: email@example.com
This paper attempts to examine the impediments to the inclusive financing drive initiated recently by the Reserve Bank of India to bring the hitherto unbanked, weaker sections of the society into the modern banking ambit. It is based on the primary data collected from a sample of 100 ‘No Frills’ accounts of two public sector bank branches. The main findings of the study are as follows: (i) majority of the ‘No Frills’ accounts are inoperative; (ii) only 17% of households surveyed have placed a portion of their savings in these accounts, the rest of them prefer other types of investments such as purchasing gold, financing in family business, house construction, investing with private chit funds, etc.; (iii) hardly 6% of the households had availed direct finance from banks, while 82% availed loans from SHGs; (iv) as high as 35% of the households continued to borrow from private financiers albeit at high rates of interest; and (iv) use of intermediaries, like business correspondents and business facilitators, assisted by technology products like bio-metric smart cards and hand-held devices permitting small overdrafts on ‘No Frills’ accounts and tagging health insurance products to these accounts would greatly improve the number and frequency of operation of these accounts.