Financial inclusion a distant dream

Mon, 1 Jul Pre-Open

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For people with knowledge of and access to financial products, a savings bank account would be the last place where they would want to keep their money. This, as the bank account offers the least rate of returns. Not even enough to even beat inflation. As such, some of the preferred options would be fixed deposits, bonds, stocks, mutual funds, gold and real estate - all avenues where one could park funds to earn more returns. But this is the case for people with access to such products. What happens to people who do not have as much as a savings bank account? If one thinks about it, a bank is the first point of contact for a saver or an investor. Not only would it allow them to earn better returns - as compared to keeping cash in hand - but gradually would increase their exposure and knowledge towards other products and services. In fact, such accessibility would even improve the lives of the poor. Apart from simple savings accounts, even small loans or insurance policies could make a great difference to a low-income family. Further, it would enable people to invest in better nutrition, housing, health and education for their children. It could also ease the strain of coping with difficult times caused by crop failures, illness or death. All these would allow people to plan for the future as well.

While the positives of financial inclusion are many, the reality remains that it seems to be a distant dream. As per the Crisil's survey reported by Business Standard, only a little over 50% of the country's population has savings bank accounts; there are only 684 m savings bank accounts in the country. And that one out of seven Indians has access to bank credit. Further, the bottom 8% of India's districts have only 2% of the bank branches, thereby giving an indication of the under penetration levels. On the other hand, India's six largest cities have nearly 11% of the country's bank branches. When comparing the four regions - North, East, West and South, it seems the latter two are way ahead in terms of branch, credit and deposits penetration.

India has traditionally been a nation of savers. This is why it would be very important to have a well penetrated banking system. And therefore, the need and focus on financial inclusion to be prioritized is high. Not only would this go a long way when it comes to diminishing poverty - which has also been high on India's agenda - but would also help in spurring growth and improving lifestyles. The Reserve Bank of India's clause where in companies applying for the new banking licenses are required to open up 25% of the branches in un-banked rural centres is very much a welcomed clause.