Financial Inclusion is the pursuit of making financial services, such as access to payments and remittance facilities, savings, loans and advances, insurance services etc. – accessible at affordable costs to all individuals and businesses, irrespective of net worth and size, respectively. Financial inclusion strives to address and suggest solutions to the constraints that exclude people from participating in the financial sector.

In India, emphasis on Financial Inclusion is on ensuring access to appropriate financial products and services needed by vulnerable groups, such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.

The Government of India and the Reserve Bank of India have been making concerted efforts to promote financial inclusion as one of the important national objectives of the country. Some of the major efforts made in the last five decades include – nationalization of banks, building up of robust branch network of scheduled commercial banks, co-operatives and regional rural banks, introduction of mandated priority sector lending targets, lead bank scheme, formation of self-help groups, permitting BCs/BFs to be appointed by banks to provide door step delivery of banking services, zero balance BSBD accounts, etc. The fundamental objective of all these initiatives is to reach the large sections of the hitherto financially excluded Indian population.

Financial Inclusion – RBI Policy Initiatives

RBI has adopted a “bank-led model” for achieving financial inclusion and removed all regulatory bottle necks in achieving greater financial inclusion in the country. Further, for achieving the targeted goals, RBI has created conducive regulatory environment and provided institutional support for banks in accelerating their financial inclusion efforts.1. Regulatory dispensation on KYC norms: Know Your Customer (KYC) requirements for opening bank accounts relaxed with deposit transaction caps with deposit transaction caps for low volume transactions low volume transactions.

2. Simplified branch authorization: Domestic Scheduled commercial banks are permitted to freely open branches in centers with population less than 50,000. To step up opening of branches in rural areas for increased banking penetration and consequent financial inclusion, banks are mandated by RBI to allocate 25 % of the total number of branches in unbanked rural centers.

3. Business Correspondent/ Business Facilitator Model (BC/BF): In 2006, Reserve Bank introduced BC/BF model for carrying out banking activities on behalf of banks. In 2010 ‘For Profit Companies’ were allowed as BCs of banks. BC is only a pass through agent of the bank.

In India, RBI initiated several measures to achieve greater financial inclusion, such as :

1. Opening of no-frills accounts:Basic banking no-frills account with nil or very low minimum balance as well as charges that make such accounts accessible to vast sections of the population. Banks have been advised to provide small overdrafts also in such accounts.

2. Relaxation on “know-your-customer” (KYC) norms : KYC requirements for opening bank accounts were relaxed for small accounts in August 2005, thereby simplifying procedures by stipulating that introduction by an account holder who has been subjected to the full KYC drill would suffice for opening such accounts. The banks were also permitted to take any evidence as to the identity and address of the customer to their satisfaction. It has now been further relaxed to include the letters issued by the Unique Identification Authority of India containing details of name, address and Aadhaar number.

3. Engaging business correspondents (BCs):In January 2006, RBI permitted banks to engage business facilitators (BFs) and BCs as intermediaries for providing financial and banking services. The BC model allows banks to provide doorstep delivery of services, especially cash in-cash out transactions, thus addressing the last-mile problem. The list of eligible individuals and entities that can be engaged as BCs is being widened from time to time. With effect from September 2010, for-profit companies have also been allowed to be engaged as BCs.

4. Use of technology:As technology has the potential to address the issues of outreach and credit delivery in rural and remote areas in a viable manner, banks have been advised to make effective use of information and communications technology (ICT), to provide doorstep banking services through the BC model where the accounts can be operated by even illiterate customers by using biometrics, thus ensuring the security of transactions and enhancing confidence in the banking system.

5. Adoption of EBT: Banks have been advised to implement EBT by leveraging ICT-based banking through BCs to transfer social benefits electronically to the bank account of the beneficiary and deliver government benefits to the doorstep of the beneficiary, thus reducing dependence on cash and lowering transaction costs.

6. General Purpose Credit Card facility (GCC) : With a view to helping the poor and the disadvantaged with access to easy credit, banks have been asked to consider introduction of a general purpose credit card facility up to Rs.25,000 at their rural and semi-urban branches. The objective of the scheme is to provide hassle-free credit to banks’ customers based on the assessment of cash flow without insistence on security, purpose or end use of the credit.

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