Financial Inclusion in Banking in India!

The term Financial Inclusion indicates extension of financial services to those unbanked areas whose people are still deprived of banking services and facilities. The objective of Financial Inclusion is to extend financial services to the large hitherto un-served population of the country to unlock its growth potential and also to enrich their lot.

In addition, it strives towards a more inclusive growth by making financing available to the poor in particular.

In recent years, the Government of India has been actively pursuing the agenda of Financial Inclusion, with key interventions in four groups, viz. expanding banking infrastructure, offering appropriate financial products, arranging extensive and intensive use of technology and also through advocacy and stakeholder participation.


Thus this issue of Financial Inclusion as introduced in banking is a very important steps for providing banking services to all the people of backwards regions and unbanked blocks of the country.

Thus in order to unlock its growth potential, the financial inclusion programme of the government is introduced to extend financial services to the large hitherto un-served population of the country. Moreover, it endeavours towards a more inclusive growth by arranging availability of finance to the poor in particular.

In his Independence Day speech (2012), Prime Minister Dr. Manmohan Singh announced that “it will be our endeavour to ensure that all households benefic from bank accounts in the next two years.” In order to extend the banking facilities under “Swabhimaan” scheme and to implement the campaign launched that every household has at least one bank account it is expected that the target be achieved by August, 2014.

In India 36.9 per cent of all branches of all commercial banks are rural branches as on end June, 2012. In order to meet the continued need for opening of more branches in rural areas for increased banking penetration and financial inclusion, the Government issued detailed strategy and guidelines on financial inclusion in October 2011.


Accordingly, the government asked the banks to open branches in all habitations of 5,000 or more population in under-banked districts and 10,000 or more population in other districts. As of end-June, 2012, 1,237 branches including ultra small branches (USBs), have been opened in these districts.

Detail Strategy and Guidelines:

The Government issued detailed strategy and guidelines on Financial Inclusion to the banks on 21st October, 2011 which inter-alia provide emphasis on:

(i) Setting up more brick and mortar branches with the objective to have a bank branch within a radial distance of 5 km;


(ii) To open bank branches by September 2012 in all habitations of 5,000 or more population in under-banked districts and 10,000 or more population in other districts;

(iii) To provide a Business Correspondent within a radial distance of 2 km;

(iv) To cover villages of 1,000 and more population in 10 smaller states and UTs by September 2012;

(v) To consider Gram Panchayats as a unit for allocation of area under Service Area Approach to bank branch and Business Correspondent (BC) etc.

Expansion of RBIs:

In order to make Financial Inclusion Plan effective and to expand the penetration of banking network in unbanked and under-banked rural areas, regional rural banks (RRBs) also worked out its branch expansion plan for 2011-12 and 2012-13 with 10 per cent increase over the previous year.

Accordingly, RRBs could open 913 branches in 2011-12 against its target to opening 1247 branches. This figure compares better with that of opening of 521 branches in 2010-11 and 299 branches in 2009-10. For 2012-13, a target of opening 1845 new branches has been set.

Swabhimaan Scheme:

In order to go for further expansion of banking to the rural hinterlands, the government advised banks to provide appropriate banking facilities to those habitations having in excess of 2000 population by March 2012, by adopting various models and technologies including branchless banking through Business Correspondents (BCs)/Business Correspondent Agents (BCAs).


Accordingly, Financial Inclusion Campaign named “Swabhimaan” was formally launched by the Government in February, 2011. Through this scheme, banking facilities to 74,194 have been provided and about 3.16 crore financial accounts have been opened under this campaign till the end of March 2012.

The Finance Minister in his Budget Speech of 2012-13 announced that Swabhimaan scheme would be extended to habitations with population more than 1,000 in the north-eastern and hilly states and population more than 1,600 in the plain areas as per census records 2001.

Accordingly, about 45,000 such habitations had been identified for coverage under the extended “Swabhimaan” Campaign. As per the progress received through the Convener’s of State Level Bankers’ Committee (SLBC), out of the identified habitations, 10,450 have been provided banking facilities by end of December 2012.’ This will definitely extend the reach of banks to all habitations above threshold population.

Moreover, considering the need for close supervision and monitoring of the business correspondent agents (BCAs) by the respective banks and in order to ensure that a range of banking services are available to the residents of such villages, Ultra Small Branches (USBs) are being set up in all these villages covered through BCAs under the financial inclusion programme.


These USBs will comprise a small area of 100 to 200 sq. feet where the officer designated by the bank will be available with a laptop on pre-determined days. While the cash services will be offered by BCAs, the bank officer will offer other services, undertake field verification and follow up banking transactions.

The periodicity and duration of visits can be progressively enhanced depending upon business potential in the area. Till March 2012, a total of over 40,000 USBs have so far been set up in the country.

Banking Facility in Unbanked Blocks:

In order to provide banking facilities in unbanked blocks, the Government identified 129 unbanked blocks in July 2009, of which 91 blocks were in the North East and 38 in other states. With the persistent attempts and efforts by the Government, the number of unbanked blocks were brought down to 71 at the end March 2011.


Again, banking facilities have been provided in all the unbanked blocks either through Brick and Morter Branches or Business Correspondent Model or Mobile banking etc. by the end of March 2012.

Other Schemes:

In order to attain success in this Financial Inclusion Scheme, the government has also taken steps to continue some of its earlier efforts and also to undertaken some new one. Accordingly, within the micro finance model, the Self-Help Group (SHG)- Bank Linkage Programme has emerged as the major micro finance programme in the country.

Under this programme, as on 31 March 2012, about 79.60 lakh SHG-held savings bank accounts with total savings of Rs 6,551 crore were in operation. As on 31 March 2012, 43.54 lakh SHGs had outstanding bank loans of Rs 36,340 crore.

Direct Benefit Transfer. The government of India has decided to introduce Direct Benefit Transfer (DBT) scheme with effect from 1 January 2013. To begin with, benefits under 26 schemes, out of 32 identified schemes, will be directly transferred into the bank accounts of beneficiaries in 43 identified districts across respective states and Union Territories.

Banks will ensure that all beneficiaries in these districts have a bank account. Data collected by the Departments/Ministries can be used for seeding the bank account details in core banking system (CBS) of banks with Aadhaar. All PSBs have also joined the Aadhaar Payment Bridge for National Payment Corporation of India for smooth transfer of benefits.


Agricultural Credit:

Arranging credit for agriculturists is an old fraction of financial inclusion. As against the target of Rs 4,75,000 crore fixed for 2011-12, Rs 5,11,029 crore was discussed by commercial ‘banks co-operative banks and RRBs to the agricultural sector, thereby exceeding the target by 8 per cent.


Since a long period, the Kishan Credit Card (KCC) has been an important initiative for universal access of farmers to institutional credit as a part of financial inclusion strategy. The number of operative KCCs issued by co-operative banks and RRBs in the country was 406 lakh as on 31 August 2012 against which the outstanding loan amount was Rs 1,12,333.90 crore.

In addition to that commercial banks had issued a total of 547.49 lakh cards (cumulative since inception) as on 31 March 2012 with a sanctioned amount of Rs 3,53,144.82 crore.

Interest Subvention Scheme:


The Interest subvention Scheme is also being implemented by the Government of India with that financial inclusion strategy since 2006-07 in order to make short term crop loans up to Rs 3 lakh for a period of one year available to formers at the interest rate of 7 per cent per annum.

The government has since 2009-10 been providing additional interest subvention to farmers who pay their loans in time. This additional subvention which was 1 per cent in 2009-10 was gradually increased to 2 per cent in 2010-11 and 3 per cent in 2011-12 and 2012-13.

Thus, although ensuring accessible and affordable financial services in all 6 lakh village in India is a Herculean task, thus all effort should be made to make this Financial Inclusion Scheme a success. Thus there is an imperative need for accelerating the spread of banking in those backward regions to make it compatible with the rest of the country.