SOURCE: Banking, Insurance,Pension
A Journal of the Department of Financial Services
Issue 1 - September 2012
Publication issued by the Department of Financial Services, Ministry of Finance, Government of India
Why Financial Inclusion
“Swabhimaan”- the Financial Inclusion Campaign
To increase the penetration and FI, the “Swabhimaan” campaign was launched in pursuance of
Budget Announcement (2010-11). Government advised 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 under this campaign. In two years time ending March 2012,
Banking facilities were provided to 74,194 such villages. Further, 62,468 Banking Correspondent
Agents (BCAs) were appointed and about 3.16 FI accounts had been opened by end of March,
To build on the momentum and success achieved, the “Swabhimaan” campaign was
extended as per Budget Announcement (2012-13) to habitations with population of
more than 1000 in North Eastern and hilly States and to other habitations which have crossed
population of 2,000 as per Census 2011. About 45,000 such habitations have been identified
to be covered under the extended “Swabhimaan” campaign. Bank branches in 1237 such villages have been opened in the current year.
The objective of Financial Inclusion(FI) is to extend financial services to the large hitherto unserved population of the country to unlock its growth potential. In addition, it strives to achieve more inclusive growth by making financing available to the poor in particular.
FI enables Banks to channelize the savings of the unserved population of the country and offers new business avenues for lending to this group. Prior to the recent sustained efforts on FI, the banks were barely scrapping the potential business ,both on the deposit and lending side.
Rural incomes have grown rapidly in a short time span due to high priority accorded by the Govt. to rural development and employment programs. A survey by CRISIL, a ratings and research firm, has reported in August 2012 that for the first time since economic reforms began two decades ago, consumption in rural India is growing faster than in urban areas. Between 2009-10 and 2011-12, additional spending by rural India was Rs. 3,750 billion, significantly higher than Rs. 2,994 billion by the urban population.
Banks have a key role in converting into business opportunities, the untapped large no. of small deposits in rural areas and facilitate achievement of the aspirations of the bulk of our
population in these areas.
The increase in rural income will open up various types of lending. Not only will the demand for
business/commercial, education, home and personal loans increase substantially, various types of
services such as remittance facilities will need to be provided by the banks through modern
payment system to a very large number of people who have hardly interfaced with a modern financial system. The process is expected to enable manifold growth in the banks’ business. Thus, FI is a win –win situation for both the hitherto uncovered people and the banks.
Business Correspondents are retail agents engaged by banks for providing banking services at
locations other than a bank branch/ATM and to ensure a closer relationship between poor
Policy for Branch Expansion
Ultra Small Branches (USB)
To minimize the cost of FI initiative, ensure universal accessibility to a range of banking
services and instill confidence amongst bank customers, Ultra Small Branches(USBs) are set up
at all places where opening of a brick and mortar branch is presently not viable. USBs
comprise an area of 100-200 sq. feet where a bank-designated officer will be available with a
laptop at a predetermined day and time of the week. The BCA also operates from such premises. The BCA provides cash dispensation services and the bank officer offers other bank services, undertakes field verification and follows up on banking transactions.
Banking presence ensured in all unbanked Blocks by March, 2012
There were 81 unbanked Blocks in the country, as on 31.03.2011.
With the persistent efforts of the Government, banking facilities have been provided in all the
unbanked Blocks by March, 2012, either through Brick and Mortar Branches or Business
Correspondents Model or Mobile Banking.
As a next step, Banks have been advised to cover all those blocks which have so far been covered by mobile banking only, with BCA and USBs.
Financial Inclusion Financial Inclusion
Business Correspondent Agent
Launch of Ultra Small Branches(USB) by the Bank of Barodapeople and the organized financial
system. RBI has permitted various individuals/entities that the banks may engage as
Business Correspondents. Business Correspondent Agents (BCAs) are the individuals appointed by the Business Correspondents at the point of customer interface or
retail outlet of a bank.
The first step in FI is the interface between a bank customer and a bank. In India, conventionally this interface has been through a normal brick and mortar bank branch. Since banking is essentially a commercial business there are limits to which such bank branches can be spread
out in different areas to cover the entire population. It is only in the recent past that with the use of communications technology that a bank branch has been able to spread out geographically.
Scheduled Commercial Banks
(SCBs) had 97,473 branches in the country as on 30th June, 2012.Out of these 63.12% are located in rural and semi urban areas. To increase the outreach of banking services and to promote the FI efforts of banks, detailed guidelines have been issued by the Government whose salient points arelSetting up more brick and mortar branches with the objective to have a bank
branch within a radial distance of 5 km.
To open bank branches in all habitations of 5,000 or more population in under banked
districts, and 10,000 or more population in other districts RBI has provided for a Branch
Authorization Policy under which SCBs are permitted to open branches in rural, semi urban and
urban areas, in North Eastern States & Sikkim and in Tier 2 to Tier 6 centres (population upto
99,999) in rest of the country, without having to take permission, subject to reporting.
In their Annual Branch Expansion Plan (ABEP), SCBs are required to allocate at least 25% of the total number of branches proposed to be opened during the year in unbanked Tier 5 and Tier
centres (population upto 9,999) which do not have a brick and mortar structure of any SCB for
customer based banking transactions.
To incentivize banks to establish additional branches in Tier II centers, obtaining the prior
approval of the RBI is no longer a requirement in the case of commercial banks looking at
opening branches in such centers. The RBI has also incentivized banks by authorizing
them to set up additional branches in Tier I centers for every branch they open in Tier II
Opening of one bank account per family
Opening of a Bank Account is one of the key requirements in FI. The country has made appreciable progress on this parameter during 2001-2011 as per Census data on Households (HHs) Availing Banking Services.
To inculcate saving habits and to extend banking facilities to the migrant labour and street vendors/ hawkers in urban areas, a drive has been launched to open their bank accounts. Oriental Bank of Commerce (OBC), Convenor State Level Bankers Committee (SLBC ) of Delhi launched this drive. The bank (i) started 24x7 Call Centre with toll-free telephone number,
telephone number for SMS and has created e-mail ID for e-mail queries, (ii) imparted training to
the Call Centre Staff, (iii) provided wide-publicity of the campaign , (iv) identified the target pocket and (v) undertook regular monitoring of the accounts opened. The drive has started
giving results with nearly 42,000 accounts opened. All PSBs have now been advised to initiate
similar drives in the State(s)/UTs where their Bank is SLBC Convenor.
RBI has advised all Scheduled Commercial Banks/Regional Rural Banks/all Cooperative Banks to offer a ‘Basic Savings Bank Deposit Account’ which will offer minimum common facilities to all their customers such as ATM card or ATM-cum-Debit Card, no requirement of any minimum balance and no charge for nonoperation/activation of in-operative account.
In 2001, slightly more than 35% of the total number of HHs availed banking services. In rural areas, less than one in three HHs and in urban areas, one in two HHs availed banking services, 11 years ago. In 2011, the position has improved considerably with nearly 3 out of every 5 HHs in India availing banking services. In rural areas more than one in two and in urban areas more than 2 out of every 3 HHs availed banking services.
During 2001-2011, the no. of HHs availing banking services overall has increased by 112 % or a
CAGR of 7.8 % per annum. In rural areas they have increased by 8.2 % p.a and in urban areas by 7.2 % p.a.
Prime Minister, in his Independence day speech of 2012, has announced that “it will be our
endeavour to ensure that all households benefit from bank accounts in the next 2 years.” It
has been decided to take up this task on a campaign basis.
Accordingly, banks have geared up their branches and it is expected that most of the families shall have a bank account by the end of this year.
To ease the opening of bank account by the migratory labour, street hawkers, and other poorer
sections of the society, “Simplified Account Opening Form” has been designed .Banks have been requested to put in place a system to enable the customer to fill the account opening form on an ‘online’ mode. This Form contains sections for Small Account, Accounts with Introduction and Basic Saving Bank Deposit Account.
Indian banks offer a savings bank account to all its individual customers. RBI’s 2005 initiative
to introduce no frill accounts where no introductory deposit or very low minimum balances
were to be maintained proved very effective as the banking system has opened 103 million
no frill accounts as on March 2012… An unsung hero of our bank accounts group is the
“Small Account” created under Prevention of Money Laundering Rules, 2005 for those having no KYC documents. This account can be opened by simply submitting own photograph and
declaring the residential address and stating before a bank officer in a CBS branch that one does
not have any proof of identity or residence and promising to submit KYC document with 12
months. Small accounts has no introductory balance, maximum balance allowed is Rs 50,000,
maximum credit of Rs 1,00,000 per year and maximum withdrawals of all types are Rs
10,000 per month, with foreign inward remittances not allowed.
What better account can be offered to crores of migrant workers within the country! …
Basic bank accounts remain only a first step in the long march to FI- though a very
critical first step. The challenges of access, usage and quality are ongoing concerns.
Covering our population with meaningful bank accounts is likely to remain work in
progress for a long time to come and shall require well knit efforts on the part of Indian
banks under the close support and guidance of the Government and RBI.
Development of Geographical Information system (GIS)
Geographical Information System (GIS) can be effectively used to assist the decision makers in planning for expansion of infrastructure of the Banks by highlighting the pockets of the hinterland which are yet to have access to these facilities. A web based application to develop a GIS for the banking network in the country has been launched by the DFS.
The project envisages capturing existing information about bank branches, ATMs, Business Correspondents, Clearing houses and Currency chests of Scheduled Commercial Banks at village level. This facility enables the Banks to easily identify the deficit areas as per the
guidelines of the Department, where expansion of branch/ ATM/BCA network needs to be carried out.