Financial inclusion has been a focus of attention in recent times. However, the facts above reveal the real and somewhat uncomfortable picture.
Operating cost of providing financial inclusion and charges levied on the users are important dimensions of the process of financial inclusion. Technology can play an important role in reducing operating cost of providing banking services, particularly in the rural and unbanked areas.
There are technologies that could drive the growth in financial inclusion. Against this backdrop, this paper outlines major steps which have been taken so far by the Reserve Bank and Government of India to enable financial inclusion for weaker sections of Indian society.
The Payment and Settlement Systems Act, effective from August 12, designates the RBI as the authority for regulation and supervision of payment systems in India.
With increase in reach, size and significance of payment systems, the RBI is committed to assuring safe and efficient functioning of payment systems by identifying various risks, addressing risk-reduction by putting in place risk-mitigation measures and mandating appropriate risk.
A few definitions in the literature are mentioned as under: Financial inclusion means delivery of financial services at affordable costs to sections of disadvantaged and low income segments of the society. Defining financial inclusion is considered crucial for identifying the factors that lead to low level of access to the financial system.
As measuring inclusion is perceived to be difficult, financial inclusion is generally defined in terms of exclusion from the financial system. However, financial inclusion is not just about physical access caused by the changing topography of financial services. Therefore, the debate has now broadened to include all types of people who make little or no use of financial services and the processes of financial exclusion Ford and Rowlingson, ; Kampson and whyley, Rangarajan, In most developing countries, a large population particularly of low income, has very little access to financial services.
As a consequence, many of them have to necessarily depend either on their own or informal sources of finance and generally at an unreasonably high cost. A report of the National Sample Survey Organisation NSSO mentions that 76 per cent of the rural households in the country depend on loans from moneylenders as their source of finance.
Financial inclusion, as far as banks are concerned, seems to be geographically limited to some parts of the country. In order to analyse the spread of banking services, two ratios i. In some states, the credit-deposit ratios are very low, implying inter alia, that their funds are not being used by the state.
Perhaps the root cause may be the financial exclusion. This also indicates that banks are reluctant in giving credit to these states due to variety of reasons. The credit - deposit ratios of some states are Tamil Nadu percentMaharashtra 81 percentUtter Pradesh 44 percent and lowest is in Arunachal Pradesh.
Thus it is clear that some parts of the country are under-banked especially the north-east. On the other hand, the southern states are known to have a strong bank branch network and hence their CD ratio is high.
If we take the gross domestic product of the states and compare with the amount of bank credit, the ratio should be more or less the same. That would mean that banks are lending their funds in proportion to the size of the state economy.
For Bihar too, this percentage is as low as 16 percent.
From the analysis, it is clear that states such as Uttar Pradesh, Bihar, Chhattisgarh and the North-East states are receiving far less bank credit than warranted by the size of the state economy.The use of information and communication technology has taken wider scope in the banking sectors than previous years because of the reach of the people to .
Reserve Bank of India,Operative guidelines for Banks on Mobile banking transaction in India, Reserve Bank of India, Annual report, , Reserve Bank of India, Report of the Working Group to Review the Business Correspondent Model, The use of information and communication technology has taken wider scope in the banking sectors than previous years because of the reach of the people to the ICT infrastructure and easy availability of its products.
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