Financial Inclusion in India (2017) Sabana

FINANCIAL INCLUSION IN INDIA
A
PROJECT
ON
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE AWARD OF DEGREE OF MASTER IN COMMERCE FOR THE
YEAR
2016-2018
Under the guidance of

Prof. Arun Kumar Swain
(H.O.D. of Commerce)
Submitted by:-
SABANA NASREEN
Roll No: PGUNCOM16024
Batch -2016-2018
UDAYANATH (AUTO) COLLEGE OF SCIENCE AND

TECHNOLOGY, ADASPUR, CUTTACK
DEPARTMENT OF COMMERCE (1)
DECLARATION
I do hereby declare that the project work “FINANCIAL INCLUSION

IN INDIA” is submitted to Udayanath Autonomous College of Science
and Technology, Prachi Jnanapitha, Adaspur, Cuttack by me, for the
fulfillment of the requirement for the degree, Master in Commerce. It is
an original work of research and has not been previously presented for
the award of any degree in this college.
Date: Sabana Nasreen

Place: Roll No.PGUNCOM16024
U.N.(Auto) College of Sc. & Tech.

CERTIFICATE
This is to certify that the project entitled, “Financial Inclusion in India”
submitted to Prof. Arun Kumar Swain, H.O.D. of Commerce, in partial
fulfillment of the requirement for the award of Master in Commerce, is an
original work carried out by Miss Sabana Nasreen, Roll No.
PGUNCOM16024 under my supervision and guidance.
To the best of my knowledge, the matter embodies in the project

has not been submitted to any other college for the fulfillment if the
requirement of any degree.
Prof. Arun Kumar Swain,

Date: HOD, U.N.(Auto) College of Sc.& Tech
Place: Adaspur, Cuttack
UDAYANATH AUTONOMOUS COLLEGE OF SCIENCE AND TECHNOLOGY,

PRACHI JNANAPITHA, ADASPUR, CUTTACK, ODISHA-754011

ACKNOWLEDGEMENT
“Preservance, inspiration and motivation have always played a key

role in one’s success.”
I am keenly conscious of the great debt, I owe to my supervisor

Prof. Arun Kumar Swain, who have spent his valuable time to go through
the topic and has offered his generous help have been of immense value
to me.
I am also thankful to Mrs. Binayee Mishra, Miss Mun Mun

Mahapatra & Miss Purnima Parimanik for their support and
encouragement given to proceed the research work uninterruptedly till
completion.
I am grateful to all the faculty member of P.G. Department of

Commerce, Udayanath Autonomous College of Science and Technology,
Prachi Jnanapitha, Adaspur, Cuttack.
Date: Sabana Nasreen

Place: Roll No.PGUNCOM16024

CONTENTS
TOPIC PAGE NO.
CHAPTER-1 1-6
1.1 INTRODUCTION
1.2 OBJECTIVE OF THE STUDY
1.3 RESEARCH METHODOLOGY
1.4 LIMITATION OF THE STUDY
CHAPTER-2 7-22
2.1 FINANCIAL INCLUSION
2.2 REASONS FOR FINANCIAL INCLUSION
2.3 JOURNEY OF FINANCIAL INCLUSION
2.4 INDUSTRY PROFILE
2.5 BENEFITS OF FINANCIAL INCLUSION
2.6 CONS OF FINANCIAL INCLUSION
2.7 CHALLENGES
CHAPTER-3 23-32
3.1 FINANCIAL INCLUSION INITITATIVE
CHAPTER-4 33-40
4.1 DATA ANALYSIS & INTERPRETATION
CHAPTER-5 41-44
5.1 FINDINGS & SUGGESTIONS
5.2 CONCLUSION
BIBLIOGRAPHY 45

CHAPTER-1
INTRODUCTION

1.1 INTRODUCTION
“Financial inclusion is a key determinant of sustainable and inclusive growth,

which in turn is essential for building an equitable society.”
- Pranab Mukharjee, President of India
India has a long history of development if Banking system. After

independence, the major focus of the Government and Reserve Bank of India
had been to develop a sound banking system, which could support planned
economic development through mobilization of resources / deposits and channel
them into productive sectors. Accordingly, the Government is decided to use the
banking system as an important agent to change the core policies that were
formulated since independence.
The planning strategy recognized the critical role of the availability of

credit and financial services to the public at large in the holistic development of
the country. In recognition of this role, the authorities modified the policy
framework from time to time and whereby it ensured that the needs of financial
services in various segments of the society were met adequately.
The recent developments in banking technology have transformed

bankings from the traditional brick and motor infrastructure like staffed
branches to a system supplemented by other channels like Automated Teller
Machines (ATM), Credit/Debit Card, Internet Banking, Online Money transfer,
etc. The moot point, however, is that access to such technology is restricted to
certain segments of the customer segmentation technology sophisticated
customer segmentation technology or more accurate targeting of sections of the
market led to restricted sections of the society.

Finance is very essential for every economic activity. Without adequate

finance no activity can be undertaken. Finance is also required by the every
section of the society. But from the beginning of the civilization, only the
financial needs of the upper section of the society were cared. Access to finance
by the poor and weaker groups are very difficult. In regards with need, the
concept of financial inclusion is not a new one and it has become a catchphase
now and has attracted the global attention in the recent past.
1.2 OBJECTIVE OF THE STUDY:
 To know the journey of financial inclusion in India.

 To study various challenges faced by bank in implementing financial
inclusion.
 To highlight central Government and Reserve Bank of India’s initiatives
to achieve financial inclusion.
1.3 RESEARCH METHODOLOGY:
The project aims of understand the level of awareness and achievement of
RBI and GOIs efforts in achieving the dream target financial inclusion. This
research work started with exploratory research design in due course of time it
was converted to casual research design.

1.3.1 Sample Design:
Sample Frame: The sample frame had a Random sample frame.
Sample Size: The sample size for this research is around 200.
Sample Method: The sample method included conducting a survey with
residents either through personal interaction or through telephonic interaction.
Convenience sampling technique was adopted.
1.3.2 Method Of Data Collection:
(a) Primary Data: The method included preparing a questionnaire with

questions mainly related to awareness related to basic banking. The process
included when they are visiting the bank for any of purpose like deposit the
money. Withdraw the money on behalf of his / her PMJDY account. I insist to
fill the questionnaire which is made by me and generating information about
their banking facilities they using.
• Short listing an area
• Meeting People
• Convincing them to share information to banking habits.
• Analyzing information
• Spreading Awareness
(Fig: 1.1)

The meeting was done as per the preference of the resident it was done in the
following two ways.
a) Either through personal interaction: This method was most preferred as
it results in increase in knowledge of both parties and adds a personal
touch which is not present in telephonic interaction.
Or
Through telephonic interaction: This method was less preferred, as it did
not gave an idea as who is responding to the questions, it was like blindly
trusting the respondent about his identity.
b) Secondary Data: Under secondary data used to different internet sites
magazines, newspapers, ministry of finance site and Government sites
related to PMJDY.
1.3.3 CONDUCTING SURVEY:
The survey was conducted with the help of questionnaire. It was either filed by
one or by the respondents. In around 95% cases the respondents were reluctant
to fit the questionnaire in his writing.
Knowledge Sharing:
A person learns through his life, so keeping this in mind, knowledge was
shared both ways. I learnt the problems of the respondents, the way they work
and I created awareness about PMJDY.

1.3.4 Data Collection:
Gathering information respondent people.
Method of Gathering Information
Telephonic Interview 2%
Personal Interaction 98%
Chart Title
Telephonic
Interview
Personal
Interaction
(Fig: 1.2)
Tools for data collection: The tool for data collection is questionnaire consisting
of set of questions related to implementation of PMJDY.
1.4 LIMITATION OF THE STUDY:
 The study will be limited to India only.

 The study will be conducted for a limited time frame.
 The result of the study will depend totally on information collected through
survey.
In spite of this limitation, an honest attempt has been made to arrive at fairly
objective conclusions.

CHAPTER-2
FINANCIAL INCLUSION

2.1 FINANCIAL INCLUSION DEFINED:
In simple terms, financial inclusion means ensuring that the poorest of

poor, the most disadvantaged sections of society, those living in the
remotest corners of the country- all these have free access to formal
financial services, be they loans, deposits, payments, insurance or pentions.
And these services should be available at an affordable cost.
Financial Inclusion basically means linking every family in the country to

the financial system.
As per Rangarajan Committee Report, “Financial inclusion is the

process of 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”.
According to the planning commission, “Financial inclusion refers

to universal access to a wide range of financial services at reasonable cost.
These include not only banking product but also other financial services
such as insurance and equity products.”
According to Chakraborty, “Financial inclusion is the process of

ensuring access to appropriate financial products and services needed by
all sections of society including vulnerable groups such as weaker sections
and low income groups at an affordable cost in a fair and transparent
manner by mainstream institution players.”

2.1.1 EVOLUTION OF FINANCIAL INCLUSION IN INDIA:
Prior to 1990, several initiatives were undertaken for enhancing the use of
the banking system for sustainable and equitable growth. These included
nationalization of private sector banks, introduction of priority sector lending
norms, the lead bank scheme, branch licensing norms with focus on rural/ semi-
urban branches, interest rate wiling for credit to the weaker sections and
creation of specialized financial institutions to cater to the requirement of the
agricultural and rural sectors having the bulk population. The different phases of
financial inclusion measure at various point of time.
2.1.2 SOME FACTS PRIOR TO FINANCIAL INCLUSION
 Around 15 – 20% people does not have bank accounts earlier it was 65 %
before Jan Dhan Yojana.
 30 – 40% India’s poor depend on local money lenders on unreasonable
rate like Lagan system during British period.
 People taking insurance very low in number.
 Only cash transactions are in rural areas.
2.1.3 OBJECTIVES OF FINANCIAL INCLUSION
Financial inclusion’s main objective is to address constrains that exclude people

from participating in the financial sector and make financial services available
to them to meet their specific needs without any kind of discrimination.

2.1.4 OBJECTIVES:
(Fig: 2.1)
 Economic: - Equitable growth

- Boosting development process
 Mobilization of Savings: - Capital formation
 Carger Market for the Financial system:

- Emergence for new players.
- Participation of retail investors
 Social : - Poverty Eradication

- Financial Literacy
 Sustainability : To improve income generation by low income groups

 Institutional : Effective Implementation

2.2 REASONS FOR FINANCIAL INCLUSION:
Financial inclusion more particularly, when promoted in the wider

context of economic inclusion, can uplift financial conditions and improve the
standards of lives of the poor and the disadvantaged. Access to affordable
financial services would lead to increasing economic activities and employment
opportunities for rural households with a possible multiplier effect on the
economy. It could enable a higher disposable income in the hands of rural
households leading to greater savings and a wider deposit base for banks and
other financial institutions.
Despite India boosting economic growth rates higher than most

developed countries in recent years, a majority of the country’s population still
remains unbanked. Financial inclusion is a relatively new socio-economic
concept in India that aims to change this dynamic by providing financial
inclusion is a relatively new socio-economic concept in India that aims to
change this dynamic by providing financial services at affordable costs to the
underprivileged, who might not otherwise be aware of or able to afford these
services. Global trends have shown that in order to achieve inclusive
development and growth, the expansion of financial services to all sections of
society is of utmost importance. As a whole, financial inclusion in the rural as
well as financially backward pockets of cities is a win win opportunity for
everybody involved.
Financial inclusion of the unbanked masses is a critical step that requires

political will, bureaucratic support and constant pressure by the RBI. It is
excepted to unleash the hugely untapped potential of the bottom-of-pyramid
section of Indian Economy.

The policy makers have been focusing on financial inclusion of Indian

and rural and semi rural areas primarily three most important pressings needs,
like:
(i) Creating a platform for inculcating the habit to save money- The
lower income category has been living under the constant shadow of
financial duress mainly because of the absence of savings.
(ii) Providing formal credit avenues- So far the unbanked population
has been vulnerably dependent of informal channels of credit like
family, friends and moneylenders. Availability of adequate and
transparent credit from formal banking channels shall allow the
entrepreneurial spirit of the masses to increase outputs and prosperity
in the countryside.
(iii) Plug gaps and leaks in public subsides & welfare programmes- A
considerable sum of money that is meant for the poorest of poor does
not actually reach them. While these money lenders through large
system of Government bureaucracy much of it is widely believed to
leak and is unable to reach the intended parties. Government is
therefore, pushing for direct cash transfer to beneficiaries through their
BANK ACCOUNTS rather than subsidizing products and making
cash payments.

2.3 JOURNEY OF FINANCIAL INCLUSION IN INDIA:
Nichotson report (1895) was the first to highlight the need to establish
“Land banks” as an alternative to dominance of money lenders, resulting the
co-operative credit societies act-1904 was passed to provide, amongst other
things, a legal basis for co-operatives credit societies.
Even after 70 years of independence, a large section of Indian population

still remains unbanked. This malaise has led generation of FINANCIAL
INSTABILITY and pauperism among the lower income group who don’t have
access to FINANCIAL products and services.
Historical Perspective:
 1904 : Setting up of Rural Co-operatives

 1954 : All-India rural credit survey committee report suggested multi-
agency approach for financing the rural and agricultural sectors.
 1955 : State Bank of India Created
 1963 : Formation of Agricultural Refinance Co-operation
 1969 : Nationalization of 14 major private banks- The flow of
agricultural and rural credit witnesses a rapid increase.
 1970 : Lead Bank Scheme introduced
 1972 : Mandatory System of Priority Sector lending (PSL)
 1975 : Setting up of Regional Rural Banks
 1980 : Nationalization of Six more Private banks
 1982 : Establishment of NABARD through the transfer of RBI’s
agricultural credit department provision of Bank credit under
Government. Sponsored subsidy schemes linking credit targets at 18%
with individual bank’s net bank credit.

 1990s :
- Implementation of the concept if village level credit planning for
15 to 20 villages allotted to each of rural, semi-urban and urban
branches of PSBs and RRBs under service area approach.
- Formulation of potential linked credit plan for each district
annually by NABARD.
- Agricultural Debt relief scheme and Financial sector reforms.
 1992 : SHG-Bank linkage as the most suitable model in Indian context
a/c to NABARD.
 2000 :
- Reforms sharply focused on Agricultural credit
- Doubling the flow of agricultural credit implementation of
agricultural credit package
- Annual special agricultural credit plan
 1998 : Kisan credit card introduced
 2005 : RBI advices bank to open no frill account
 2006 : RBI allowed BC/BF to act as agents of banks.
(BC- Business Correspondent, BF- Business Facilitator)
 2010 : RBI allows for profit companies (excluding NBFC) to act as

Business correspondent.
 2011 :
- National Payment Corporation of India (NPCL)
- Launched Interbank Mobile payment system (MPS)
 2014 : Pradhan Mantri Jan Dhan Yojana launched
 2016 : PSL target for RRBs increased from 60% to 75% of total
outstanding

Financial inclusion in India still remains a pipe dream if we consider that

even after 70 years of independence; we are still struggling to open basic
bank accounts for our masses. Absolutely nobody cared for poor masses,
which need financial intervention, the most to come out of poverty for
longest period of time. In modern India the journey of financial inclusion has
just began.
 2017: Financial inclusion current status:
Data from census, 2011 estimate that only 58.7 % of the households have
access to banking services. The present banking network of the country (as on
31.03.2014) comprises of a bank branch network of 1, 15, 082 and an ATM
network 16, 0, 055 of these 43, 962 branches (38.2%) and 23, 334 ATMs
(14.58%) are in rural areas. According to world bank findex survey (2012) a
only 35% of Indian adults had access to a formal bank account and 8%
borrowed from financial institutions.
Access to formal financial institution has improved gradually but

thousands of villages still lack a bank branch less than 10% of all commercial
bank credit goes to rural area where around 70% of the total population lives.
Data from the RBI show that only 46,126 out of 6,40,867 villages in India were
covered by Bank in march 2014. Thus the need for financial inclusion is beyond
question.
(Fig: 2.2)
2.4 INDUSTRY PROFILE
2.4.1 Banking Industry
Indian banking is the lifeline of the nation and its people. Banking has
helped in developing the vital sectors of the economy and usher in a new dawn
of progress on the Indian horizon. The sector has translated the hopes and
aspirations of millions of people into reality. But to do so, it has had to control
miles and miles of difficult terrain, suffer the indignities of foreign rule and the
pangs of partition. Today, Indian banks can confidently compete with modern
banks of the world.
Banking in India in the modern sense originated in the last decades of the
18th century. Among the first banks were Bank of Hindustan, which was
established in 1770 and liquidated in 1829-32; and the General Bank of India,
established in 1786 but failed in 1791.
The largest Bank, and the oldest still in existence, is the State Bank of
India. It originated as the Bank of Calcutta in June 1806. In 1809, it was
renamed as the bank of Bengal. This was one of the three bank funded by
presidency Government, the other two bank were Bank of Bombay and Bank of
Madras. The three Banks were merged in 1921 to form Imperial Bank of India,
which is upon India’s independence became State Bank of India in 1955.
Reserve Bank of India was established in 1935, under the Reserve Bank of India
Act. 1934.

CURRENT PERIOD
All banks which are included in the second schedule to the Reserve Bank
of India Act 1934 are scheduled banks. This bank comprises scheduled
commercial banks and scheduled co-operative banks. Schedule commercial
banks in India are categorized into five different groups according to their
ownership and /or nature of operation. These bank groups are:
 State Bank of India and its associates

 Nationalized Banks
 Private Sector Banks
 Foreign Banks
 Regional Rural banks
 Co-operative Banks
 Scheduled Banks
The industry is currently in a transition phase. The growth in the Indian

banking industry has been more qualitative than quantitative and it is expected
to remain the same in the coming years.
Based on the projection made in the “India vision 2020” prepared by the
planning commission and the draft 10th plan, the report forecasts that the pace of
expansion in the balance-sheets of banks likely to decelerate.
2.4.2 CONTRIBUTION OF SECTOR TOWARDS G.D.P.
Banking (10%)
The Indian market comprises the organized sector categorized into

private. Public and foreign owned banks and the unrognized sector including
individual bankers or money lenders.

The country’s gross domestic saving stands around 32.7%, most of it

invested in personal assets like land, property or gold. The Indian insurance
industry has grown in the recent past at rate of 15-20%. Today the Insurance
plaees banking services contribute to 10% of the country’s GDP. It is a well
evolved industry serving as a boon economic development of India by
providing long term funds for development of infrastructure. Besides, it
strengthens the risk taking the country. As per the Life insurance Council,
Indian Life Insurance industry ranks fifth among the largest life insurance
markets of the world.
2.4.3 MAJOR PLAYERS IN BANKING INDUSTRY
 State Bank of India

 ICICI Bank Ltd.
 HDFC Bank Ltd.
 AXIS Bank Ltd.
 Kotak Mahindra Bank Ltd.
 Punjab national Bank
 IDIB Bank
 YES Bank
 CITI Bank Ltd.
 COSMOS Bank
 Bank of Maharastra
2.4.4 REGULATORY FRAMEWORK
The financial system in India is regulated by independent regulators in

the field of banking insurance of Capital market, and pension funds. However,
Government of India plays a significant role in in controlling the financial
system in.

RESERVE BANK OF INDIA:
Reserve Bank of India was established an April, 1,1935 in accordance

with the provisions of the Reserve Bank of India Act 1934. Reserve Bank of
India is the apex monetary Institution of Country. It is also called as Central
Bank of the country. The control Office of the Reserve Bank of India was
initially established in Calcutta but was permanently moved on Mumbai in
1937. The Central Office is where the Governor sits and where policies are
formulated. Through originally privately owned. Since nationalization in 1949,
the Reserve Bank of India fully owned by the Government of India.
2.5 BENEFITS OF FINANCIAL INCLUSION:
(a) Benefits to Individual:
 Making habit of people to save money and get interest from banks.
 Helping people by giving loans from banks in which they have deposited
money instead going lenders and people which exploit rates or lagan.
(Microfiche)
 Filing the gaps and leaks in welfare schemes and subsidies.
 Day-to-day transaction easier and on paper.
 Plan and pay recurring expenses like telephone bill, school etc. or we can say
manage your expenses easily.
 Improvement in over all welfare by increase in purchasing power of
individual and mitigating stocks.
 Removing inequality by having more opportunities in many areas.
 Increasing risk taking ability and self-esteem.
 Insurance through Jan Dhan Yojana and sense of security for family.
 Subsidy in accounts i.e. demand is equivalent to supply.
 Empowerment of women.

(b) Benefits to Country Economy:
 More money in banks helps providing loans to people and business an lower
interest rates.
 Financial stability to economy in times of depression
 Cashless economy
 Higher and better productivity and enabling competition which lowers the
rates of products ultimately.
 Overall development or we can say widespread development in all area
enabling faster growth in economy.
 Global recognition and reduction of poverty
 Increase in National income
 Increase in employment and income opportunity or jobs
 Correction of leakage in demand and supply (Example implementation of
schemes, subsides transfer, distribution channels leakage etc)
 No middle agent
2.6 CONS OF FINANCIAL INCLUSION:
Financial can lead to increase in non-performing assets (NPAs) of the

banks (due to raise in default rates). It will affect the profitability and
sustainability of the financial market.
Also financial inclusion is basically seen as access and availability of

basic financial services to all without any discrimination. But this has been done
in conjunction with increasing the credit absorption capacity of the people.
Otherwise focus on credit availability can drive farmers to commit suicide due
to inability to repay their debt. This inability arises because they have no
avenues to use their loans to generate more income.

2.7 CHALLENGES IDENTIFIED IN THE IMPLEMENTATION OF THE

FINANCIAL INCLUSION:
(a) Telecom Connectivity: The feedback from the banks is that in tribal and
hilly areas of the country, the telecom network is not reliable and therefore
settling up Bank Mitra (Business Correspondent) in these areas and ensuring
opening of bank accounts is going to be difficult.
(b) Keeping the accounts “Live”: It is essential that all Government benefits-
central state or local should flow to these accounts as it has been observed that a
lot duplicity exists in this area and sometimes state have not followed the
service area approach and allocated areas to some banks. Other than service area
banks creating avoidable conclusion.
(c) Brand Awareness and Sensitization: In order to achieve a ‘demand’ side

pull effect. It would be essential that, there is branding and awareness on Bank
Mitra (Business Correspondents) model for providing basic banking services.
Banking product available at Bank Mitra (BCs) outlets and Rupay Cards.
Customer to be made aware that overdraft of up to Rs. 5000/- to be provided in
their account is a credit facility which needs to be repaid in order to get fresh
limits and is not a grant.
(d) Commission to Bank an Direct Benefit Transfer (DBT): A task force an

Adhaar enabled unified payments infrastructure headed by Sh. Nandan Nilekani
in its report Feb 2012 recommended that last mile transaction cost of 3.14%
with a cap of Rs. 20/- per transaction be budgeted for various EBT.
(e) Coverage of Different areas: Parts of North-East, Himachal Pradesh,

Uttarakhand, Jammu & Kashmir and 82 left wing Extremism (LWE) directs
face challenges of infrastructure besides Telecom connectivity. All households
in such areas may not be fully covered under campaign.

(f) Infrastructural Limitation:
Especially in remote areas power supply and network connectivity are

still issue in most part of the country. Because of poor connectivity of internet
and frequent in some areas, it is not possible to do banking transaction. This
problem is being seen mostly in north-eastern state and overcome this problem
RBI came up with satellite connectivity scheme to provide 100% subsidy to
bank branches in the NER subject to maximum 12,000 per month or actual
expenditure incurred by the bank.
(g) Robust Payment & Settlement System: Money transfer, payments

including with Rupay etc. under financial inclusion are going to add large
volumes especially in number of transactions is another challenges which need
to be tackled by NPC and RBI.

CHAPTER-3
FINANCIAL INCLUSION INITIATIVES

3.1. FINANCIAL INCLUSION INITIATIVES:
Government
Initiatives
Knowledge
Product led
Based
Initiatives
Initiatives
Financial
Inclusion
Initiatives
Regulator
Bank led
Led
Initiatives
Initiatives
Technology
Based
Initiatives
(Fig: 3.1)
Government of India and Reserve Bank of India and various private and public
sector banks, taken various initiatives, they are;
(a) Government of India’s Initiatives:
 Nationalization of Banks in 1969
 Swabhiman in 2010, then it was extended in 2012. Opening of Bank
accounts covering the habitation with minimum population at least through
Business correspondent model providing cash services. Habitations with
population more than 1600 in plain areas and 1000 in north eastern and
hilly states as per 2001 census are covered.

(b) Pradhan Mantri Jan Dhan Yojana at 28th Aug 2014:
 (PMJDY) is ensuring access to various financial services like availability
of basic savings bank account, access to need based credit, remittances
facility, insurance and pension to the excluded sections i.e. weaker sections
& low income groups. This deep penetration at affordable cost is possible
only with effective use of technology. It facilitates interest an deposit.
Accidental insurance cover of Rs. 1 lakh by the New India Assurance Co.
Ltd. No minimum balance required. The scheme provide life cover of
Rs.30000/- payable an death of the beneficiary, subject to fulfillment of the
eligibility condition. Easy transfer money across India. Beneficiaries of
Government schemes will get direct benefit transfer in these accounts.
After satisfactory operation of the account for 6 months, an overdraft
facility will be permitted. Claim under personal accidental insurance under
PMJDY shall be payable if the Rupay Card holder have performed
minimum one successful transaction within 90 days. Overdraft facility up
to Rs. 500/- is available in only one account per household, preferably lady
of the household.

 Various schemes like National Rural livelihood mission. National Urban
livelihood Mission.
 Changes in Approach (from village covering to household coverage)
(c) Regulator Led Initiatives:
 Led Bank Scheme in 1969: This scheme aimed at forming a co-
ordinate approach for providing banking facility to enable banks to
assume their lead role in an effective and systematic manner, all
districts in the country (excepting the metropolitan cities of Mumbai,
Kolkata, Chennai and certain Union territories) were allotted among
public sector banks and a few private sector banks. The lead bank role
is to act as a consortium leader for coordinating the efforts of all credit
institutions in each of the allocated districts for expansion of branch
booking facilities and for meeting the credit needs of rural economy.
For the preparation of district credit plans and monitoring their
implementation a lead bank officer (LBO) now designated as lead
district manager was appointed n 1979.
 Simplification KYC norms: (Various notification last one is E-KYC) One
of the major constraints faced by the common people all along in
getting linked to the formal banking system were the strict KYC norms
prescribed all these years. Know your customer (KYC) requirements

for opening bank accounts were relaxed for small accounts in August
2005, there by simplifying procedure.
 Simplification in Branch Authorization norms in 2012: To address the
issue of uneven spread of scheduled commercial banks were permitted to
fully open branches in Tier-3 to Tier-6 centers with population of less than
50,000 under general quarter review of Monetary policy branch
authorization has been relaxed to the extent that banks do not require prior
permission to open branches even in Tier-1 centers, subject to reporting.
 AADHAR as Proof of Identity & Address both: RBI has allowed ‘Adhar’,
the unique identification number being issued to all citizens. India, to be
used as one of the eligible document for meeting the KYC requirement for
opening a bank account. In September 213, RBI has allowed banks to
provide e-KYC services based on Adhaar, thus passing the way for
account opening of all the people.
(d) Bank Initiatives:
 Business correspondent Model: In January 2006, the Reserve Bank
permitted banks to engage business facilitator (BFs) and Business
Correspondents (BCs) as intermediaries for providing financial and
banking services. The BC Model allows bank to provide door step delivery
of services especially to do ‘Cash in- Cash out’ transaction, thus
addressing the ‘last mile’ problem. The list of eligible individuals / exhibits
who can be engaged as bank correspondents being widened from time to

time we have adopted a test and learn approach to this process. In
September 2010, RBI has allowed for profit organizations excluding
NBFCs to operate as BCs. The agents of mobile companies works as
customer service provider (CSPs) and Private BC services, thus expanding
the outreach of banks.
 Individual and not for profit organizations in 2006.
 SHG- Bank Linkage: A self-help group (SHG) is a village based financial
intermediary committee usually composed of 10-20 local women or men.
The SHGs create the common fund by contributing their small savings.
Every member of the group actively participates in the functioning of
SHGs and they meet regularly. Amount of loans are small and for short
period. Loan is sanctioned on ‘trust’ with minimum documentation and
without any security. The rate of interest differs from group to group. It is
generally little higher than that of charged by banks. Repayment of loan is
generally on time.
The self-help group bank linkage programme (SBLP) started in 1992 on
recommendation of S.K. Kalia committee.
Under the SBLP, 3 different models:
2. Model I: SHGs promoted, guided and financed by banks.
3. Model II: SHGs promoted by NGOs/ Government agencies and financed by

banks.

4. Model III: SHGs promoted by NGOs and financed by banks using

NGOs/formal agencies as financial intermediaries.
o In illusion of non-banking financial companies in 2014
o Decisions regarding radius (to increase outreach)
o Ultra small branches (USB) to remove deficiencies of BC/BFs.
(e) Product Led Initiatives:
 No Fril Account: RBI had introduced in 2005. Provide basic banking
facilities to poor and promote financial inclusion. The accounts can be
maintained without or with very low minimum balance. The account is
beneficial for low income individuals, who have to deposit 2-3 times in a
month and withdrawn case occasionally.
 The nature and number of transaction in such account would be limited.
There is a limit in number of transactions. Some banks charged other
charges like cheque book above 20 page, cash withdrawn exceeds above
limited transaction clearing charges etc.
(f) Kisan Credit Card for farmers:
 Introduced in August 1998. Commercial Banks, co-operative banks,
regional rural banks are included under this scheme. Scope is limited to
term loan and consumption need. Small farmers, marginal farmers, share
croppers, oral lessee and tenant farmers are eligible for this card. Credit
limit is fixed on the basis of their credit worthiness. Validity period is 5
years through annual review. Regulating authorities are;- NABARD for
co-operative banks and RRBs, RBI for commercial Banks.

 Committee recommendations: R.V. Gupta (21st April 1988) KCC model
structured RBI, T.M. Bhasin (2012) review by RBI.
 General Purpose Credit Cards (GCC): for rural, semi urban and urban non
farmers in 2013.
(g) Basic Saving Bank Deposit Accounts in 2012:
On August 2012, RBI asked banks to rename the “No-frills a/c” as Basic
savings Bank deposit accounts (BSBDA). This account should be considered as
normal banking services available to all. This account shall not have
requirement of any minimum balance service available to all. Here will be no
limit on the number of deposits that can be made in a month. Account holders
will be allowed a maximum of four withdrawals in a month, including ATM-
Cum-Debit Card. Total credit in such accounts should not exceed one lakh
rupees in a year. Maximum balance in the account should not be credited to
small accounts without completing KYC formalities.
Small accounts are valid for a period of 12 months initially which may be
extended by another by another 12 months if the person provides proof of
having applied for an officially valid document. Small accounts can only be
opened at CBS linked branches of banks or at such branches, where it is
possible to manually monitor the fulfillments of the condition.
 Insurance Facility (Under PMJDY)
 Rupay Debit Card (Under PMJDY)

 Overdraft Facility (Under PMJDY)
(h) Technology Based Initiatives:
 Mobile Banking in 2008
 Web Kiosk
(i) Direct Benefit Transfer in 2011:
The introduction of Direct Benefit transfer validating identity through
Adhaar will facilitate delivery of social welfare benefits by direct credit to the
bank accounts of beneficiaries. Government proposes to route all social security
payment through the banking platform. In order to ensure smooth roll out of he
Government’s direct benefit transfer (DBT) initiative, banks have been advised
to open accounts of all eligible individuals.
(j) Other Initiatives:
 Financial Literacy & Credit Council Center (FLCC)in 2012:- Financial
literacy is an important adjunct for promoting financial inclusion. We have

adopted an integrated approach, where in our efforts towards financial and
financial literacy go hand in hand. Through financial literacy and
education, we disseminate information on the general banking concepts to
diverse target groups. Financial literacy centers organize outdoor literacy
camps which are spread over a period of three months and delivered in
three phases where in along with creating awareness, accounts are also
opened in literacy camps.
(k) Mudra (Funding the unfunded):
MUDRA was launched by the Hon’ble prime minister Shri Narendra Modi on
08th April 2015. It is an innovative way of funding small businesses.
Government has decided to provide an additional fund of Rs. 1 trillion (US $15
billion) or Rs. 1,00,000 Cr. to the market and will be allocated as ;
- 40% to shishee (Covering loans up to 50,000/-)
- 35% to Kishore (Covering loans above 50,000 to 5 lakhs)
- 25% to Tarun (Covering loans above 5 lakhs to 10 lakhs)
Those eligible to borrow from MUDRA bank are small manufacturing
unit, shopkeepers, fruit & vegetable vendors, Artisans.

CHAPTER-4
DATA INTERPRETATION & ANALYSIS

(a) Performance of Jan Dhan Yojana under financial Inclusion: Amount
deposited to the Bank under PMJDY account.
Month Jan- Feb- Mar- Apr- May- Jun- Jul-16 Aug- Sep- Oct- Nov- Dec-
16 16 16 16 16 16 16 16 16 16 16
Amount 10450 12694 15670 16192 19015 19520 20769 22901 24939 25145 26999 29600
Amount (In crores)

35000
30000
25000
20000
15000 Amount (In crores)

10000
5000
(Fig: 4.3)

(b) 22.48 crore accounts opened so for Rs. 40,272.12 crore deposits.
1.26 Bank Mitras.
9.46 crore Suraksha Bima Policies.
2.98 crore Jevan Jyoti Bima Policies....... cont.
As on date: 24/07/2016 :
No of Pradhan Mantri Mudra Yojana Loans sanctioned : 8236615
Amount sanctioned : Rs. 6125000767.71 cr.
Amount disbursed : Rs. 6124999747.41 cr.
(c) Branches of Scheduled Commercial Banks:
(Fig: 4.4)

(d) Villages Covered:
The number of Banking outlets in villages with population more than
2000 as well as less than 2000 increased consistency since 2010.
(Fig: 4.5)

(e) Performance of BSBD Account:
The number of BSBD accounts opened increased from 73.45 million in March
2013 to 182.06 million in March 2016.
(Fig: 4.6)

(f) Number of Kishan Credit Cards:
(Fig: 4.7)

(g) ATM Network- By population group.
(Fig: 4.8)

(h) Bank Credit to MSME.
(Fig: 4.9)

CHAPTER-5
FINDINGS & SUGGESTIONS

5.1 FINDINGS:
Through surveys, following things have been found out.
 Under the PMJDY Scheme, lots of accounts opened but only 60% accounts
are operating continue, the reason is the people having one open account on
the basis of only receive the benefits of Government.
 Out of 200 respondents only 7 were not having bank account in their
household.
 Majority of the people open bank account in order to save money i.e. 67,
whereas 59 respondents opened accounts in order to receive Government
payment under NREGA.
 Majority of accounts in villages have been opened by bank officials i.e.
108.39 by village Panchayat. 20 by Business correspondence and 18 with the
help of friends and relatives.
 Those respondents, who tried to open Bank account but refused by bank
because that was asked them to open bank account with minimum of Rs.
500/- or Banks are not having opening form.
 Some of the people are not aware about the financial facility, which they can
avail.

5.2 SUGGESTIONS:
We must promote financial inclusion aggressively to serve our own low

income family but also to show ways to improve the life of poor people around
the Nation.
Suggestions are as follows;
 Develop low cost bank branch model: India need to develop a low cost bank
branch model possibly attached to village Post Office.
 Promote financial products and services: RBI & Govt. should give the
suggestions to the Commercial Banks to promote the financial products and
services through all educational institutions. (Primary, Secondary & Higher
Secondary)
 Develop Financial Literacy: The Govt. of India should help develop financial
literacy among the population, particularly in low income families. That can be
done by teaching it in primary school, high school & colleges.
 Telecom Companies: Telecom companies should be allowed to provide
payment & money transfer services.
 Add Extra Incentive to Lend in Rural Areas: The RBI should mandate that
commercial banks have a certain percentage of their portfolio in small loans.
 Financial system need to revised and strengthened: The community based
financial systems like the Cheat Funds, need to be revised and strengthened.
They serve as a very useful savings and credit function and result in local
growth and employment.
 Encourage People to access Banking Services: The Bank should step up to
overwhelm all these problems and discriminate its service to remote area. The
bank should encourage people to access banking services by ways of no fril
account.

5.3 CONCLUSION
In India, more than 51% population is still unbanked. Therefore, bank

should see it as a huge untapped opportunity to create CASA money at cheaper
rates. So that it can be loaned at higher margin to maximize the profitability for
the bank. But the banks themselves cannot set up and run these branches at
Panchayat level looking at their own operational cost. Therefore BC model has
been designed to attain the objectives in this case. In this initiative, the BC
model has been playing a crucial role by investing in the capex and the working
capital to make it success.
It must be noted that, many low value transactions that happen in a BC

outlet are not very remunerative but few high value transactions are able to
compensate for them. It has been observed across the globe, that strong
financial system automatically creates stimulus for great economic activities in
the surrounding catchment area. Therefore a robust BC outlet through the
common BC model with small tweaking as recommended above shall create
miracle in the unbanked population in the hinterland by significantly creating
the CASA money for the banks. Sustainable business model for the BC creating
thousands of the direct & indirect employment and last but not the least
contributing to the growth of GDP of the Country.

BIBLIOGRAPHY:
(a) Research Paper:

 Rao. V Archana (Financial Inclusion for Banks in India) in International
Index & Referred Research Journal, April 2012)
 Paul Rajendar (Challenges to Financial Inclusion & its Strategic
Approach) Feb 2013.
 Satapathy Ipsita (Including the Excluded through Financial Inclusion)
May 2014.
 Agrawal Richa (Financial Inclusion in India, Challenges &
Opportunities) Dec 2015.
(b) Websites:
 Global Findex of World Bank: www.worldbank.org
 Ministry of Finance: www.finmin.nic.in
 Pradhan Mantri Jan Dhan Yojana: www.pmjdy.gov.in
 www.rbidocs.rbi.org.in
 en.wikipedia.org

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FINANCIAL INCLUSION IN INDIA

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

Under the guidance of

UDAYANATH (AUTO) COLLEGE OF SCIENCE AND

I do hereby declare that the project work “FINANCIAL INCLUSION

Date: Sabana Nasreen

DEPARTMENT OF COMMERCE (2)

To the best of my knowledge, the matter embodies in the project

Prof. Arun Kumar Swain,

UDAYANATH AUTONOMOUS COLLEGE OF SCIENCE AND TECHNOLOGY,

DEPARTMENT OF COMMERCE (3)

“Preservance, inspiration and motivation have always played a key

I am keenly conscious of the great debt, I owe to my supervisor

I am also thankful to Mrs. Binayee Mishra, Miss Mun Mun

I am grateful to all the faculty member of P.G. Department of

Date: Sabana Nasreen

DEPARTMENT OF COMMERCE (4)

TOPIC PAGE NO.

DEPARTMENT OF COMMERCE (5)

DEPARTMENT OF COMMERCE (6)

“Financial inclusion is a key determinant of sustainable and inclusive growth,

- Pranab Mukharjee, President of India

India has a long history of development if Banking system. After

The planning strategy recognized the critical role of the availability of

The recent developments in banking technology have transformed

DEPARTMENT OF COMMERCE (7)

Finance is very essential for every economic activity. Without adequate

1.2 OBJECTIVE OF THE STUDY:

 To know the journey of financial inclusion in India.

1.3 RESEARCH METHODOLOGY:

The project aims of understand the level of awareness and achievement of

was converted to casual research design.

DEPARTMENT OF COMMERCE (8)

1.3.1 Sample Design:

Sample Frame: The sample frame had a Random sample frame.

Sample Method: The sample method included conducting a survey with

residents either through personal interaction or through telephonic interaction.

Convenience sampling technique was adopted.

1.3.2 Method Of Data Collection:

(a) Primary Data: The method included preparing a questionnaire with

• Short listing an area

• Convincing them to share information to banking habits.

DEPARTMENT OF COMMERCE (9)

following two ways.

a) Either through personal interaction: This method was most preferred as

it results in increase in knowledge of both parties and adds a personal

touch which is not present in telephonic interaction.

Through telephonic interaction: This method was less preferred, as it did

trusting the respondent about his identity.

b) Secondary Data: Under secondary data used to different internet sites

magazines, newspapers, ministry of finance site and Government sites

1.3.3 CONDUCTING SURVEY:

to fit the questionnaire in his writing.

DEPARTMENT OF COMMERCE (10)

1.3.4 Data Collection:

Gathering information respondent people.

Method of Gathering Information

Personal Interaction 98%

1.4 LIMITATION OF THE STUDY:

 The study will be limited to India only.

DEPARTMENT OF COMMERCE (11)

DEPARTMENT OF COMMERCE (12)

2.1 FINANCIAL INCLUSION DEFINED: