India ahead of China in financial inclusion metrics

A report by State Bank of India (SBI) economists has noted that a robust digital infrastructure, careful recalibration of bank branches, increase in mobile transactions and a jump in number of bank branches has improved India’s financial inclusion metrics.

- In India, the mobile and Internet banking transactions has increased to 13,615 per 1,000 adults in 2020 from 183 in 2015 and the number of bank branches inching up to 14.7 per 1 lakh adults in 2020 from 13.6 in 2015, which is higher than in Germany, China and South Africa.
- States with higher financial inclusion / more bank accounts have also seen a perceptible decline in crime along with a meaningful drop in consumption of alcohol and tobacco.
- This could be because of Jan Dhan-Aadhaar-Mobile (JAM) trinity which has helped in better channelising of government subsidies and helped in curbing the unproductive expenditure such as alcohol and tobacco expenses in rural areas.
- According to the report, under the no-frills accounts scheme, the number of persons with deposit accounts at banks has significantly increased, becoming comparable with emerging economy peers and even some of the advanced economies.

No-frills bank accounts require zero or very low minimum balance and other banking facilities such as withdrawals and ATM and Debit card facilities at zero charges to enable universal access to banking facilities. No-frills bank accounts are also known as Basic Saving Bank Deposit Accounts.

The number of no-frills bank accounts opened has reached 43.7 crore with ₹1.46 lakh crore in deposits as of October 20, 2021. Of these, almost two-thirds are operational in rural and semi-urban areas and more than 78% of these accounts are with state-owned banks, 18.2% with regional rural banks, and 3% are opened by private sector banks.
The report recommended fine-tuning the banking correspondent (BC) model by making it uniform across all banks for, there is a need to make the BCs interoperable.
In the use of digital payments also, there has been noteworthy progress. The number of bank branches in rural areas has also increased from 33,378 in March 2010 to 55,073 in December 2020.

The major credit for the financial inclusion drive should go to the RBI which in 2016 allowed the business correspondent model of branchless banking. This not only made financial services accessible for the un-/underbanked population through a branchless banking facility but also supported the national agenda for employment generation.
Business Correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM. Basically, BCs enable a bank to expand its outreach and offer a limited range of banking services at low cost, as setting up a brick and mortar branch may not be viable in all cases.
BCs are permitted to perform a variety of activities which include identification of borrowers, collection and preliminary processing of loan applications, creating awareness about savings and other products, promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups, etc.
They can also attend to collection of small value deposit, disbursal of small value credit, recovery of principal / collection of interest, sale of micro insurance/ mutual fund products/ pension products/ other third party products and receipt and delivery of small value remittances/ other payment instruments.

What is Financial Inclusion?

The World Bank defines financial inclusion as a situation where businesses and individuals have access to useful and affordable financial products and services.
Having easy access to a bank account through which an individual can conduct a transaction is the first step towards a broader financial inclusion.
Sound financial inclusion policies have a multiplier effect on economic growth, reducing poverty and income inequality, while also being conducive for financial stability.

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