The Roadmap to Financial Deepening

Dr Deepali Pant Joshi,
Executive Director, Reserve Bank of India

 Inclusive banking is an issue which concerns most of us; it is one thing that will take the country far ahead. Financial Inclusion is not a new idea; it forms the core of our policy commitments. It is an increasingly difficult area, very important and very complex. It does not offer any simple solutions in the country where still almost 50 percent of people do not have access to financial products and services. Financial Inclusion has been defined by the RBI as the process of insuring access to appropriate financial products and services needed by all sections of the society. What is RBI’s approach to financial inclusion? We have followed a planned and structured approach to address the twin issue of demand and supply. We have framed clear regulations to provide banking services to 6 lakh plus villages and create an enabling environment for banks to do so. Today financial inclusion is driven in mission mode; it is being implemented through a range of strategies ranging from relaxation of regulatory guidelines, provision of new products and supportive measures. Today we have adopted a bank led model for promoting financial inclusion as we have a strong banking system with wide penetrative outreach. We are often questioned on this. However, I would like to say that RBI, as an organization, is completely model neutral, as far as financial inclusion is concerned. As banks are directly supervised and regulated by the RBI, we are more comfortable with the bank led model. Also, Banks fall under the deposit insurance credit guarantee scheme and hence the interest of the depositors is protected, at least up to an amount of Rupees one lakh. This ensures the protection of the vulnerable section of the society.

 We are furthering Financial Inclusion through a combination of strategies and we want to move very fast in this area. Our Financial Inclusion initiatives are ICT enabled, doorstep banking services are being provided through hand-held devices such as point of sale machines, mobile phones, which work on delivery models developed by banks. Other organisations like mobile companies, cooperates are also allowed to partner with banks for offering services. Some of the banks have also told us that they are working in partnership with telecom companies such as Airtel, Vodafone, Idea , Tata Tele Services, etc., who work as Business Correspondents and leverage upon their retail network to extend banking services. This is going to assume great importance in years to come. Under the Institutional mechanism put in place for Financial Inclusion, we have the Financial Stability and Development Council (FSDC). Financial Literacy is a very important adjunct for promoting Financial Inclusion, consumer protection and ultimately financial stability.

 RBI has adopted an integrated approach, where efforts towards financial inclusion and financial literacy go hand in hand. In the FSDC, there is a separate committee which is headed by the Deputy Governor, known as the Financial Inclusion Advisory Committee. At the state level, there is the state level banker’s committee and at the district level, there are district level committees and below that are the lead bank offices. India is one of the 34 countries in the world that have adopted a national strategy for financial education, under the ages of the FSDC to address all the demand side issues arising in financial literacy. The focus of Financial Inclusion is increasing the volume of transaction, especially in the accounts being held in rural areas. 2,68,000 banking outlets have been set up in the rural areas as against the 67,694 bank outlets in March 2010. 7,400 rural bank branches have been opened in the unbanked areas, over the last three years.
Now that we have created access we need to promote usage Banks must going forward innovate to design products and services customized for the needs of the poor borrowers. In order to bring about real financial inclusion, Direct Benefit Transfer scheme has to be leveraged. Aadhaar cards should help to deepen financial inclusion used to the fullest. The banks must focus on creating affordable delivery of financial services, especially to those at the bottom o the pyramid. Financial Inclusion is the only way to eliminate the vicious cycle of perennial debt and perpetual poverty In the ultimate analysis financial literacy financial inclusion and financial stability form part of a continuum

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