4 Points To Make Financial Inclusion Achieve Its Goal
A major shortcoming of banking reforms was exclusion of a significant section of the population from the formal financial services. The united progressive alliance (UPA) government tried to address the problem by introducing the ‘no-frills’, basic savings bank deposit accounts (BSBDA) scheme. The national democratic alliance (NDA) government repackaged this in August 2014 as prime minister’s Jan Dhan Yojana (PMJDY). The massive network of branches of public sector banks (PSBs) was harnessed to bring people into the formal banking sector. PSB branches were given targets of accounts to be opened within a timeframe. 
More than four years down the line, has the challenge of financial exclusion been met successfully? What do the official reports say? What lessons should the policy-makers learn from the massive exercise? What is the way forward?
Well-documented studies have regularly appeared during the past two years indicating that there is a wide gap between the claims and the ground realities. Now two reports of Reserve Bank of India (RBI) throw considerable light on the whole exercise. One is the latest Report on the Trend and Progress of Banking in India 2018 (RoB) and the other is RBI’s Annual Report 2018 (AR).  
The RoB narrates the methodology adopted in popularising PMJDY. It was implemented in two phases. Phase I, spread between August 2014 and 2015, was intended to provide universal access to banking with facilities for remittance, overdraft and debit card , together with built-in accident insurance cover of Rs1,00,000. In Phase II, covering the period August 2015 to 2018, new features like increased overdraft up to Rs5,000, insurance and pension schemes and creation of a credit guarantee fund for covering defaults in overdraft accounts were added. Last September, the scheme was further extended increasing the overdraft to Rs10,000 and  insurance to Rs2,00,000. Every adult, instead of the household, became the target. These are, indeed, commendable strategies. 
As a consequence of these efforts, RoB claims, during the four-year period (2014-18), the number of accounts opened under PMJDY expanded to 328 million and the deposits to Rs851 billion. Notably, 59.1% of the new accounts were opened in branches located in rural and semi-urban centres. Coverage-wise, RBI says, "between 2011 and 2017 the proportion of people joining the formal financial system in terms of an account at financial institutions has more than doubled, reaching about 80% of India’s population."
Structured Approach
With a view to translating the goal of reaching out, RBI adopted a structured approach to implement the plan of financial inclusion. The approach had three action points: at the individual bank level, a board-approved financial inclusion plan (FIP); at RBI level, a revisit to the branch opening policy and at the sector level, steps to promote financial literacy.
The FIP was intended to capture historical data as well as the proposed plan of individual bank in relation to specific activities connected with financial inclusion like the number of Basic Savings Bank Deposit Accounts (BSBDAs), overdrafts availed, credit or debit cards issued, transactions through such cards and the business promoted through IT-enabled banking correspondents (BCs). Given the current reluctance on the part of the banks to entertain customers of small means, FIPs would enable the RBI to nudge them to shed their reluctance.
Considering the continuous shift away from ‘uneconomical’ brick and mortar branches in the countryside resulting in steady decline in the number of rural and semi-urban branches in the reforms era, it was necessary to revisit the branch licensing policy. Banks have been mandated to open at least 25% of the new outlets in a year in the unbanked rural centres (URCs). The state level bankers’ Committees are required to identify and maintain lists of URCs with periodic advice to member banks to give priority to URCs with a population above 5,000.
As educating people is crucial to develop banking habit, RBI, has laid great emphasis on promoting financial literacy across the country through what it claims as innovative approaches to financial literacy. A National Centre for Financial Education (NCFE), supported by financial sector regulators has been put in place with the task of devising different strategies to enhance awareness about the benefits of formal banking among the public.
A Mixed Picture
Ironically, the RBI reports themselves reveal that the progress made is tardy and the claims of reaching out are far-fetched. And, to an extent the regulator deserves to be complimented for its candidness in admitting the shortcomings, when it says,"during 2017-18, proximate indicators of financial inclusion presented a mixed picture."
The data provided by RBI on the progress of FIP between 2010 and 2018 are self-explanatory. 
Financial Inclusion Plan—Progress Report: 2010-2018
While the emphasis is on reaching out to unbanked villages, the number of outlets including BCs in those target areas has declined during the latest year from 5,43,472 to 5,15,317. Even the conventional branches have come down from 50,860 to 50,805.
In opening new branches, a pattern is visible. Banks’ preference continues to be overwhelmingly in favour of cities with population of 1 million and above: during this period the share of new branches in such centres has been ranging between 35.3% to 40.3% as against a sustained decline in the share of newly opened branches in centres with population of less than 5,000 to 15.8% from 27.7%. 
It can also be observed that the number of accounts at the branches has come down to 247 million from 254 between March 2017 and 2018.
RBI attributes this decline to rationalisation of branches by banks through closing down of branches which were either unviable or located in close proximity to each other (emphasis added) and merger of associate banks with State Bank of India (SBI). The latter raises another issue: one account-holder could have opened accounts in different banks thereby inflating the overall figures!
RBI further says that some banks disengaged corporate BCs because of poor performance. Such disengagement can create a serious confidence crisis among the financially illiterate citizens.  This underlines the need to operate through brick and mortar outlets whose physical presence with regular personnel enhances the reliability of an institutional mechanism. In strengthening financial inclusion, viability of branches cannot be the deciding factor.
A second issue relates to the operations in the Jan Dhan accounts. A 2017 report by World Bank had said that 48% of the accounts were inoperative (The Global Findex Database 2017: Measuring Financial Inclusion and the Fin-tech Revolution). This finding gets echoed in the RBI reports where it confirms the decline in the average balances in PMJDY accounts during 2017-18. It also says that up to August 2018, only 23% of the accounts have received the direct benefit transfers (DBTs)- a process that was intended to eliminate the role of middlemen in giving the benefit of government subsidies directly to the beneficiaries through bank accounts. 
Emphasis on IT-enabled Services
Successive RBI reports have laid great stress on pushing financial inclusion through technology drive. The exhaustive reports on promoting financial literacy through diverse institutional network and self-help groups bear testimony to such emphasis. That approach, however, overlooks the ground realities. 
The target group of the campaign comes from geographically, socially and economically marginalised segments of the society. Most of them do not use the automatic teller machine (ATMs) and credit or debit cards. Those who venture into the bank branches do so for simple services like depositing or withdrawing cash, sending or receiving small amounts of money and, much of that is still guided by their wave lengths with the staff of the branch. 
Where customers are tech-savvy, the services said to be available in the bank could be utilised only if there is connectivity and power supply. 
The Challenges Ahead
In addressing the challenge of reaching out to the segments, which are still outside the formal financial sector, the three major players, namely, government,  RBI and the banks need to take a series of measures to win the confidence of the uninitiated. Some of them are listed here.
a. Focus on the conventional brick and mortar network. The very sight of an institution with knowledgeable and responsible people manning them creates confidence in a hesitating mind.
b. Focus on dealing with them in their own local language. This necessitates posting of staff familiar with the language and local customs to enable them to be part of the local milieu.
c. Make the documents to be filled and signed as simple as possible and in a language the local people are familiar with. Most PSBs have neither simplified the documents nor are they in the local language. Even the ubiquitous challans for depositing, withdrawing and remitting  money and the menu of services offered are in Hindi and English. The PSBs’ obsession with official language causes practical problems to the small customers.
d. Focus on building their confidence in banking institutions through more frequent informal interaction between the staff and the people in the locality and extending guidance on financial matters.
The challenge cannot be met by loud declarations of intent and goals or through unfamiliar machines that print the pass books, dispense cash or accept deposits; it is the institutional integrity with a staff driven by a service motive that brings a hesitant by-stander into the portals of the bank. 
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