Tracking progress in financial inclusion

Posted on July 28, 2015 by Sumita Kale

The aim of universal financial inclusion is to ensure that every adult Indian has easy, reliable and affordable access to all financial servicesWithout reliable and granular data, the true extent of exclusion and effectiveness of policy initiatives cannot be ascertainedA slew of reports recently released give a good idea of the progress of financial inclusion over the past few years in IndiaHowever, given the time lag, reports such as the Crisil Findex (March 2013 data) and Intermedia Financial Inclusion Tracker Survey (conducted over the period September-December 2014) can give a good picture of the trend, not the current statusIt is important to keep this caveat in mind while using results from reports.

For the current status, the best source right now is the PMJDY website that keeps a regular update of the number of banking accounts, as well as the share of zero-balance accounts, showing that the government is cued into these trendsRBI data on banking indicators comes out with a lag, and the most regular current status would be for indicators such as Payment Systems, ATM transactions, etcthat are reported on a monthly basis.

Pradhan Mantri Jan - Dhan Yojana (Accounts Opened As on 15.07.2015)

Pradhan Mantri Jan - Dhan Yojana (Accounts Opened As on 15.07.2015)

S.No No Of Accounts No Of Rupay Debit Cards Balance In Accounts % of Zero Balance Accounts
Rural Urban Total
1 Public Sector Bank 7.24 5.98 13.22 12.25 15698.68 50.83
2 Rural Regional Bank 2.57 0.44 3.02 2.19 3493.76 50
3 Private Banks 0.41 0.28 0.69 0.61 1095.93 47.83
Total 10.21 6.71 16.92 15.05 20288.37 50.59

Disclaimer: Information is based upon the data as submitted by different banks/SLBCs(All Figures in Crores)

Even while we look at the trend under the PMJDY, other reports give us a sense of how India has been changing from before the PMJDY came onto the scene From the Third Report of Crisil Findex we get the trend that as of March 2013 progress in bank branch, deposit, and credit penetration has continued at a brisk pace, regional disparities were reducing though Southern States were still far ahead in inclusion parameters, and the success stories that stood out were West Bengal for Micro Finance, Jammu and Kashmir, Tamil Nadu and the North-EastThe report also notes that the success of the PMJDY and the forthcoming payments banks are set to change the landscape of financial inclusion significantly.

The Intermedia India Financial Inclusion Tracker Survey: 2015 (Wave 2) was conducted over the period September- December 2014, and while this is more recent, it fails to capture the full extent of the PMJDY successApart from the time period of the survey, another caveat to keep in mind is the fact that the survey focuses on individuals, while the PMJDY targets household penetrationThe report shows a rise in the penetration of banking accounts in India, and also points to increasing account usageA significant result that has come through is the high increase in penetration of banking amongst women, especially those below poverty level - and this appears to be a direct outcome of the successful PMJDY campaign. The survey also points to large inter-state disparities, and here it is crucial for the government and the RBI to pay more attention.

ICFI reports Financial Inclusion Metrics-Part I (Policy Brief October, 2014) and  Financial Inclusion Metrics-Part II (Policy Brief October, 2014) had delved into the issue of financial inclusion metrics, summarized the findings from various data sources and had made the following recommendations:

  • Inclusion metrics have to move from tracking the number of bank accounts and banking correspondent agents to include transactions in accounts and per agentThis will work towards ensuring actual usage of banking services.
  • Data should also cover the nature of transactions per access point and per account, to map the move towards less-cash in the economy.
  • The geographic and socio-economic heterogeneity in India calls for data at a much more granular levelCurrently most data are available at state and district level, however data should be collated and published from financial service providers at city and village level also.
  • Various service providers collect data that remain confidentialRegulators and the various departments and ministries of the government should work together towards creating a system of data-sharing across sectors and service providers that will provide dividends for all.
  • While the RBI has been moving towards placing more agents, rather than branch expansion, rural respondents for the FITS reported accessing banking services at branches and ATMs, rather than at the agent; this once again reveals the break-points in the bank-BC model that need to be fixed.
  • The Financial Inclusion Tracker Survey report of 2014 had highlighted significant differences in financial behaviour across gender and geographies; financial service providers, particularly banks, need to understand the reasons behind the variations and address the problems effectively.
  • Even if policy makers choose not to set explicit targets, they must monitor the trends in number of transactions per day, the number of active agents and accounts, the number of products being used by the newly banked, gender and regional disparities etcIt is only then that India can reach its goal of universal financial inclusion.

To conclude, there has been a significant improvement in the financial inclusion metrics over the past few years, more data has been collected and published than earlierHowever, significant regional heterogeneity in the country calls for more granular data and deeper analysis of behavioural differences.

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