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Press the accelerator on financial inclusion

comment Updated: Apr 03, 2014 23:24 IST

For a country that is set to become one of the world’s top five economies over the next decade, India cannot afford to allow a significant number of its citizens to remain outside the banking net.

The statistics are telling. More than four out of 10 adults still do not have a bank account.

From a global perspective, India still has a lot of catching up to do. In India, for every 100,000 population there are about 11 bank branches and about 10 ATMs.

In Brazil, the same population is served by 47 branches and by about 120 ATMs.

The contrast tells a story on how, and why, Brazil — a country roughly at a similar rung on the development scale like India — has been successfully able to put in place efficient delivery systems for its State-administered welfare schemes.

The Reserve Bank of India’s (RBI’s) decision on Wednesday to kick-start the process of granting new bank licences need to be seen in the context of India’s priorities on financial inclusion.

At least 25% or one in every four of the new banks’ branches will have to be set up in rural areas.

There exists a wide disparity in India so far as financial inclusion is concerned. A study by CRISIL has shown the southern region leads in financial inclusion, followed by north, east and the north-east.

Wide disparities exist across India and within states in terms of access to financial services.

Mumbai-based non-banking finance company IDFC and Kolkata-based microfinance organisation Bandhan have got banking licences in this round.

There were more than two dozen aspirants that the RBI has entrusted to cast the banking net wide.

There are lessons from history to learn on how financial inclusion can assist overall economic growth. As banks were forced to open up branches in remote areas, after their nationalisation in 1969, India’s savings and investment rate rose from 13% to 23%.

Higher investment feeds into growth. Pressing the accelerator on financial inclusion can possibly yield similar results now.