Overview of efforts for Financial Inclusion

Financial Inclusion includes meeting the small credit needs of the people, giving them access to the payments system and providing remittance facilities. This has led to some notable developments:No Frills Accounts: In November 2005, RBI asked banks to offer a basic banking ‘no-frills’ account  with low or zero minimum balances and minimum charges to expand the outreach of such accounts to  the low income groups.  As on 31^st March, 2009 there were 3.3 crore no frill accounts.

Easier Credit facility: Banks were asked to introduce a General Purpose Credit Card (GCC) facility  up to Rs. 25,000. The total number of GCCs issued by banks as on end March, 2009 was  0.15 million.

Simpler KYC Norms:  In order to ensure that people belonging to the low income groups, both in  urban and rural areas, do not encounter difficulties in opening bank accounts, the 'Know Your  Customer' (KYC) procedure for opening accounts was simplified for those accounts with balances not exceeding Rs 50,000 and credits thereto not exceeding Rs.100,000 in a year.

Use of Information Technology: Banks have been urged to scale up IT initiatives for financial  inclusion speedily while ensuring that solutions are highly secure, amenable to audit, and follow widely-accepted open standards to ensure eventual inter-operability among the different systems.

Electronic Benefit Transfer (EBT) through Banks: To encourage banks to adopt Information and Communication Technology (ICT) solutions for enhancing their outreach, the RBI formulated a scheme to quicken the pace of adoption of the smart card-based Electronic Benefit Transfer (EBT)  mechanism by banks and rolled out the EBT system in the States that are ready to adopt the scheme.As per the scheme, the RBI would reimburse the banks a part of the cost of opening accounts with bio-metric access/smart cards at the rate of Rs.50 per account through which payment of social security benefits, National Rural Employment Guarantee Act (NREGA) payments and payments under other Government benefit programmes would be routed to persons belonging to below poverty line (BPL) families.  The scheme was implemented in Andhra Pradesh. So far, seven banks have been  paid Rs.1.8 crore for smart cards issued by banks in Andhra Pradesh during July-December 2008.

The process is at different stages of implementation in other States such as Karnataka and  Uttarakhand and the scheme of partial reimbursement by the Reserve Bank has been extended by  one year up to June 30, 2010. Banks are advised to work in co-ordination with the respective government departments at the Central and State levels to ensure that all State benefits are delivered  to individuals only through bank accounts within a specific timeframe.

Business Correspondent (BC) Model :  The BC Model ensures a closer relationship between poor people and the organized financial system. Reorganizing this, in 2006, RBI permitted banks to use the services of non-governmental organizations, micro-finance institutions, retired bank employees, exservicemen, retired  government employees, Section 25 companies, and other civil society  organizations as  Business Correspondents in providing  financial  and banking  services. In addition to the entities presently permitted, RBI has also permitted banks  to appoint the following entities as BCs (i) Individual kirana/medical /fair price shop owners (ii) individual Public Call Office (PCO)  operators (iii) Agents of Small Savings schemes of Government of India/Insurance Companies (iv) Individuals who own Petrol Pumps (v) Retired teachers and (vi) Authorised functionaries of well run Self Help Groups (SHGs) linked to banks.

Bank Branch and ATM Expansion Liberalized: Reserve Bank of India has  totally freed the location of ATMs from prior authorization.  Further, in the October 2009 RBI took another big step by freeing branch opening in towns and villages with  a population below 49,999.  After examining the recommendations of the Working Group constituted to review the extant Branch Authorization Policy, RBI has permitted domestic scheduled commercial banks (other than Regional Rural Banks) to open branches in Tier 3 to Tier 6 centres (with population upto 49,999 as per Census 2001) without having the need to take permission from RBI in each case. The detailed RBI circular is available at its website www.rbi.org.in.  Domestic scheduled commercial banks (other than RRBs) are enjoined to ensurethat at least one-third of such branch expansion happens in the underbanked districts of underbanked states. This will be one of the criteria in the Reserve Bank’s consideration of proposals by banks to open branches in major city (Tier 1 and Tier 2) centres.

Expansion of Banks in the North-East:  To improve banking penetration in the North-East, the Reserve Bank asked the State Governments and banks to identify centres where there is a need for setting up either full fledged branches or those offering forex facilities, handling government business or for meeting currency requirements.

Project Financial Literacy :Financial literacy is a stepping-stone toward financial inclusion. Moreover, as financial markets are becoming increasingly complex with serious problems of information asymmetry, the need for financial literacy has become even more acute. The Reserve Bank of India has initiated a "Project Financial Literacy" with the objective of disseminating information regarding the central bank and general banking concepts to various target groups.  RBI’s ‘Financial Education’ web site link offers basics of banking, finance and central banking for children of all ages. In a comic book format, RBI simplifies the complexities of banking, finance and central banking, with the goal of making the learning fun and interesting.

Financial Literacy and Credit Counseling : RBI has advised the convener-bank of each State Level Bankers’ Committee(SLBC) to set up a financial literacy-cum-counseling centre in any one district on a pilot basis, and based on that experience, to extend the facility to other districts in due course. So far, 154 credit counseling centres have been set up in various states of the country. These centres are expected to provide free financial education to people in rural and urban areas on the various financial products and services, while maintaining an arm's-length relationship with the parent bank.


Source:-Ministry of Finance