RBI Branch Licensing Policy : Branching the Gap
between Financial Exclusion and Financial Inclusion
Gayatri Mohanty
Asst. Professor
Dr. J.K.Patel Institute of Management, Vadodara
bstract
A marked feature of any developed eonomy is the inlusion of all ! the ur"an
and rural population of the ountry, into the eonomy "y ena"ling them in suh a
#ay that they an ontri"ute to#ards the gro#th of the eonomy as a #hole. $nly
an eonomy that has all setions of the soiety ontri"uting to its GDP an "e
alled as a developed eonomy, #here the differenes in the distri"ution of
#ealth and inome have "een ironed out to a great e%tent.
&ased on the researh done during the last deade it may "e onluded that an
effiient and a omposite finanial system 'taking "oth haves and have(nots of
the ountry) an "e linked to a faster and e*uita"le gro#th '+onohan, ,--.).
/eforms that promote aess to finanial servies should "e at the ore of the
development agenda,0 said Asli Demirg12(Kunt, 3enior /esearh Manager,
4inane and Private 3etor at the 5orld &ank.
6&etter aess to finane not only inreases eonomi gro#th, "ut also helps
fight poverty, and redues inome gaps "et#een rih and poor people.0 'Anginer,
Deni7 and Asli Demirgu(Kunt, ,--8 ( -9).
Financial Inclusion
Mirofinane endeavors have "een an important attempt to put India on the map
of the #orld as an advaned eonomy. Despite of the ommenda"le suess the
road to a fully developed eonomy still seems an uphill lim". Another endeavor
in this diretion and reently a "u77#ord in the Indian eonomy is Financial
Inclusion, #hih means the availa"ility of timely and suffiient finanial servies
to those portions of the soiety #ho still do not have any proper aess to them.
!
Dr. C. Rangarajan's ommittee on finanial inlusion defines it as:
"Financial inclusion may be defined as the process of ensuring access to
financial services and timely and adequate credit where needed by vulnerable
groups such as weaker sections and low income groups at an affordable cost."
4inanial servies here means a plethora of servies starting from savings
failities, loans and advanes, insurane, redits and also to an e%tent
investment opportunities. ;he main role of the finanial system is to "ridge the
gap "et#een the 6haves and have!nots0 in the eonomy. It aims at mo"ili7ing the
finanial resoures from the surplus to the defiit units in the ountry to ensure a
sustaina"le e*uita"le development.
4rom this it an "e easily inferred that finanial e%lusion refers to the
unavaila"ility of appropriate and timely finanial produts and servies to a
ertain set of people. ;he pro"lem of finanial e%lusion "eomes even graver
#hen the e%luded ategory of people omprise of the lo# inome group and
eonomially "ak#ard people #ho need aess to finanial produts and
servies more to elevate a"ove their miseries.
Extent of Financial Exclusion: 'Aording to Dr. K. <. <hakra"arty, Deputy
Governor, /eserve &ank of India)
=. <overage of '>stimates "ased on various studies and Market
3urveys):
" <hek in aounts ( .-?
" @ife Insurane ( =-.-?
" Aon(@ife Insurane ( -.B?
" <redit <ard ( ,?
" A;M C De"it <ard ( =D?
,. Geographial overage
" E.,? villages are having a "ank "ranh
D. 4armers overage
#
" $ut of ==F million farmers, small and marginal farmers
are F8.8 million '9,.= ?)
3o far the fous has maGorly "een on delivering redit 'though the pratie is
alled mirofinane "ut the main emphasis has "een on miroredit). ;he
suess story of mirofinane in India is not unkno#n and definitely has "een a
maGor leap in this diretion. &ut no# the "ig piture is 4inanial Inlusion #hih
#ill ensure not only the availa"ility of redit to the poor "ut also inulate a
pratie of savings in them and e%pose them to other finanial produts and
servies like insurane and pensions that #ill help them to ontri"ute their part
to#ards the gro#th of the eonomy and that too in a sym"ioti #ay, sym"ioti
"eause they #ill gro# and so #ill the eonomy.
>ven if finanial inlusion inludes a lot of servies in its gamut "ut the "ias
to#ards miroredit annot "e ignored. In the Indian onte%t, finanial inlusion,
aording to the 4inane MinisterHs ,--B(-8 "udget speeh, #as defined as 6the
proess of ensuring aess to timely and ade*uate redit and finanial servies
"y vulnera"le groups at an afforda"le ost0 'Inion &udget, ,--8(,--9). 3imilarly
the <ommittee on 4inanial Inlusion defines finanial inlusion as 6Jthe
proess of ensuring aess to finanial servies and timely, ade*uate redit
#here needed, to vulnera"le groups suh as #eaker setions and lo# inome
groups, at an afforda"le ost,0 '/eport of the <ommittee for 4inanial Inlusion,
,--9). +o#ever, finanial inlusion seems to "e a more developmental poliy
than miroredit.
RBI$s %ri&e : Financial Inclusion
<urrently all "anks are re*uired to get a liense from /&I for opening a ne#
"ranh. ;he /eserve &ank of India has deided to push the private "anks to
open more "ranhes in rural areas in an initiative to adhere its and the
governmentHs prime agenda of finanial inlusion. /&I, in its irular, said that
K"anks should alloate at least ,E? of the total num"er of "ranhes proposed to
'
"e opened during a year in un"anked rural 'tier E and tier B) entres.K An
un"anked rural entre #ould mean a rural 'tier E and tier B) entre that does not
have a "rik(and(mortar struture of any sheduled ommerial "ank for
ustomer("ased "anking transations,K the irular said.
=
$ne maGor riterion for
a#ard of liense for opening ne# "ank "ranhes is :
servies provided "y "anks to ommon persons, partiularly in under("anked
areas 'distrits), atual redit flo# to the priority setor, priing of produts and
overall efforts for promoting finanial inlusion, inluding introdution of
appropriate ne# produts and the enhaned use of tehnology for delivery of
"anking servies.
Aording to the finane Minister Mr. Prana" MukherGee,K &anks need to
leverage modern tehnologies, to provide "anking and finanial servies to the
rural populae and there"y reate hitherto unpreedented eonomi
opportunities...inlusive gro#th is ruial for ahieving sustaina"le eonomi
developmentK
Also, the "anks #ill "e granted permission to open one ur"an "ank for eah rural
"ank opened in e%ess of the mandatory ,E? re*uirement. ;he pu"li setor
"anks are seeing this poliy as an opportunity for e%pansion. ()5e are inreasing
out "ranh target "y ,-- outlets to take advantage of the ne# poliy,K M
Aarendra, <hairman of <hennai "ased Indian $verseas &ank). Also most private
"anks #ith "ranh e%pansion plans have taken the /&I poliy in their stride
though some still feel that this #ill inrease the onus on the smaller "anks
planning e%pansion.
;hough earlier the "anks reahed these un"anked setors #ith the help of a
"usiness orrespondent 'a "ank offiial or a representative of the "ank). Initially
the agents #ho ould #ork as the "ank orrespondent #ere regulated and
inluded Lnot for profitH entities like AG$s M ooperatives M post(offies et. &ut in
the reent past the regulations have "een rela%ed and retired government
offiials, defense personnel, the loal mom and pop 'kirana) stores, petrol pumps
*
et. #ere allo#ed to #ork as "ank orrespondents in order to inrease the reah
and overage of inlusive "anking. $f late ho#ever the emphasis has shifted to
the presene of a physial "ranh at the un"anked loations.
In addition to hanges in overall "ank poliy, the /&I also announed a targeted
drive for finanial inlusion throughout the ountry, #herein eah household
#ould to reeive at least one Lno ! frillsH "ank aount. ;he first pilot proGet #as
onduted in Pondiherry distrit, led "y Indian &ank and ompleted in
Deem"er ,--B. 3ine then, several drives, typially lasting one year eah, have
"een ompleted in different parts of India. '/amGi Minakshi, ,--F).
+o,e +uggestions -or Better I,ple,entation
=. Monitoring to ensure operation: ;he "anks should develop a
mehanism to monitor the aounts and ensure that these aounts are
operational and not merely Gust there. ;he ustomers of suh areas may
not regularly or at all use these no(frills aounts as they may find the
proess um"ersome and diffiult 'like filling out a form for deposit or
#ithdra#al, making a DMD or PM$, #riting a he*ue, or operating the de"it
ard et.)
,. Dedicated personnel for guidance: Designated offiers should "e
provided at suh "ranhes to help the ustomers #ith "asi "anking
operations and to guide them #ith the formalities.
D. Proper education: $nly setting up a "ranh in rural loation does not
ensure finanial inlusion. Most of the population of these areas has little
or no kno#ledge a"out "anks and their operations and servies. 3ome
programmes must "e planned to spread a#areness amongst these people
to eduate them "etter a"out the "enefits of the finanial servies and ho#
it #ill make life "etter for them. ;his should "e done through a medium
that is aessi"le to them, for instane through road sho#s, nautanki
'drama), or events through the 3+Gs.
.
.. Transparency: Any type of hidden osts or lauses should "e done a#ay
#ith. ;he sales fore and the "ank offiials should "e trained and
motivated to learly e%plain all the rules, harges and proedures of
operation of the no ! frills aounts, so that they an #in the trust of the
loal people and do not loose it. A "reah in the trust of a single ustomer
#ill spread like #ild(fire through #ord(of(mouth #hih #ill disourage "oth
the e%isting and potential ustomers from dealing #ith the "ank.
E. Initiatives of other Financial Institutions: 4inanial institutions like
insurane ompanies and AM<s should "e enouraged "y 3>&I and I/DA
to design and introdue investments produts that suits the savings ha"it
and inome needs of the target segment for finanial inlusion. 3eurity of
the prinipal amount #ill "e top priority along #ith a reasona"le minimum
return so that they do not feel threatened to invest their savings. 3o, the
e%posure to e*uity instruments should "e restrained.
B. Easy documentation: ;he most diffiult step in opening a no(frills
aount is the doumentation formalities, due to little or no eduation,
diffiulty in reading and understanding the terms and onditions, and filling
up the forms. Also, many people do not have the proper douments to
meet the KN< norms of the "ank. 3o the forms should "e made simpler
and alternative arrangements should "e made in ase of unavaila"ility of
all the douments for KN< 'for e%ample an authentiation letter from the
village headman, or some Government $ffiial et.). Also, there may "e a
lot of migrants in the lo# inome group at suh plaes and meeting the
KN< norms for suh ustomers is still a hallenge that needs to "e met
#ith some via"le solution.
;he Government onstituted Ini*ue Identifiation authority of India
'IIDAI) #hih is to issue IID to eah resident of the ountry in a phased
manner, targeted "y ,-=., #ill "e of great help in meeting this hallenge
and the "anks an "enefit from this "y using the IID for meeting the KN<
re*uirements for the opening of a "ank aount.
/
8. Vicinity and suitable timings: ;he loation of the "ank "ranh in a more
approaha"le plae is vital for its overage to inrease. 3ometimes, if the
"ranhes are not onveniently loated then a round(trip to the "ank may
ost the ustomer even more that his #age for a day. 3o, it is imperative
that the "ranh should "e strategially loated at the loal marketplae or
Mandi , so that #hen the farmers and other traders visit these plaes they
an onveniently visit the "ank also. ;his #ill also ensure that some of the
money reeived in the transations in the market "y the people #ill "e
deposited in the "ank #hih #ill foster the savings ha"it of the people as
#ell. It #ill also failitate the funtioning of the government and private
organi7ations dealing #ith the farmers and other traders in the market.
;he timings of operation of the "ank is also important as the regular timing
that most "anks have 'from =- a.m. to . p.m.) may not "e suita"le to
people living in the rural and semi(ur"an areas as they #ill prefer to #ork
in their fields or site, rather than visiting the "ank and loosing their #ages
or inome. If the "anks are operational in the afternoon or evening, they
#ill "e more suita"le for the loal people.
9. Training to personnel: 3peial training should "e provided to the
personnel appointed for suh "ranhes so that they are empatheti and
patient #ith ustomers and their needs.
F. ;here should not "e any minimum limit on deposits or #ithdra#als.
+o#ever small the deposit or #ithdra#al may "e, they should "e allo#ed
at least during the nasent stage to enourage the loal people to transat
#ith the "ank and develop the savings ha"it.
=-. Protection of the interest of smaller customers: Interests of the smaller
ustomers should not "e ompromised for the interest of the "ig(tiket
ustomers other#ise the very motive "ehind inlusive "anking #ill fail.
==. Operational on holidays: ;he "anks should "e kept open on holidays
and festivals "eause it is on these days that the people visit the market
'#here the "ank is loated) and they may also visit the "ank. 3ome
0
alterative arrangement of holidays for the "ank staff an "e made in lieu of
these days.
1onclusion
5hile the importane of finanial inlusion is #idely reogni7ed, there is no
omprehensive measure to gauge the e%tent of suess of finanial inlusion in
the eonomy. A system should "e developed in order to identify the reah of the
finanial inlusion initiatives of the government and other entities involved
therein. $nly the availa"ility of the finanial servies and re*uisite infrastruture
is not indiative of finanial inlusion. ;he usage and hange in the savings and
investment praties of the target groups, that this drive "rings a"out, is the true
inde% of #hether finanial inlusion has "een really 6inlusive0 or not. 3ome
important parameters that an "e onsidered for measuring the suess of
finanial inlusion drive are:
=. ;he atual num"er of people atually overed under finanial inlusion.
,. Availa"ility of "ank "ranhes and A;Ms at onvenient loations.
D. Isage of the aounts opened through the drive and average savings per
aount to measure the development of savings ha"it amongst the target
group.
.. <ontri"ution of these savings 'mo"ili7ed through these aounts as
investments) to the overall GDP of the ountry.
2
Re-erences
=. Anginer Deni7 and Asli Demirgu(Kunt, 6+as the Glo"al &anking 3ystem
&eome More 4ragile $ver ;imeO0 5orld &ank Poliy /esearh 5orking
Paper, PE9.F.
,. +onohan, Patrik ',--.). 4inanial Development, Gro#th and Poverty:
+o# <lose Are the @inksO In <harles Goodhart, ed. 4inanial
Development and >onomi Gro#th: >%plaining the @inks. @ondon:
Palgrave
D. /amGi Minakshi, 64inanial Inlusion in Gul"arga : 4inding Isage in
Aess0, January, ,--9(-F
.. /eport of the <ommittee on 4inanial Inlusion, <haired "y Dr. <.
/angaraGan, January, ,--9.
E. Inion &udget ,--B(-8. Availa"le at http:MM###."anknetindia.omM"ankingM
"udget 8F.htm
B. http:MM"logs.#orld"ank.orgMalla"outfinaneMategoryMtagsMfinanial(inlusion
8. http:MM"logs.#orld"ank.orgMalla"outfinaneM"logsMasli(demirg(kunt
9. http:MMartiles.timesofindia.indiatimes.omM,-==(-8(
,-Mindia"usinessM,F8FD9EEQ=Qprivate("anks(a%is("ank(num"er(of(rural(
"ranhes
F. ;he ;imes of India, July ,-, ,-==, 6/&I links &ranh @iense to /ural
&ranh0
=-. http:MM###.r"i.org.inMsriptsM&3Q3peehesVie#.asp%OIdRE-8
3
