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Finance project work

bachelor of business administration (Osmania University)

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A
PROJECT REPORT
On
“FINANCIAL INCLUSION IN INDIA WITH
REFERENCE TO
STATE BANK OF INDIA”
Submitted by
DEVERAPALLY MANICHANDRA
[HT.NO. :201019684030]
Submitted in partial fulfilment of the requirement for the
award of degree of
BACHELOR OF BUSINESS ADMINISTRATION

Under the guidance of MS.SANDHYA ARYA

[M.Com,MBA,LLB]
DEPARTMENT OF MANAGEMENT

LITTLE FLOWER DEGREE AND PG COLLEGE

Uppal, Hyderabad – 500039
Affiliated to OSMANIA UNIVERSITY

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DECLARATION

I DEVERAPALLY MANICHANDRA hereby declare that this

Project report entitled “FINANCIAL INCLUSION IN INDIA WITH
REFERENCE TO STATE BANK OF INDIA’’ submitted by me to
the Department of Business Management, Little Flower
Degree and PG College, Uppal, Hyderabad is the bonafide
work undertaken by me and is not submitted to any other
university or institution for the award of any degree or
diploma certificate or publish any time before.

DEVERAPALLY MANICHANDRA
HT.NO.: 201019684030

Place: Hyderabad

Date:

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LITTLE FLOWER DEGREE AND PG COLLEGE

UPPAL, HYDERABAD – 500039
Affiliated to Osmania University

Department of Management
CERTIFICATE
This is to certify that the project report entitled
“FINANCIAL INCLUSION IN INDIA WITH REFERENCE TO STATE
BANK OF INDIA” is a bonafide work undertaken by
DEVERAPALLY MANICHANDRA and
HT.NO:201019684030 has completed her project work
during the academic year of 2019-2022 carried out in
partial fulfilment of the requirement for the award of
degree in Bachelor of Business Administration under my
guidance. This project work is original and not
submitted earlier for the award of any degree or
diploma into any other institution or university.

Project Guide and HOD

Department of Management
Sandhya Arya
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ABSTRACT

Financial Inclusion is described as the method of offering

banking and financial solutions and services to every
individual in the society without any form of discrimination. It
primarily aims to include everybody in the society by giving
them basic financial services without looking at a person’s
income or savings. Financial inclusion chiefly focuses on
providing reliable financial solutions to the economically
underprivileged sections of the society without having any
unfair treatment. It intends to provide financial solutions
without any signs of inequality. It is also committed to being
transparent while offering financial assistance without any
hidden transactions or costs.

Financial inclusion wants everybody in the society to be

involved and participate in financial management judiciously.
There are many poor households in India that do not have
any access to financial services in the country. They are not
aware of banks and their functions. Even if they are aware of
banks, many of the poor people do not have the access to get
services from banks.

They may not meet minimum eligibility criteria laid by banks

and hence, they will not be able to secure a bank’s services.
Banks have requirements such as minimum income,

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minimum credit score, age criteria, and minimum years of

work experience.

A bank will provide a deposit or a loan to an applicant only he

or she meets these criteria.Many of the poor people may be
unemployed without any the previous employment record
due to lack of education,lack of resources, lack of money.

These economically underprivileged people of the society may

also not have proper documents to provide to the banks for
verification of identity or income. Every bank has certain
mandatory documents that need to be furnished during a loan
application process or during a bank account creation process.
Many of these people do not have knowledge about the
importance of these documents. They also do not have access to
apply for government- sanctioned documents.

Financial inclusion aims to eliminate these barriers and provide

economically priced financial services to the less fortunate
sections of the society so that they can be financially
independent without depending on charity or other means of
getting funds that are actually not sustainable. Financial
inclusion also intends to spread awareness about financial
services and financial management among people of the
society. Moreover, it wants to develop formal and
systematic credit avenues for the poor people.
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For several years, only the middle and high classes of the society
procured formal types of credit.Poor people were forced to rely on
unorganised and informal forms of credit. Many of them were
uneducated and did not have basic knowledge about finance an
hence, they got cheated by the greedy and rich people of the
society. Several poor people have been exploited for many years
in the context of financial assistance.

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CONTENTS

CHAPTER NO. CHAPTER TITEL AND CONTENT PAGE NO.

1 INTRODUCTION 9-18

1.1. BACKGROUND OF THE

STUDY 10-12

1.2. NEED AND IMPORTANCE 12-13

1.3. OBJECTIVES 13
1.4. SCOPE OF THE STUDY
14
1.5 .RESEARCH METHODOLOGY
1.5.1.DATA COLLECTION
14-18
1.5.2.RESEARCH DESIGN
1.5.3TOOLS AND TECHNIQUES

1.6. LIMITATIONS OF THE STUDY

2 REVIEW OF LITERATURE 19-34

3 INDUSTRY AND COMPANY PROFILE 35-49

4 THEORETICALFRAMEWORK 50-62

63-76
5 DATA ANALYSIS INTERPRETIONS

6 FINDINGS, SUGGESTIONS AND 89-92

CONCLUSION

7 BIBILIOGRAPHY 93-96

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CHAPTER-1
INTRODUCTION

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BACKGROUND OF THE STUDY

Financial sector is the backbone for any developing nation. So the
focus has to be on growth an stability of financial position of all
citizens of the country in order to ensure continuous
Development.
Consequently, financial inclusion plays an indispensable role in
inclusive growth of an economy. In simple terms financial
inclusion strives to address the challenge of poor access of
financial services to rural masses in India.
The origin of financial inclusion can be traced back to the year
when united nation initiatives were undertaken which specified the
provision of credit, insurance, savings and other banking services
to all „bankable households. ‟ government of India has been very
active towards improving the level of financial inclusion and for
this numerous efforts have been undertaken by government.
Through this paper an attempt has been made to provide an
overview on status of financial inclusion in India in past few
years. On the basis of analysis conducted, it can be stated that the
financial inclusion is in progressive stage in India in Terms of
branch penetration. But certain efforts towards inclusive growth
are still is nascent stage and needs to be given a concrete shape
with the collaborative effort of government of India along with
citizens of the nation.
Finance has become an essential part of an economy for
development of the society as well as economy of nation. For, this
purpose a strong financial system is required in not only in
underdeveloped countries and developing countries but also
developed countries for sustainable growth.
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Through financial inclusion we can achieve equitable and

inclusive growth of the nation. Financial inclusion stands for
delivery of appropriate financial services at an affordable cost, on
timely basis to vulnerable groups such as low income groups and
weaker section who lack access to even the most basic banking
services.
In this paper, the researcher attempts to understand financial
inclusion and its importance for overall development of society
and nation’s economy. This study focuses on approaches adopted
by various Indian banks towards achieving the ultimate goal of
financial inclusion for inclusive growth in Indian and analyses
of past years progress and achievements.
The process of economic growth, especially when it is on high
growth line, must attempt to take participation from all sections of
society. Lack of access to financial services for small/ marginal
farmers and weaker sections of the society has be recognized as
serious threat to economic progress, especially in developing
countries.
The recent developments in banking technology have
transformed banking from the traditional brickand-mortar
infrastructure like staffed branches to a system supplemented by
other channels like automated teller machines (ATM), credit/debit
cards, online money transaction, internet banking, etc. The moot
point, however, is that access to such type technology is
restricted only to certain segments of the society.
Many of research reports and surveys clearly show that large
numbers of population do not have an access to basic banking and
financial services not only in India but also whole world. This is
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termed “financial exclusion”. These people, particularly, those

living on low incomes, cannot be access mainstream financial
services and products such as bank accounts which are used for
making payments and keeping money, remittances, affordable
credit, insurance and other financial services, etc.
Financial sector acts as a multiplier and mediator for economic
stability. In India a large chunk of society is deprived of access to
formal financial services due to which they have to depend on
informal sources of finance which bears huge cost.
So, experts from banking sector and the government identified
need of some initiatives which can be devoted towards
provision of banking services to economically weaker sections
of the society in 2005, the then Governor of Reserve Bank of
India (RBI) Sh. YV Reddy coined the term financial inclusion. As
a matter of fact, he used the word by chance mistaking it for a word
used in RBIs description.

NEED AND IMPORTANCE

Through financial inclusion the resource base of Indian
financial system can be enhanced as it promotes a culture of
savings amongst large segment or rural population. Further, by
provision of financial services to low income groups helps them to
protect their financial wealth and use it in any insistent
circumstances. Easy access to formal credit will protect the
vulnerable sections of society from usurious money. The main
objectives of Financial Inclusion in India are enumerated below:
Providing formal credit channels: So far major chunk of the
population which is deprived of any formal access to credit
depends on family, friends and moneylenders for fulfilling their

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financial needs. Formal banking channels will enable people form

lower income groups to stabilize their livelihood and will in
improving their standards of living.
Creating a platform for inculcating the habit of saving money: For
growth of a nation financial system is a crucial component. By
aiming for financial inclusion Government of India wants to
increase the financial resource base through motivating all
individuals to have a bank account and thus inculcate habit of
saving (Singh and Singh, 2016).
Providing direct benefits of subsidies and welfare programme: A
major challenge faced by Government is that the sum of money
designated for rural masses under
several schemes does not reach them in reality. If every individual
residing in rural areas will have a bank account, the disbursal of
cash will be quick and transparent (Sehrawat and Giri, 2016).
Consequently, government has opted for direct cash transfers in
accounts of beneficiaries.

OBJECTIVE OF THE STUDY

This research paper has four main objectives:

• To understand the financial exclusion and its extent.

• To understand the financial inclusion and its importance.

• To find out the approaches adopted by banks, steps taken by

the regulatory bodies and various government initiatives to
achieve financial inclusion.

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• To analyse the past years performance and achievements

towards reaching out to the unbanked areas under financial
inclusion.

SCOPE OF THE STUDY

Bank also provides all the benefits of financial inclusion
schemes like

1. Pradhan Mantri Jan Dhan Yojana (PMJDY)

2. Atal Pension Yojana (APY)
3. Pradhan Mantri Vaya Vandana Yojana.
4. Stand Up India Scheme.
5. Pradhan Mantri Mudra Yojana.
6. Pradhan Mantri Suraksha Bima Yojana (PMSBY)
7. Sukanya Samriddhi Yojana.

RESEARCH METHODOLOGY

Theoretical Research
Theoretical research is a logical exploration of a system of beliefs
and assumptions. This type of research includes theorizing or
defining how a cyber system and its environment behave and then
exploring or playing out the implications of how it is defined. This
research is very valuable in understanding the bounds, edge cases,
and emergent behaviour’s of a system. Often theoretical research is
decried as out of touch with reality, so-called “ivory tower”
research. Frankly, any research type or approach can run the risk of
being irrelevant or out of touch if done incorrectly. In some
scientific fields, theoretical research is so far ahead of engineering
and technological progress that experiments to validate or refute

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them are hundreds of years away. In cyber security research,

theoretical work often overlaps with mathematics, logic, or theory
of computation; cryptography, of course, is a great example of this.
Secondary Research methodology
Secondary research is cost effective and that’s one of the reasons
that makes it a popular choice among a lot of businesses and
organizations. Not every organization is able to pay huge sum of
money to conduct research and gather data. So, rightly secondary
research is also termed as “desk research”, as data can be retrieved
from sitting behind a desk.
Data available on the internet: One of the most popular ways of
collecting secondary data is using the internet. Data is readily
available on the internet and can be downloaded at the click of a
button.This data is practically free of cost or one may have to pay a
negligible amount to download the already existing data. Websites
have a lot of information that businesses or organizations can use
to suit their research needs. However, organizations need to
consider only authentic and trusted website to collect
information.Government and nongovernment agencies: Data for
secondary research can also be collected from some government
and non-government agencies. For example, US Government
Printing Office, US Census Bureau, and Small Business
Development Centre’s have valuable and relevant data that
businesses or organizations can use. There is a certain cost
applicable to download or use data available with these agencies.
Data obtained from these agencies are authentic and trustworthy.
Public libraries: Public libraries are another good source to search
for data for secondary research. Public libraries have copies of

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important research that were conducted earlier. They are a

storehouse of important information and documents from which
information can be extracted.
The services provided in these public libraries vary from one
library to another. More often, libraries have a huge collection of
government publications with market statistics, large collection of
business directories and newsletters.

Educational Institutions: Importance of collecting data from

educational institutions for secondary research is often overlooked.
However, more research is conducted in colleges and universities
than any other business sector.The data that is collected by
universities is mainly for primary research. However, businesses or
organizations can approach educational institutions and request for
data from them.Commercial information sources: Local
newspapers, journals, magazines, radio and TV stations are a great
source to obtain data for secondary research. These commercial
information sources have first-hand information on economic
developments, political agenda, market research, demographic
segmentation and similar subjects.Businesses or organizations can
request to obtain data that is most relevant to their study.
Businesses not only have the opportunity to identify their
prospective clients but can also know about the avenues to promote
their products or services through these sources as they have a
wider reach.

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LIMITATIONS OF THE STUDY

High maintenance cost: It is a common knowledge that not all the
accounts opened by poor households are operated by them on
regular basis. As per one estimate, 58% of the total accounts (19
Cr) opened under PMJDY remain transaction-less.
These accounts cause a huge financial and operational burden to
the banks for maintenance. According to one estimate, the cost of
maintaining a dormant account annually is roughly Rs. 10,000. If
the total cost is calculated, it would run in thousands of crores.
Hitting the bottom line: The inclusion of more customers in the
market fosters intense competition, that again is aggravated by
opening of markets for foreign banks, introducing new categories
(payment bank, small finance bank) in the system. This induces an
intense price war and the profitability of the entire banking system
suffers. (Note: Around 70% of the total banking system is owned
by public sector banks. So, this results in loss of critical revenue
for government.)
Intent of people: The folks in the rural areas, based on my
experience of visiting more than 100 villages in Karnataka, are
smart. They know how to use the banking system to their benefit.
As the disposable income of the masses rises in the largest growing
developing country, the monetary security becomes one of the
main concerns of the people.
Now, though apparently banking system attempts to include all
within its hold for their benefits, what if someone is not willing to
come under its fold due to different apprehensions, monetary being
the main of them? I am happily living my life for 70 years, have
created assets and made money.

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Why would I want to to be banked? As the non-banking life is part

and parcel of the everyday culture of theirs, getting into a new
system and adapting to it also faces cultural resistance.
Replacement of moneylenders' services: The moneylenders have
always been, rightly, demonised for having exploited the poor
masses by charging them rocket high interest rates (more than
120% annually in many cases) and coercing them for repayments.
But the thing to focus on is that the moneylender is basically a
service provider who is locally available and there for you to
help you with money even at midnight.
Now, can you, being the formal financial institutions, provide the
same? If not, there are going to be issues. One of the by products
of this has been an unparalleled growth of the microfinance
sector.
So, in a nutshell, financial inclusion doesn't have all positives. And
given the set of constraints we face, it remains to be the judgement
call of the ruling dispensation, whether to include or no.

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CHAPTER-2
REVIEW OF
LTERATURE

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REVIEW OF LITERATURE
Financial Inclusion can be perceived as a continuum.
Opening a bank account though a positive step does not
move someone from being excluded to ‘included’. In this
context, Regan and Paxton (2003) note that the experience
of Financial Inclusion is not just about access to products
but also the quality of engagement with those products and
the need for individuals to develop skills and confidence to
make informed decisions.

Leeladhar (2005) states that there could be multiple levels

of FI and FE. At one extreme, we have customers who are
actively and persistently courted by the financial services
industry and who have at their disposal a wide range of
services and products. They are the ‘super included.’ At the
other extreme, we have financially ‘excluded’, who are
denied access to even the most basic of financial products.
In between are the ‘under included’, who use the banking
services only for deposits and withdrawal of money. They
have only restricted access and may not enjoy the flexibility
of access offered to more affluent customers.

Basu Priya (2006) finds that rural households face several

barriers when they attempt to borrow from banks. Firstly,
banks demand collateral which poor people are unable to
provide. Secondly, bank transactions tend to be time
consuming and expensive. Bribes amounting to 20 per cent
of the loan amount are not unheard of. On an average, bank
loans take several weeks to be approved. Consequently, the
share of informal sources of credit has jumped.

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Shetty (2006) insists that FI rests on three pillars, viz: access

to financial services, affordability of such services and actual
utilisation of such services. FI can be achieved only if all the
three pillars show affirmative results. Thus, the ABC of FI is
Advice, Banking and Credit

Bluebook (2006) states that the essence of FI is in trying to

ensure that a range of appropriate financial services is
available to every individual and enabling them to
understand and access those services. FI does not require
that everyone who is eligible uses each of these services but
they should be able to choose them if they desired to use
them.
Usha Thorat (2006) views that establishment of an account
relationship can pave the way to the customer availing of a
variety of savings products, loan products for consumption
livelihood and housing. The account can be used for making
small value remittances at low cost and making purchases on
credit. The same bank account can also be used by the State
Governments to provide social security services like health
insurance and calamity insurance under various schemes for
the disadvantaged. Thus the single gateway of banking
account can be used for several purposes.

Devendraprasad Pandey (2007) finds that the subject of FI

has come to the surface essentially as a consequence of the
financial sector reform process of the 1990s, which neglected
the rural credit structure and thus excluded the vast majority

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of rural artisans, farm community and micro enterprises from

credit.

Anderloni et al. (2007) share the view that the ownership of a

bank account is not enough to promote meaningful inclusion,
for, an account may be inaccessible due to being overdrawn
or may be only used for receipt of money, and may create a
case of ‘exclusion within inclusion’.

World Bank (2008) reports that in the absence of inclusive

formal financial system, poor individuals and small
entrepreneurs have to rely on informal sources to invest in
better opportunities because of its timely availability and
easy accessibility but at a much greater interest burden. FI
can help in removing this impediment. Achieving FI in a
country like India, with large and diversified population
with significant segments in rural and unorganised sectors
requires a high level of penetration by the formal financial
system.

Vijay Kelkar (2008) asserts that FI has to be viewed as a

business strategy for growth. FI will result in reduced
farmers’ indebtedness and better risk management for the
farmers. By providing greater access to educational loans to
all sections of society, improved FI will mean India
becoming more equal opportunity nation, a pre-condition for
promoting inclusive growth; and enhanced FI will promote
grass root innovations and entrepreneurship.
Suryanarayana, M.H. (2008) provides empirical evidence to
show that the growth process between 1993-94 and 2004-
05, has bypassed the majority and was not inclusive. At the

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national level, the inclusion coefficient is higher for the rural

sector than for the urban. As regards the rural sector,
inclusive coefficient is the lowest in rural Kerala; this is
contrary to what one would expect, given the progressive
policies pursued in the state. Across states, the extent of
inclusion of the deprived in the rural growth process is one
of the highest (greater than 90 per cent) in the states of Bihar
and Karnataka and the lowest in Kerala.

Mandira Sarma (2008) finds that the widely held view that
NPAs are a result of providing credit to the low income
groups, sometimes, in compliance with the directed lending
programs such as ‘priority sector lending’ is not true. If
lending to the poor and consequent default on their part is in
fact the cause for ‘NPA’, then higher levels of ‘NPA’
should be associated with higher levels of Financial
Inclusion. The results of the study show the opposite,
indicating a higher level of ‘NPA’ associated with lower
level of FI. It clearly shows that, the efforts to include more
people into the financial system are not the significant cause
for the ‘NPA’. Further, highly capitalised banking system,
with a high ‘CAR,’ seems to be less inclusive. This is due
to the fact that, a banking system having high ‘CAR’ tend
to be more cautious in lending, negatively affecting FI.

Thyagarajan and Venkatesan (2008) in a recent study found

that in some districts, at least more than 85 percent of the no
- frills accounts are dormant, primarily due to distance from
bank branches, low financial literacy, and poor marketing by
banks.

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Mas Ignacio and Kabir Kumar (2008) find that branchless

banking has emerged as a promising new approach to
accelerate Financial Inclusion. A branchless banking channel
using mobile phones could be far more preferable to poor
people than the available options: travelling to and queuing
at distant branches or saving in cash or physical assets.

Drabu, H.A. (2009) finds that in India, policymakers have for

years been going around in circles with regard to the issue of
inclusion. Be it growth with redistribution or redistribution
with growth, priority sector lending, micro financing and now
FI, people in India have been addressing the same issue since
the mid -1970s.

Bhave, C.B. (2009) observes that inclusion is not about

deciding things for people, it is about giving people a choice,
giving people the power to decide for themselves and FI is
not something that is to be done in the future. It has to be
done now.

Minakshi Ramji (2009) identifies that the pressure on banks

to serve low income customers is growing in developing
countries. More than 1 in 10 countries already require
financial institutions to offer basic bank accounts. Banks
typically view these accounts as unprofitable and they have
had mixed results so far as a tool of FI. Since the RBI
introduced its policy to encourage ‘no - frills’ accounts in
2005, Indian public and private banks have opened
15.8million accounts.

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Sameer Kochaar (2009) finds that FI to promote growth, has to

move from “opening an account” in the bank, to regular savings
and finally to a relationship which enables the borrower to
access loans on a regular basis.

Usha Thorat (2010) endorses the above view and observes

that people in India believe that FI primarily implies access
to a bank account backed by deposit insurance, access to
affordable credit and the payment system.

Pranab Mukherjee (2010) exhorts that new financial sector

initiatives in India – be it in the form of prompt and
innovative policy responses from the Government and the
Central bank, or be it in the form of implementation
efficiency and inventiveness from the varied players - need
to explicitly prioritise both FI and financial education and
literacy.

Subha Rao (2010) notes that an open and efficient society is

always characterised by the unrestrained access to public goods
and services. As banking services are in the nature of public
goods, FI should be viewed as availability of banking and
payment services to the entire population without
discrimination of any type

Rajalakshmi et al. (2010) illustrate that though a bank

account is a pre requisite to be included, it is not sufficient.
Besides, FI should provide access to credit, affordable
insurance and remittance facilities, credit counseling and
financial education. Having conducted a study, they observe
that a measure of using financial services is the size of
institutional debt outstanding for a house hold, rather than

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number of bank accounts. This study has reference to Rao

(2007) who suggests that, the status of debt of households
owed to institutional non-institutional sources could be a
barometer of FI.

Chakraborthy, K.C. (2010) finds that FI is sometimes treated

as synonymous with rural poverty. Concerns of urban poverty
also need to be factored in and the needs of various groups as
rickshaw- pullers, construction workers, migrant workers etc,
must be factored in and products and services crafted as per
their needs by the banking system to address urban FI.

Suniti Nagpurkar (2010) conducted an empirical study in the

city of Mumbai, among the urban poor, both migrants and
non-migrants, to understand the banking exposure and
banking outcomes among these sections of population. The
study reports the difficulty in dealing with the bank staff and
acknowledges that the banks on their part do not seem to be
making an all- out efforts to reach out to the urban poor.

Nageswara Rao (2010) states that the banking to the poor is not
poor banking. FI is not always only social banking. There is lot
of potential to get business from the people at the bottom.
There is an urgent need for bottom - up approach in driving FI
movement in the coming days.

Area of study - Measuring Financial Inclusion.

Measurement of FI implies, to evaluate the extent of
accessibility, availability and usage of financial services
like saving, credit, insurance, remittance facilities, among
many other such services. The measurement aspect of FI
has not extensively been covered by the literature.India, for

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instance, being a very well diversified economy and

society, it is imperative to give adequate attention to
measurement of FI by policy makers and researchers. An
appropriate measure of FI has to be multi-dimensional,
since FI is a complex phenomenon having several
dimensions. There are few scholars who have attempted to
measure some aspects of FI.

Anjali Kumar (2005) finds that in recent years, there has

been growing effort and interest in measuring FI but as yet,
we have no globally consistent datasets that can give us a
clear sense of how this proportion has changed over the past
decade. However, evidence from countries like Brazil, South
Africa, India, and Kenya strongly suggests that there has
been an upward trend.

Beck et al. (2007) has attempted to measure the financial

sector outreach and its determinants by using cross - country
data. This study has used individual indicators separately to
assess the extent of FI. Some of the indicators used in this
study are number of bank accounts (per 1000 people),
number of bank branches (per million people), number of
ATMs (per million people), amount of bank credit and
amount of bank deposits. These indicators, if used
individually, will provide only partial information on the
inclusiveness of the financial system.

Hanohan Patrick (2007) estimated the fraction of the adult

population using formal financial intermediaries, using the
information on number of banking and MFI accounts for

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more than 160 countries and then correlated with inequality

(Gini Coefficient) and poverty.

Mandira Sarma (2008) has developed a three dimensional

Index of FI (IFI), incorporating information on three
dimensions of FI, viz. accessibility, availability and usage
of banking services. ‘IFI’ captures information on banking
penetration, availability of services and usage of banking
systems, in a single number lying between 0 and 1.Higher
value of ‘IFI’ implies higher levels of FI. ‘0’ denotes
complete FE and ‘1’ indicates complete FI. Using data on
all three dimensions for 55 countries and using data on only
two dimensions (availability and usage), for 100 countries,
two sets of Index of FI (IFI) are computed. The study finds
that, India’s position is 50th among 100 countries, with a
low IFI value (0.170), and among 55 countries, India ranks
31st with an IFI value of 0.155. The author observes that, in
India, in spite of low density of bank branches, the usage of
the banking system in terms of volume of credit and deposit
is moderately high. Sharma also states that in most of the
studies with regard to FI, sectoral indicators have been used
to assess the extent of FI/FE. Such indicators include the
number of bank accounts (per 1000 adult persons), number
of bank branches (per million people), number of ATMs
(per million people), amount of bank credit and amount of
bank deposits etc. Such indicators while used individually
can lead to misleading understanding of the extent of FI.

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World Bank (2008) provides a composite measure of access to

financial services, the percentage of adult population that has an
account with a financial intermediary for 51 countries.

Mehrotra et al. (2009) also built up an index for FI using

aggregate indicators like number of rural offices, number of
rural deposit accounts, volume of rural deposit and credit
from banking data for sixteen major states of India.

World Bank (2009) in “Banking the Poor” analysed the

association between access to banking services as measured
by the number of bank accounts per thousand adults in each
country and several other factors like transactions offered at
banks or required by banks and regulations adopted by
country authorities that may affect banking access for 45
countries.

Beck et al. (2009) have discussed about the availability of

plentiful amount of data on many aspects of the financial
system, but systematic indicators of inclusiveness of
financial sector are lacking.
Vijay Mahajan and Suman Laskar (2009) have made an
attempt to design a new model of measuring financial
access. They observe, the limitation of the surveys being
conducted in India, to measure the total number of citizens,
who come under some sort of FI. They report that, the All
India Debt and Investment Survey (AIDIS), being
conducted by National Sample

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Survey Organisation (NSSO), is not comprehensive, which

talks of credit and repayment only once in ten years. They
propose, a once in two years, large scale national sample
survey, to measure financial access, called “Indian Index of
Financial Literacy, Inclusion, and Transactions” (IND -
FLINT).They consider, three major parameters for its design
i.e.; Financial Literacy, Financial Inclusion, and Financial
Transaction. Financial literacy identifies the level of
awareness of various financial services and products,
offered by various service providers. Financial inclusion
gauges, the proximity to financial service outlets, likelihood
of being able to fulfill conditions for use (such as address
proof for bank accounts and age proof in case of insurance),
suitability of products, transaction cost etc. Financial
transaction, takes stock of level of user-ships, in terms of
actual volumes, frequency, and number of
products/services, repeat purchase and long usage. They
claim that, a tool like ‘IND-FLINT’ would be of use, to the
policy makers, media and consumer groups, to create a
pressure on the system, to act towards increased FI and
inclusive growth. Most of the studies discussed above, used
the financial depth measures (how much finance) rather
than actual outreach or access measures (how many users).
These studies cover availability and accessibility elements
to a large extent and usage to a certain extent. They mainly
use aggregate banking data, which provides information
only for service provided by banks or other service
providers. This set of information can be termed as supply
side information, which is partial in nature. It has its own
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shortcomings; it does not distinguish between business and

individual accounts, or between individual having multi -
accounts, or on the adequacy and timeliness of loan
amount, or information about informal service.

Chandan Kumar and Srijith Misra (2010) attempted to fill

the above gap by analysing both supply and demand side
information and providing a comprehensive picture of FI in
India. They tried to measure and understand FI by looking
at supply of (banking outreach indicators such as number of
deposit and credit accounts, number of bank branches,
average deposit and credit amount per account and credit
utilised) and demand for (indicators of household level
access such as the proportion of households having saving,
credit and insurance facilities) financial services. Using the
household level data, it also analyses the role of informal
sector vis-à-vis formal sector, particularly, with regard to
credit. Separate composite FI Indices (FIIs) using both the
data sets are calculated for the year 2002 - 03 (as the most
recent household level data available is for2002 - 03) for all
the States/Union Territories of India and used as
complementary to each other to get a comprehensive
picture. While comparing the economic development of the
state (in terms of per capita income) vis- à-vis the outreach
of the banking services, it is observed that states like Goa,
Delhi, Chandigarh, Pondicherry, Maharashtra, Kerala and
Karnataka have performed better in both the parameters.
This reflects a larger spread of services among people in
the states which are better developed. In outreach of
financial services from banks, one observes wide disparity
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between rural and urban areas with the latter performing

better in almost all the cases.

Compared to other states, Pondicherry is performing better

in rural areas but not in urban areas, whereas Kerala
performs better in urban and poorly in rural areas. The
relatively higher financial access in urban compared to
rural areas is found in the states of Kerala, Goa, Punjab,
Himachal Pradesh, Andaman, Tamil Nadu, Delhi and
Maharashtra. The study provides completely different and
very interesting story. The supply side analysis shows
0.674 deposit accounts per person. Surprisingly, demand
side analysis also confirms the same with more than 55 per
cent of households have saving facility that means either
Kerala has fairly equally distributed services, or it has some
other formal institutions other than banks for saving, like
post - offices, co - operatives, MFIs, SHGs or some other
formal sources. In case of credit accounts, demand side
shows higher penetration than supply side, which also
indicates the presence of other formal sources than the
banks and RRBs. It seems more appealing when analyse
the rural sector of Kerala, where the supply side show poor
performance and it stands at bottom in ranking for number
of deposit and credit account and availability of bank
branches, whereas demand side shows it as one of the top
performer. This might be possible due to the presence of
other formal sources thereby reducing its dependence on
informal sources of credit. More interestingly, Kerala also
has high demand of financial services from informal

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sources. The presence of informal sector in providing

financial services is significant, especially in rural areas.
The state-wise examination reveals that almost all the
major states of India showed high dependence on informal
sources for credit.

Nageswara Rao (2010) argues that a number of measures

initiated by the Central Government and RBI, with regard to
FI, are still to be implemented by various banks. He tries to
find out the understanding of the ground level operating
functionaries about FI, and suggests a suitable structure to
implement FI, after conducting a study, with limited
samples of 26 officials from different banks across the
country. The study finds that, majority of the bankers are
clear in the concept of FI, but, the banks should conduct
awareness camps about FI and the staff should be made
more aware of FI.

Satya, R. and Rupayan Pal (2010) made an attempt to

construct an index for FI considering six attributes of FI: (a)
demographic penetration, defined as the number of bank
branches per 10 lakh people, (b) geographic penetration,
defined as the number of bank branches per 1000 square -
kilometer land area, (c) number of deposit accounts per 1000
people, (d) number of credit accounts per 1000 people, (e)
deposits - income ratio, and (f) credit - income ratio They
used data on these attributes for 24 states corresponding to
the year 1991, 2001 and 2007.

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Comparing the computed financial index for 1991 and

2001, they find that the levels of FI in India have declined
from the year 1991 to 2001.

The same is true also in most of the states. However, in India

as well as in each of its states, the levels of FI have increased
during 2001-2007.

Chattopadhay (2011) has developed the financial inclusion

index for the major states in India and for all the districts in
West Bengal.

Karmakar, et al (2011) has constructed the financial inclusion

for rural areas of the major twenty states in India. They have
considered number of rural outlets, number of accounts per
outlet, per outlet deposit amount, per outlet credit amount and
per account deposit amount as indicator of financial inclusion.

In order to assess the performance of the public sector

banks, the Finance Minister of India has introduced
Financial Inclusion Index, based on two criteria, namely, the
number of additional branches covered and the number of
new no frill account opened
(Government of India, 2011)

Ramapal and Rupayanpal (2012) in their study find that

increase of the proportion of households using formal
financial services in a state need not necessarily reduce the
inequality in FI across income groups or foster FI among
the poor households in that state.

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CHAPTER-3
COMPANY PROFILE

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COMPANY PROFILE
The State Bank of India (SBI) is an Indian multinational, public
sector banking and financial services statutory body. It is a
government corporation statutory body headquartered in
Mumbai, Maharashtra. SBI is ranked as 236th in the Fortune
Global 500 list of the world's biggest corporations of 2019. [6] It is
the largest bank in India with a 23% market share in assets,
besides a share of one-fourth of the total loan and deposits
market.[7]
The bank descends from the Bank of Calcutta, founded in 1806, via
the Imperial Bank of India, making it the oldest commercial bank
in the Indian subcontinent. The Bank of Madras merged into the
other two "presidency banks" in British India, the Bank of
Calcutta and the Bank of Bombay, to form the Imperial Bank of
India, which in turn became the

State Bank of India in 1955.[8] The Government of India took

control of the Imperial Bank of India in 1955, with Reserve Bank
of India (India's central bank) taking a 60% stake, renaming it the
State Bank of India.

History of State Bank of India

State Bank of India (SBI) is that country's largest commercial bank.

The government- controlled bank--the Indian government
maintains a stake of nearly 60 percent in SBI through the central
Reserve Bank of India--also operates the world's largest branch
network, with more than 13,500 branch offices throughout India,
staffed by nearly 220,000 employees. SBI is also present
worldwide, with seven international subsidiaries in the United

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States, Canada, Nepal, Bhutan, Nigeria, Mauritius, and the United

Kingdom, and more than 50 branch offices in 30 countries. Long
an arm of the Indian government's infrastructure, agricultural, and
industrial development policies, SBI has been forced to revamp its
operations since competition was introduced into the country's
commercial banking system. As part of that effort, SBI has been
rolling out its own network of automated teller machines, as well
as developing anytime-anywhere banking services through Internet
and other technologies. SBI also has taken advantage of the
deregulation of the Indian banking sector to enter the
bancassurance, assets management, and securities brokering
sectors. In addition, SBI has been working on reigning in its branch
network, reducing its payroll, and strengthening its loan portfolio.
In 2003, SBI reported revenue of $10.36 billion and total assets of
$104.81 billion.

Colonial Banking Origins in the 19th Century

The establishment of the British colonial government in India

brought with it calls for the formation of a Western-style banking
system, if only to serve the needs and interests of the British
imperial government and of the European trading houses doing
business there. The creation of a national banking system began at
the beginning of the 19th century.

The first component of what was later to become the State Bank of
India was created in 1806, in Calcutta. Called the Bank of Calcutta,
it was also the country's first joint stock company.

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Originally established to serve the city's interests, the bank was

granted a charter to serve all of Bengal in 1809, becoming the Bank
of Bengal. The introduction of Western-style banking instituted
deposit savings accounts and, in some cases, investment services.
The Bank of Bengal also received the right to issue its own notes,
which became legal currency within the Bengali region.

This right enabled the bank to establish a solid financial

foundation, building an interestfree capital base. The spread of
colonial influence also extended the scope of government and
commercial financial influence. Toward the middle of the century,
the imperial government created two more regional banks. The
Bank of Bombay was created in 1840, and was soon joined by the
Bank of Madras in 1843. Together with the Bank of Bengal, they
became known as the "presidency" banks.

All three banks were operated as joint stock companies, with the
imperial government holding a one-fifth share of each bank. The
remaining shares were sold to private subscribers and, typically,
were claimed by the Western European trading firms. These firms
were represented on each bank's board of directors, which was
presided over by a nominee from the government.

While the banks performed typical banking functions, for both the
Western firms and population and members of Indian society, their
main role was to act as a lever for raising loan capital, as well as
help stabilize government securities. The charters backing the

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establishment of the presidency banks granted them the right to

establish branch offices. Into the second half of the century,
however, the banks remained single-office concerns. It was only
after the passage of the Paper Currency Act in 1861 that the banks
began their first expansion effort.

That legislation had taken away the presidency banks' authority to

issue currency, instead placing the issuing of paper currency under
direct control of the British government in India, starting in 1862.
Yet that same legislation included two key features that stimulated
the growth of a national banking network. On the one hand, the
presidency banks were given the responsibility for the new
currency's management and circulation. On the other, the
government agreed to transfer treasury capital backing the currency
to the banks--and especially to their branch offices. This latter
feature encouraged the three banks to begin building the country's
first banking network. The three banks then launched an expansion
effort, establishing a system of branch offices, agencies, and
subagencies throughout the most populated regions of the Indian
coast, and into the inland areas as well. By the end of the 1870s,
the three presidency banks operated nearly 50 branches among
them.

Funding National Development in the 20th Century

The rapid growth of the presidency banks came to an abrupt halt in
1876, when a new piece of legislation, the Presidency Banks Act,
placed all three banks under a common charter--and a common set
of restrictions. As part of the legislation, the British imperial
government gave up its ownership stakes in the banks, although
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they continued to provide a number of services to the government,

and retained some of the government's treasury capital. The
majority of that, however, was transferred to the three newly
created Reserve Treasuries, located in Calcutta, Bombay, and
Madras.

The Reserve Treasuries continued to lend capital to the presidency

banks, but on a more restrictive basis. The minimum balance now
guaranteed under the Presidency Banks Act was applicable only to
the banks' central offices. With branch offices no longer guaranteed
a minimum balance backed by government funds, the banks ended
development of their networks. Only the Bank of Madras
continued to grow for some time, supplied as it was by the influx
of capital from development of trade among the region's port
cities.The loss of the governmentbacked balances was soon
compensated by India's rapid economic development at the end of
the 19th century.

The building of a national railroad network launched the country

into a new era, seeing the rise of cash-crop farming, a mining
industry, and widespread industrial development. The three
presidency banks took active roles in financing this development.
The banks also extended their range of services and operations,
although for the time being were excluded from the foreign
exchange market. By the beginning of the 20th century, India's
banking industry boasted a host of new arrivals, and particularly
foreign banks authorized to exchange currency.

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The growth of the banking sector, and the development of

indigenous banks, in turn created a need for a larger "bankers'
bank." At the same time, the Indian government had outgrown its
colonial background and now required a more centralized banking
institution. These factors led to the decision to merge the three
presidency banks into a new, single and centralized banking
institution, the Imperial Bank of India.Created in 1921, the
Imperial Bank of India appeared to inaugurate a new era in India's
history--culminating in its declaration of independence from the
British Empire. The Imperial Bank took on the role of central bank
for the Indian government, while acting as a bankers' bank for the
growing Indian banking sector.

At the same time, the Imperial Bank, which, despite its role in the
government financial structure remained independent of the
government, carried on its own commercial banking operations.

In 1926, a government commission recommended the creation of a

true central bank. While some proposed converting the Imperial
Bank into a central banking organization for the country, the
commission rejected this idea and instead recommended that the
Imperial Bank be transformed into a purely commercial banking
institution. The government took up the commission's
recommendations, drafting a new bill in 1927. Passage of the new
legislation did not occur until 1935, however, with the creation of
the Reserve Bank of India. That bank took over all central banking
functions.

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The Imperial Bank then converted to full commercial status, which

accordingly allowed it to enter a number of banking areas, such as
currency exchange and trustee and estate management, from which
it had previously been restricted. Despite the loss of its role as a
government banking office, the Imperial Bank continued to provide
banking services to the Reserve Bank, particularly in areas where
the Reserve Bank had not yet established offices. At the same time,
the Imperial Bank retained its position as a bankers' bank.

Into the early 1950s, the Imperial Bank grew steadily, dominating
the Indian commercial banking industry. The bank continued to
build up its assets and capital base, and also entered a new phase of
national expansion. By the middle of the 1950s, the Imperial Bank
operated more than 170 branch offices, as well as 200 sub-offices.
Yet the bank, like most of the colonial government, focused
primarily on the country's urban regions.

By then, India had achieved its independence from Britain. In

1951, the new government launched its first Five Year Plan,
targeting in particular the development of the country's rural areas.
The lack of a banking infrastructure in these regions led the
government to develop a state-owned banking entity to fill the gap.
As part of that process, the Imperial Bank was nationalized and
then integrated with other existing government-owned banking
components. The result was the creation of the State Bank of India,
or SBI, in 1955.

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The new state-owned bank now controlled more than one-fourth of

India's total banking industry. That position was expanded at the
end of the decade, when new legislation was passed providing for
the takeover by the State Bank of eight regionally based,
government- controlled banks. As such the Banks of Bikaner,
Jaipur, Idnore, Mysore, Patiala, Hyderabad, Saurashtra, and
Travancore became subsidiaries of the State Bank. Following the
1963 merger of the Bikaner and Jaipur banks, their seven
remaining subsidiaries were converted into associate banks. In the
early 1960s, the State Bank's network already contained nearly 500
branches and sub- offices, as well as the three original head offices
inherited from the presidency bank era. Yet the State Bank now
began an era of expansion, acting as a motor for India's industrial
and agricultural development, that was to transform it into one of
the world's largest financial networks. Indeed, by the early 1990s,
the State Bank counted nearly 15,000 branches and offices
throughout India, giving it the world's single largest branch
network.

SBI played an extremely important role in developing India's rural

regions, providing the financing needed to modernize the country's
agricultural industry and develop new irrigation methods and cattle
breeding techniques, and backing the creation of dairy farming, as
well as pork and poultry industries. The bank also provided
backing for the development of the country's infrastructure,
particularly on a local level, where it provided credit coverage and
development assistance to villages. The nationalization of the
banking sector itself, an event that occurred in 1969 under the

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government led by Indira Gandhi, gave SBI new prominence as the

country's leading bank.

Even as it played a primary role in the Indian government's

industrial and agricultural development policies, SBI continued to
develop its commercial banking operations. In 1972, for example,
the bank began offering merchant banking services. By the mid-
1980s, the bank's merchant banking operations had grown
sufficiently to support the creation of a dedicated subsidiary, SBI
Capital Markets, in 1986. The following year, the company
launched another subsidiary, SBI Home Finance, in a collaboration
with the Housing Development Finance Corporation. Then in the
early 1990s, SBI added subsidiaries SBI Factors and Commercial
Services, and then launched institutional investor services.

Competitor in the 21st Century

SBI was allowed to dominate the Indian banking sector for more
than two decades. In the early 1990s, the Indian government kicked
off a series of reforms aimed at deregulating the banking and
financial industries. SBI was now forced to brace itself for the
arrival of a new wave of competitors eager to enter the fast-
growing Indian economy's commercial banking sector. Yet years as
a government-run institution had left SBI bloated--the civil-servant
status of its employees had encouraged its payroll to swell to more
than 230,000. The bureaucratic nature of the bank's management
left little room for personal initiative, nor incentive for controlling
costs. The bank also had been encouraged to increase its branch
network, with little concern for profitability. As former Chairman
Dipankar Baku told the Banker in the early 1990s: "In the
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aftermath of bank nationalisation everyone lost sight of the fact

that banks had to be profitable. Banking was more to do with social
policy and perhaps that was relevant at the time. For the last two
decades the emphasis was on physical expansion."

Under Baku, SBI began retooling for the new competitive

environment. In 1994, the bank hired consulting group McKinsey
& Co. to help it restructure its operations. McKinsey then led SBI
through a massive restructuring effort that lasted through much of
the decade and into the beginning of the next, an effort that helped
SBI develop a new corporate culture focused more on profitability
than on social and political policy. SBI also stepped up its
international trade operations, such as foreign exchange trading, as
well as corporate finance, export credit, and international banking.

SBI had long been present overseas, operating some 50 offices in

34 countries, including full- fledged subsidiaries in the United
Kingdom, the United States, and elsewhere. In 1995 the bank set
up a new subsidiary, SBI Commercial and International Bank Ltd.,
to back its corporate and international banking services. The bank
also extended its international network into new markets such as
Russia, China, and South Africa.
Back home, in the meantime, SBI began addressing the technology
gap that existed between it and its foreign-backed competitors. Into
the 1990s, SBI had yet to establish an automated teller network;
indeed, it had not even automated its information systems. SBI
responded by launching an ambitious technology drive, rolling out
its own ATM network, then teaming up with GE Capital to issue its

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own credit card. In the early 2000s, the bank began cross-linking
its banking network with its ATM network and Internet and
telephone access, rolling out "anytime, anywhere" banking access.
By 2002, the bank had succeeded in networking its 3,000 most
profitable branches.

The implementation of new technology helped the bank achieve

strong profit gains into the early years of the new century. SBI also
adopted new human resources and retirement policies, helping trim
its payroll by some 20,000, almost entirely through voluntary
retirement in a country where joblessness remained a decided
problem.
By the beginning of 2004, SBI appeared to be well on its way to
meeting the challenges offered by the deregulated Indian banking
sector. In a twist, the bank had become an aggressor into new
territories, launching its own line of bancassurance products, and
also initiating securities brokering services. In the meantime, SBI
continued its technology rollout, boosting the number of networked
branches to more than 4,000 at the end of 2003. SBI promised to
remain a central figure in the Indian banking sector as it entered its
third century.

Principal Subsidiaries: Bank of Bhutan (Bhutan); Indo Nigeria

Merchant Bank Ltd. (Nigeria);
Nepal SBI Bank Ltd. (Nepal); SBI (U.S.A.); SBI (Canada); SBI
Capital Market Ltd.; SBI Cards &
Payments Services Ltd.; SBI Commercial and International Bank
Ltd.; SBI European Bank plc

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(U.K.); SBI Factors & Commercial Services Ltd.; SBI Funds

Management Ltd.; SBI Gilts Ltd.; SBI Home Finance Ltd.; SBI
Securities Ltd.; State Bank International Ltd. (Mauritius); State
Bank of Bikaner & Jaipur; State Bank of Hyderabad; State Bank of
Indore; State Bank of Mysore; State Bank of Patiala; State Bank of
Saurastra; State Bank of Travancore.
Principal Competitors: ICICI Bank; Bank of Baroda; Canara Bank;
Punjab National Bank; Bank of India; Union
Chronology
Key Dates:
1806: The Bank of Calcutta is established as the first Western-type
bank.

1809: The bank receives a charter from the imperial government

and changes its name to Bank of Bengal.

1840: A sister bank, Bank of Bombay, is formed.

1843: Another sister bank is formed: Bank of Madras, which,

together with Bank of Bengal and Bank of Bombay become
known as the presidency banks, which had the right to issue
currency in their regions.

1861: The Presidency Banks Act takes away currency issuing

privileges but offers incentives to begin rapid expansion, and the
three banks open nearly 50 branches among them by the mid1870s.

1921: The presidency banks are merged to form a single entity,

Imperial Bank of India.

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1955: The nationalization of Imperial Bank of India results in the

formation of the State Bank of India, which then becomes a
primary factor behind the country's industrial, agricultural, and
rural development.

1969: The Indian government establishes a monopoly over the

banking sector.

1972: SBI begins offering merchant banking services.

1986: SBI Capital Markets is created.

1995: SBI Commercial and International Bank Ltd. are launched as

part of SBI's stepped-up international banking operations.

1998: SBI launches credit cards in partnership with GE Capital.

2002: SBI networks 3,000 branches in a massive technology

implementation.

2004: A networking effort reaches 4,000 branches.

Additional Details

Public Company (60% Government-Owned)

Incorporated: 1921 as the Imperial Bank of India
Employees: 220,000
Total Assets: $104.81 billion (2003)

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Stock Exchanges: Mumbai Kolkata Chennai Ahmedabad Delhi

New York London
Ticker Symbol: SBI
NAIC: 522110 Commercial Banking
1876: The creation of Central Treasuries ends the expansion phase
of the presidency banks.
Bank of India; Central Bank of India; HDFC Bank; Oriental Bank
of Commerce.

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CHAPTER-4
THEORITICAL
FRAMEWORK

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Concept and Definition of Financial Inclusion:

Financial inclusion is one of the most important aspects in the

present scenario for inclusive growth and development of
economies. The financial inclusion term was first time used by
British lexicon when it was found that nearly 7.5 million persons
did not have a bank account. But financial inclusion concept is not
a new one in Indian economy. Bank Nationalization in 1969,
establishment of RRBs and introduction of SHG- bank linkage
programs were initiatives taken by RBI to provide financial
accessibility to the unbanked groups.
According to committee on financial inclusion headed by
DR.C.Rangarjan defined
financial inclusion 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.”2 Financial inclusion does not stand for
delivery of financial services for all at all cost. But it means that the
delivery of financial services and products at affordable costs of
excluded sections of population and lowincome groups.
It plays a crucial role to remove away the poverty from the
country. Financial inclusion is to provide equal opportunities to
vast sections of population to access mainstream financial services
for better life, living and better income. It provides path for
inclusive growth. Financial inclusion can be described as the
provision of affordable financial services, viz saving, credit,

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insurance services, access to payments and remittance facilities by

the formal financial systems to those who are excluded. So,
financial inclusion refers to access to vast range of financial
product and services at affordable cost. It not only includes
banking products but also other financial services such as loan,
equity and insurance products.
Households need access to finance for several purposes like
creating buffer, retirement, saving to hedge against unpredictable
situations and take products for insurable contingencies. Household
also needs access to credit for livelihood creation, housing,
consumption and their emergencies. Finally, households require
financial services to access a wide range of saving and investment
products for wealth creation but it is all depends upon their level of
financial literacy.
Importance Of Financial Inclusion:
Easy access to financial services will allow the population leaving
in lower strata, to save money safely and help in preventing
concentration of economic power with a few individuals, thus
mitigating the risks that the poor could face as a result of economic
shocks. Therefore, providing access to financial services is
becoming an area of concern for the policymakers as it has far
reaching economic and social implications.
In India, the single most frequently used source of loan for medium
Indian household is still moneylender. Large parts of our financial
system are still hampered by political intervention and bureaucratic
constraints, limiting their potential contribution. India’s poor, many
of who work as agricultural and unskilled semi-skilled wage
labours and low salaried workers are largely excluded from the
formal financial system. Even micro and small enterprises, find it
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difficult to have an access to formal sources of finance and thus are

largely excluded from financial system. Over 40% of India
working population earn but have no saving. Financial inclusion
provides
Various approaches to achieve financial inclusion:
In India, various measures taken by banks, GOI and RBI for
financial inclusion plan highlighted currently adopted financial
inclusion approaches.
Product Based Approach: Reserve bank of India has been
proactive, liberal and supportive while making policies so as to
enable financial institutions to come up with innovative products
for enabling a common man to get the benefit of the financial
inclusion plan. Some products developed for fulfilment of this
approach have been mentioned in this paper.
No- Frills Account (NFAs): - This concept was introduced by RBI
in November 2005 to provide access to basic baking services by
financially excluded peoples. Under this approach banks open
accounts with zero balance or very minimum balance requirement
for the under-privileged. In 2012, the banks under RBI guidelines
came-up with a better version of the no-frill accounts where they
would open Basic Savings Bank Deposit Accounts (BSBDAs) for
all individuals with the facility of debit card, cheque book, internet
banking, overdraft limits at minimal charges. However, the number
of transactions could be restricted so as to prevent misuse of such
accounts.
Kisan Credit cards (KCCs): - Under this scheme banks issue
smart cards to the farmers for providing timely and adequate credit
support from single window banking system for their farming

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needs. During 2012-13 (up to December 2012), public and private

sector banks issued 1.2 million smart cards as KCCs.
General Purpose Credit Cards (GCC): - In 2005 Reserve bank
of India, issue guidelines to banks that to provide General Purpose
Credit Card (GCC) which facilitate credit up to Rs.25000/- without
any collateral requirement for rural and semi urban people based
on assessment of household cash flows. Now as per the revised
guidelines in Dec.‟2013 under this approach bank also fulfil Non-
farm entrepreneurial credit requirement of individuals (e.g. Artisan
Credit card, Laghu Udyami Card, Swarojgar Credit Card, Weaver’s
Card etc) There will be no ceiling on the loan amount as long as
the loan is for the purpose of non-farm entrepreneurial activity and
is otherwise eligible for classification as priority sector. Security
norms will be applicable as per Reserve Bank guidelines on
collateral free lending for micro and small units issued from time to
time.
Saving account with Overdraft facility: - Banks have been advised
to provide overdraft (OD) facility in saving account and also Small
Overdrafts in No-frills accounts. The setting up of the limit for the
same would be done by banks considering the transaction in the
account. This would help the customer to get easy
Bank Led approach:
Self Help Group - Bank Led Initiative (SLBP): - The SLBP or Self-
Help Group – Bank Linkage Program has been the major
institutional based innovation in India for enabling access and
covering the gap of reaching financially excluded population of the
country in the last two decades. In this model, the banks involve
themselves with a group of local people with the idea of enabling
them to pool up their savings. The same is deposited with the bank
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against which the bank also provides a certain amount of credit

facility. The group takes a decision to whether to lend to any
member of the group. The bank provides the framework,
accounting services and support to the group to manage their
deposits and lending. Thus, the model has an approach of savings
first, lending later. The banks do not have a risk in such lending as
the borrower’s reputation and peer pressure in the group would
reduce the risk of bad loans considerably. However, the model has
some issues that affect the program Inadequate outreach in many
regions.
Delays in opening of SHG accounts and disbursement of loans.
Impounding of savings by banks as collateral.
Non-approval of repeat loans by banks even when the first loan
was repaid.
Multiple memberships.
Borrowings by SHG members within and outside SHGs.
Adverse consequences of unhealthy competition between NGO
promoted SHGs.
Government promoted/subsidy oriented SHGs and limited banker
interface.
Monitoring of the SHGs.While the basics of the SHGs being
savings led credit, product remain true even today, recent
developments have given rise to the need for relook in the
approach and design of this fairly successful model leading to SHG
The basic features of SHG - 2 are
Voluntary savings apart from compulsory savings
Allowing the sanction of a cash credit / overdraft system of lending
for SHGs for a longer operational tenure, and Graduating selected
members of the group that have entrepreneurship potential into a
joint liability groups for borrowing larger amounts.protection to

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poor from the control of Business Facilitators (BFs)/Business

Correspondents (BCs): - The BC/BF model is a model which based
on information and communication technology (ICT). In this
model the intermediaries or BC/BFs are technologically
empowered by the banks to provide the last mile delivery of
financial products and services. Initially created by the banks
themselves and later with improvisations and RBI policy support,
the model on the back of innovative technologies is bridging the
connectivity gap between the service seekers, i.e., under-served
public, and the service providers, i.e., the banks. However, a
number of issues both for the partner banks and also for the
regulators have surfaced since the start of this model. Some of
them being Profitability of the BFs/BCs Banks and their BFs/BCs
are exposed to huge risk of cash management .
The training and hand-holding of the BFs/BCs to enhance the trust
level of the end customers.
Adoption of technology
Compatibility and integration of technology used by the banks and
their BFs/BCs.
Based on above facts, the banks have started coming up with the
concept of ultra-small branches to provide support and supervise
work of certain number of BFs/BCs. Also, banks could have
inhouse model where BF/BC outfits could be a subsidiary with its
own structure but under closer supervisory control.
Regulatory Approach:
Simplified KYC Norms: - Under current KYC norms, a customer
has to provide number of documents for opening an account as per
RBI guidelines. However, the people living in rural areas face
problem in fulfilling these norms. To enable banks to tap in this

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huge opportunity of rural banking in unbanked areas and to meet

the objective of financial inclusion, RBI has relaxed a number of
norms for accounts opened by people who plan to keep balances
not exceeding Rs.50, 000 and whose total credit in all the accounts
taken together is not expected to exceed Rs.100, 000 in a year.
Small accounts can now be opened on the basis of an introduction
from another account holder who has satisfied all the KYC norms.

Simplified bank saving account opening: - The account opening

form has been simplified to ease the opening of account by the
poorer sections, street hawkers and other migratory labours of the
society. iii. Bank branch authorization: - RBI has permitted banks
to open branches without taking authorization, thus deviating from
its normal norms, in tier 3 to 6 city, towns, or villages. This would
enable the government, regulator and the banks to speed up the
drive for financial inclusion and this make available the financial
services to the unbanked access to the credit at population of the
country.
lower rates.

Technology Based approach:

Mobile Banking: - One of the most remarkable developments in
terms of innovation in order to harness the full power of
technology, the banks have t ied up with mobile operators to
provide financial services like bill and utility payment, fund
transfer, ticket booking, shopping etc. Some examples of this
model are m-Pesa by Vodafone and Airtel Money.

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Kiosk / ATM based banking: - In some states, the state government

has taken initiatives for providing kiosk- based model for access to
financial services. Also, banks have used the technology to enable
their ATMs to virtually act like a 24x7 branches.

Branchless Banking: - Some of the leading banks have come up

with this concept where there would be an online system with chat
facility assisting the person to make use of various electronic
machines for depositing and withdrawing cash and cheques.
However, this initiative is in a very initial stage and has a limitation
in terms of initial Cost for banks and literacy / knowledge for the
rural population and hence this concept is currently limited to
urban and semi-urban areas.
Aadhaar Enabled payment services: - In this system, any Indian
citizen having an Aadhaar number updates his account with the
same. All accounts having aadhaar number updated are to be
reported to RBI, which in turn reports it to various government
departments. While making payments to people for working under
initiatives like MGNREGA or various subsidy schemes, the
departments use this information for directly crediting the money
to the beneficiary’s account. This not only reduces the delay in the
benefits being received by the end user, but also reduces the
chances of corruption in the distribution of the benefits under
schemes. Also, the unique biometric identification data stored in
the Aadhaar database is expected to empower a bank customer to
use Aadhaar as his/her identity to access various financial services.
A pilot scheme in four districts of Jharkhand state is currently
being carried out under which MGNREGA wages to laborer’s are
credited to their Aadhaar enabled bank accounts.
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KNOWLEDGE BASED APPROACHES:

Financial education, financial inclusion and financial stability are
three elements of an integral strategy to empower people to make
effective use of the financial services network. While financial
inclusion works from supply side, financial education feeds the
demand side by promoting awareness among the people
regarding the needs and benefits of financial services offered by
banks and other institutions.
These two strategies together promote
greater financial stability. the spurious
money lenders

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Financial Stability Development Council ( FSDC) has explicit

mandate to focus on financial inclusion and financial literacy
simultaneously. RBI had issued guidelines on the financial literacy
Centres (FLC) on in June 2012 for setting up FLCs.

It was advised that the rural branches of scheduled commercial

banks should increase efforts through conduct of outdoor
Financial Literacy Camps at least once a month. Accordingly, 718
FLCs had been set up as at end of March 2013. A total of 2.2
million people had been educated through awareness camps /
choupals, seminars and lectures during April 2012 to March 2013.

Governments Initiatives
The government has taken various initiatives indirectly through the
regulators, government promoted schemes through its various
ministries. Some such initiatives have been listed below. Induction
of SHG-2:- The original SHG as initialized by NABARD had
certain limitations. This led to NABARD preparing a strategy to
revitalize the SHG movement leading with the induction of SHG-2
model.
Women SHGs Development Fund: - The Union Budget 2011-
2012 proposed a “Women‟s SHG‟s Development Fund” with a
corpus of Rs. 500 crore. The GoI
created this fund to empower women and promote their SHGs.
The responsibility of managing the fund is of Development Fund”
with a corpus of Rs. 500 crore. The GoI
funds, namely Financial Inclusion Fund (FIF) and the Financial
Inclusion Technology Fund (FITF).

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Swarnjayanti Gram Swarozgar Yojana (SGSY): - It is a

centrally sponsored scheme that follows the mechanism of forming
SHGs of rural poor households, providing capacity building
training and linking groups to banks. SGSY is primarily designed
to promote self- employment-oriented income generating activities
for the Below Poverty Level (BPL) households in rural areas.
National Rural Livelihood Mission (NRLM): - Established in June
2010 by the Ministry of Rural Development (MoRD), GoI. It is
based on the success of Indira Kranti Patham (IKP), a poverty
alleviation program being implemented in Andhra Pradesh. The
key strategies of NRLM are to Implement the program with greater
emphasis on federations of SHGs Provide flexibilities to states for
designing specific action plans for poverty alleviation, Introduce
interest subsidy for encouraging repayments of loans and provide
multiple doses of credit Improve training and capacity building
efforts by setting up skill training institutes in each district e.
Facilitate market linkages and Improve monitoring and evaluation
process.
The Mahatma Gandhi National Rural Employment Guarantee
Scheme (MGNREGS): - This scheme aims to enhance the
livelihood of the rural people by guaranteeing at least one hundred
days of wage employment in a financial year to a rural household
whose adult members volunteer to do unskilled manual work. As
the payments are made through the bank/post office accounts, in
2010-11, nearly 10 crore bank/post office accounts have been
opened. Aadhaar- Unique Identification Authority of India
(UIDAI): - The GoI has embarked an initiative to provide an

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individual identification number to every citizen of India and in

2009; it established the UIDAI to issue these cards on behalf of the
GoI. This number provided by UIDAI will serve as a proof of
identity and address, anywhere in India. The Aadhaar number will
also enable people to have access to services such as banking,
mobile phone connections and other government and
nongovernment services in due course. In addition, the UIDAI has
introduced a system in which the unbanked population will be able
to open an account during enrolment with Aadhaar without going
to a bank. The individual will be able to access such bank accounts
through a micro-ATM network with large geographic reach.

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CHAPTER-5
DATA ANALYSIS AND
INTREPRETATION

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Various approaches by STATE BANK OF INDIA to achieve

financial inclusion:
 Pradhan Mantri Jan Dhan Yojana (PMJDY)
 Atal Pension Yojana (APY)
 Pradhan Mantri Vaya Vandana Yojana.
 Stand Up India Scheme.
 Pradhan Mantri Mudra Yojana.

 Pradhan Mantri Suraksha Bima Yojana (PMSBY) ➢

Sukanya Samriddhi Yojana.

 Jeevan Suraksha Bandhan Yojana
 Pradhan Mantri Jan-Dhan Yojana (PMJDY)
 Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National

Mission for Financial Inclusion to ensure access to financial

services, namely, Banking/ Savings & Deposit Accounts,
Remittance, Credit, Insurance, Pension in an affordable
manner.

Account can be opened in any bank branch or Business

Correspondent (Bank Mitr) outlet. Accounts opened under PMJDY
are being opened with Zero balance. However, if the accountholder
wishes to get cheque book, he/she will have to fulfil minimum
balance criteria.

Reserve Bank of India (RBI), vide its Press Release dated

26.08.2014, has further clarified that those persons who do not
have any of the ‘officially valid documents’ can open “Small
Accounts” with banks. A “Small Account” can be opened on the

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basis of a self-attested photograph and putting his/her signatures or

thumb print in the presence of officials of the bank. Such accounts
have limitations regarding the aggregate credits (not more than
Rupees one lakh in a year), aggregate withdrawals (nor more than
Rupees ten thousand in a month) and balance in the accounts (not
more than Rupees fifty thousand at any point of time). These
accounts would be valid normally for a period of twelve months.
Thereafter, such accounts would be allowed to continue for a
further period of twelve more months, if the account- holder
provides a document showing that he/she has applied for any of the
Officially Valid Document, within 12 months of opening the small
account.

Special Benefits under PMJDY Scheme:

Accidental insurance cover of Rs. 2 lakhs No minimum

balance required. The
scheme provides life cover of Rs. 30,000/- payable on death of the
beneficiary, subject to fulfilment of the eligibility condition. Easy
Transfer of money across India Beneficiaries After satisfactory
operation of the account for 6 months, an overdraft facility will be
permitted Access to Pension, insurance products. The Claim under
Personal Accidental Insurance under PMJDY shall be payable if
the Rupay Card holder have performed minimum one successful
financial or nonfinancial customer induced transaction at any Bank
Branch, Bank Mitra, ATM, POS, E-COM etc. Channel both Intra
and Inter-bank i.e. on-us (Bank Customer/rupay card holder
transacting at same Bank channels) and off-us (Bank
Customer/Rupay card holder transacting at other Bank Channels)

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within 90 days prior to date of accident including accident date will

be included as eligible transactions under the Rupay Insurance
Program 2019-2020. Overdraft facility upto Rs. 10,000/- is
available in only one account per household, preferably lady of the
household. of Government Schemes will get Direct Benefit
Transfer in these accounts.

ATAL PENSION YOJNA (APY) :

Atal Pension Yojana (APY), a pension scheme for citizens of India,

is focused on the unorganised sector workers. Under the APY,
guaranteed minimum pension of Rs. 1,000/- or 2,000/- or 3,000/-
or 4,000 or 5,000/- per month will be given at the age of 60 years
depending on the contributions by the subscribers. The scheme is
administered by Pension Fund Regulatory & Development
Authority (PFRDA) and the Institutional Architecture of NPS is
utilised to enrol subscribers under APY.

Eligibility:

Any Citizen of India can join APY scheme. The following

are the eligibility criteria: - The age of the subscriber should
be between 18 - 40 years.
He / She should have a savings bank account/ post office savings
bank account. The prospective applicant may provide Aadhaar and
mobile number to the bank during registration to facilitate receipt
of periodic updates on APY account. Aadhaar needs to be provided
at the time of enrolment.

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Benefits:

The benefit of minimum pension under Atal Pension Yojana would

be guaranteed by the Government in the sense that if the actual
realized returns on the pension contributions are less than the
assumed returns for minimum guaranteed pension, over the period
of contribution, such shortfall shall be funded by the Government.
On the other hand, if the actual returns on the pension contributions
are higher than the assumed returns for minimum guaranteed
pension, over the period of contribution, may resulting in enhanced
scheme benefits to the subscribers. The Government of India had
contributed 50% of the total contribution or Rs. 1000 per annum,
whichever is lower, to each eligible subscriber, who joined the
scheme during the period 1st June, 2015 to 31st March, 2016 and
who is not a beneficiary of any social security scheme and is not an
income tax payer. The Government contribution will be given for 5
years from the Financial Year 2015-16 to 2019-20.

Pradhan Mantri Vaya Vandana Yojana:

Introduction:
Government of India in the Budget Speech of 2018-19 has
announced the enhancement of maximum limit under Pradhan
Mantri Vaya Vandana Yojana to Rs. 15 lakhs per senior citizen.
The period of sale for this scheme has also been extended upto 31st
March, 2020.
LIC of India has been given the sole privilege to operate this
scheme.

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This scheme can be purchased offline as well as online. To

Purchase this scheme online please log on to our website
www.licindia.in.

Eligibility Conditions and Other Restrictions:

 Minimum Entry Age: 60 years (completed)
 Maximum Entry Age: No limit
 Policy Term: 10 years
 Minimum Pension: Rs. 1,000/- per month Rs. 3,000/- per

quarter Rs.6,000/- per half-year Rs.12,000/- per year

 Maximum Pension: Rs. 10,000/-per month Rs. 30,000/-per

quarter Rs. 60,000/- per halfyear Rs. 1,20,000/- per year

Benefits:
Pension Payment: On survival of the Pensioner during the policy
term of 10 years, pension in arrears (at the end of each period as
per mode chosen) shall be payable.
Death Benefit: On death of the Pensioner during the policy term of
10 years, the Purchase Price shall be refunded to the beneficiary.
Maturity Benefit: On survival of the pensioner to the end of the
policy term of 10 years, Purchase price along with final pension
instalment shall be payable.

Stand Up India Scheme:

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The Stand-up India scheme aims at promoting entrepreneurship

among women and scheduled castes and tribes. The scheme is
anchored by Department of Financial Services (DFS), Ministry of
Finance, Government of India.

Stand-Up India Scheme facilitates bank loans between Rs 10 lakh

and Rs 1 Crore to at least one Scheduled Caste (SC) or Scheduled
Tribe (ST) borrower and at least one-woman borrower per bank
branch for setting up a greenfield enterprise. This enterprise may
be in manufacturing, services or the trading sector. In case of non-
individual enterprises at least 51% of the shareholding and
controlling stake should be held by either an SC/ST or woman
enterprenure

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Eligibility:
 SC/ST and/or woman entrepreneurs, above 18 years of age.
 Loans under the scheme is available for only green field

project. Green field signifies, in this context, the first time

venture of the beneficiary in the manufacturing or services
or trading sector.
 In case of non-individual enterprises, 51% of the
shareholding and controlling stake should be held by either
SC/ST and/or Women Entrepreneur.
 Borrower should not be in default to any bank/financial
institution.

Loan details:
 Nature of Loan - Composite loan (inclusive of term loan and

working capital) between 10 lakh and upto 100 lakh.

 Purpose of Loan - For setting up a new enterprise in

manufacturing, trading or services sector by SC/ST/Women

entrepreneur.
 Size of Loan - Composite loan of 75% of the project cost

inclusive of term loan and working capital. The stipulation

of the loan being expected to cover 75% of the project cost
would not apply if the borrower’s contribution along with
convergence support from any other schemes exceeds 25%
of the project cost.

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 Interest Rate - The rate of interest would be lowest

applicable rate of the bank for that category (rating category)

not to exceed (base rate (MCLR) + 3%+ tenor premium).
 Security - Besides primary security, the loan may be secured

by collateral security or guarantee of Credit Guarantee Fund

Scheme for Stand-Up India Loans (CGFSIL) as decided by
the banks.
 Repayment - The loan is repayable in 7 years with a

maximum moratorium period of 18 months.

 Working Capital - For drawal of Working capital upto 10

lakh, the same may be sanctioned by way of overdraft.

Rupay debit card to be issued for convenience of the
borrower.
Working capital limit above 10 lakhs to be sanctioned by way of
Cash Credit limit.
 Margin Money - The Scheme envisages 25% margin money

which can be provided in convergence with eligible Central /

State schemes. While such schemes can be drawn upon for
availing admissible subsidies or for meeting margin money
requirements, in all cases, the borrower shall be required to
bring in minimum of 10% of the project cost as own
contribution.

Pradhan Mantri Mudra Yojana:

Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched
by the Hon’ble Prime Minister on April 8, 2015 for providing
loans up to 10 lakh to the non- corporate, non-farm small/micro
enterprises. These loans are classified as MUDRA loans under
PMMY. These loans are given by Commercial Banks, RRBs,

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Small Finance Banks, MFIs and NBFCs. The borrower can

approach any of the lending institutions mentioned above or can
apply online through this portal www.udyamimitra.in . Under the
aegis of PMMY, MUDRA has created three products namely
'Shishu', 'Kishore' and 'Tarun' to signify the stage of growth /
development and funding needs of the beneficiary micro unit /
entrepreneur and also provide a reference point for the next phase
of graduation / growth.

Mudra Vision:
To be an integrated financial and support services provider par
excellence, benchmarked with global best practices and standards,
for the bottom of the pyramid universe for their comprehensive
economic and social development.

Mudra Mission:
To create an inclusive, sustainable and value based entrepreneurial
culture, in collaboration with our partner institutions in achieving
economic success and financial security.

Mudra Purpose:

Our basic purpose is to attain development in an inclusive and

sustainable manner by supporting and promoting partner
institutions and creating an ecosystem of growth for micro
enterprises sector.

Pradhan Mantri Suraksha Bhima Yojana (PMSBY):

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The Scheme is available to people in the age group 18 to 70 years

with a bank account who give their consent to join / enable auto-
debit on or before 31st May for the coverage period 1st June to
31st May on an annual renewal basis. Aadhar would be the primary
KYC for the bank account. The risk coverage under the scheme
isRs.2 lakh for accidental death and full disability and Rs. 1 lakh
for partial disability. The premium of Rs. 12 per annum is to be
deducted from the account holder’s bank account through ‘auto-
debit’ facility in one installment.

The scheme is being offered by Public Sector General Insurance

Companies or any other General Insurance Company who are
willing to offer the product on similar terms with necessary
approvals and tie up with banks for this purpose.

About the Department:

The mandate of the Department of Financial Services covers the

functioning of Banks, Financial Institutions, Insurance Companies
and the National Pension System. The Department is headed by the
Finance Secretary who is assisted by three Additional Secretary
(AS), six Joint Secretaries (JS), two Economic Advisers (EA) and a
Deputy Director General (DDG).

The Department of Financial Services (DFS) oversees several key

programs/initiatives and reforms of the Government concerning the
Banking Sector, the Insurance Sector and the Pension Sector in
India. Initiatives and reforms relating to Financial Inclusion, Social
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Security, and Insurance as a Risk Transfer mechanism; Credit Flow

to the key sectors of the economy/ farmers/ common man are some
of the key focus areas being dealt by the Department. The key
flagship schemes being currently run/managed by the Department
include the Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan
Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri
Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Mudra
Yojana (PMMY),
Atal Pension Yojana (APY), Pradhan Mantri Vaya Vandana
Yojana (PMVVY) and the Stand Up India Scheme.

The Department provides policy support to the Public Sector banks

(PSBs), Public Sector Insurance Companies (PSICs) and
Development Financial Institutions (DFIs) like National Bank for
Agriculture and Rural Development (NABARD), Small Industries
Development Bank of India (SIDBI), India Infrastructure Finance
Company Ltd. (IIFCL), National Housing Bank (NHB), Export-
Import Bank of India (EXIM Bank), Industrial Finance
Corporation of India (IFCI). It also monitors the performance of
these PSBs, PSICs and DFIs and undertakes policy formulation in
respect of the Banking and Insurance Sector in India.

This Department deals with legislative and policy issues pertaining

to the concerned regulatory bodies i.e. the Reserve Bank of India
(RBI), the Insurance Regulatory and Development Authority of
India (IRDAI) and the Pension Fund Regulatory and Development
Authority (PFRDA). DFS also deals with the legislative framework

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relating to debt recovery. Matters relating to International Banking

relations are also dealt by the Department.

SUKANYA SAMRIDDHI YOJANA (SSY):

Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the

girl child launched as a part of the 'Beti Bachao Beti Padhao'
campaign. It is currently 8.1 per cent and provides income-tax
benefit under section 80 C of the Income Tax Act,1961. Even the
returns are tax free in the scheme.

A Sukanya Samriddhi Account can be opened any time after the

birth of a girl till she turns 10, with a minimum deposit of Rs 250
(Earlier it was Rs 1,000). In subsequent years, a minimum of Rs
250 and a maximum of Rs 1.5 lakh can be deposited during the
ongoing financial year.

The account can be opened in any post office or authorised

branches of commercial banks. The account will remain operative
for 21 years from the date of its opening or till the marriage of the
girl after she turns 18. To meet the requirement of her higher
education expenses, partial withdral of 50 per cent of the balance is
allowed after she turns 18.

Jeevan Suraksha Bandhan Yojana:

This scheme is a Raksha Bandhan gift and is launched with an

objective to drive PMSBY and PMJJBY. Through this yojana,
brothers can gift social security schemes to their sisters by
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purchasing gift card worth Rs. 351 and deposit scheme worth
Rs. 201 which will be used for making the premium payment
for Suraksha Bima Yojana and Jeevan Jyoti Bima Yojana.

Apart from this, term deposit scheme worth Rs. 5001 can also
be taken which will serve two purposes – premium payment for
PMSBY and PMJJBY for the first year and remaining money
would be investment for term deposit for 10 years.

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CHAPTER-6
FINDINGS, SUGGESTIONS
AND CONCLUSION

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FINDINGS:
The major findings of the study are summarized in this section of
the study.
I. Savings and Investment Practices among Indian Households
• Overall growth of the household savings in terms of
currency sector stood by 885577 crores on an average
between 2000-01 to 2009-10. The average household
savings with the banks stood at ` 390165.50 crores. The
non-banking companies deposit on the household sector
during 2000-01 to 2009-10 registered at mean value of `
9305.20 crores indicate a negative growth rate of -10.87 in
the household saving in terms of deposits. Household
savings in terms of debt was valued at mean value of ` 6071
crores.

• Household savings in private company shares and

debentures leaving a standard deviation value of 20564.27.
The co-efficient of variation was 83.67 per centage with a
compound growth rate of 28.82. Household savings in
Government securities and in form small savings stood on
an average of ` 58,809 crores. The average state insurance
investment was ` 31021 crores. The average household
contribution to provident fund and pension was recorded at
958758 crores during the study period. The average
household contribution to other savings/investment medium
was recorded at ` 580333 crores between 2000-2010.

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II. Socio-Economic Status

• It has been observed that majority i.e., 26.30 per cent of the
rural household surveyed were aged between 25-30 year
and 16.20 per cent them were male. It has been found that
79.46 per cent of the respondents were married.

• It has been observed that out of 2050, 16.60 percentage of

the respondents were agriculturists and further it has been
observed that 24.40 per cent of the sample population has
completed their high school level education.

• From the study it has been observed that 35.12 per cent of
the respondents have only one earning member in the
family. It is evident from the study that 47.41 per cent of
the surveyed rural families have two dependents in their
family. Further, it has been observed that 41.56 per cent of
the respondents were working in villages.

III. Components of Household Income and Expenditure

• From the study it has been observed that 66 per cent of the
respondents were residing in their own houses and 55.37 per cent
of the respondents' source of income is their salary. It has been
found that 66.10 per cent of the respondents do not have any
additional source of income.

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• It has been observed that 58.34 per cent of the respondents

plan a formal budget to meet out their household income and
expenditure. From the detailed analysis it has inferred that food is
the primary household expenditure for the rural masses. The food
has secured first rank with a mean score of 2.663.

• From the study it has been cleared that 40.44 per cent of the
respondents' monthly savings ranges between 10-15 per cent of
their monthly earning. Results of Pearson’s correlation indicates a
poor correlation between the saving/investment and expenses met
by the rural households residing at Coimbatore.

IV. Level of Awareness and Factors that Influenced

Investment Behaviour

• From the elaborate data analysis it has been inferred that the
rural households in the study region have gained reasonable
knowledge on the various savings and investment medium. But it
is very ironical to assess that their knowledge is very much limited
to the traditionally known savings and investment avenues like
bank saving, holding insurance policy, investment in equities, gold
or in land/building. The sample population’s knowledge on the
modern and market sophisticated investment avenues is very much
limited.

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• From the data analysis it has been inferred that there exists
a positive correlation between savings in bank i.e., in the form of
fixed deposits, respondents' awareness towards public provident
funds and National Saving Certificates. Though the association
between the other variables is significant, it depicts a very poor
correlation between intra-inter variables tested.

• It is inferred with the help of Chi-Square test that there exists

an association between rural investor level of awareness towards
various savings/investment avenues and their socio-economic
status.

• It has been observed that 29.31 per cent of rural households

have gained knowledge about saving/investment avenues through
business channels. From the study it has been concluded that safety
of money has been recorded as the primary factor that has
influenced the rural masses to save, and it has secured first rank
with an average score of 4.02.

• From the results of reliability test it has been concluded that

there exists no uniformity in the investor's level of perception
towards various factors that influence them in selection of
savings/investment medium.

• It has been observed that 40.15 per cent of the respondents

give primary importance to the safely of the principal money they
invest before selecting savings/investment avenue.

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• From the study it has been cleared that 53.56 per cent of the
investors prefer to invest in medium term investments which
comprises of 1-5 years. It has been observed that 44.39 per cent of
the rural investors prefer their investment to grow on an average
rate and 35.28 per cent of them wish to create wealth out of their
savings and investment.

V. Investment Behaviour

• It has been observed that most of the respondents have to

part with their income for the savings and investments for Rs.1001-
3000 every month.

• Majority of the respondents have been comfortable with

savings in fixed deposits, chits, post office etc. They are observed
to more averters than risk takers.

• The results of Chi-square test confirm that there exist

association between investment experience of rural masses and
their age.

• It has been found that 48.63 per cent of rural population

holds savings accounts that are considered as safe and low risk
avenue of holding liquid money. It is inferred that 73.46 per cent
respondents have invested in life insurance policies. It has been
further observed that majority i.e.,
57.07 per cent respondents have taken higher risk in investing in
equity shares market.

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• Majority i.e., 53.17 per cent respondents have invested in

gold/silver, which are considered as popular traditional investment
avenues. It has been inferred that 62.63 respondents have evinced
interest in investing in virtual real estate business.

• Kendal's Coefficient of Concordance Test was performed to

measure the association between the savings perceptions exhibited
by the sample rural household investors.
• It has been found that the priorities of investment purpose by
one investor significantly varies from that of the other investors.

VI. Perception towards the Financial Service Availability

• It has been understood from the elaborate data that 37.22 per
cent respondents have stated that the availability of financial
services in their rural area are moderate in terms.

• It has been found out that investors' perceptions towards

feasibility of financial services offered by various agencies in rural
areas significantly differ from one another.

• It has been observed that minimum deposit facilities or no-

frill account is a more popular mode of financial inclusion among
the rural masses of Tamilnadu in general and in particular to the
study region Coimbatore District as per the opinion of 38.14 of the
sample population.

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SUGGESTIONS :

• In India the focus of financial inclusion at present is

confined to minimum access to a savings bank account without any
additional changes, to all. Internationally, the financial inclusion
has been viewed in a much wider perspective. Having a current
account / savings account on its own, is not regarded as an accurate
indicator of financial inclusion. Hence, just opening the NFAs (No
Frill Accounts) can never solve the real purpose of financial
inclusion. Although by definition it is just to provide financial
services to all sections of the society at an affordable cost. But for
inclusive growth and upliftment of the population at the bottom of
the pyramid, the orientation of banks and the general masses have
to be changed. Thus, it is suggested that along with the financial
inclusion, measures for financial literacy of the rural people are
essential, to be undertaken by the banks.

• Banks should know how to best leverage between

communications and technology in ways to engage and empower
people in the area of financial literacy. Recognizing that people
receive, learn and digest information in different ways, it would be
useful to survey all possible avenues of communication to
determine the best way of capturing people’s attention and interest.
The use of technology in the training of trainers could also be
explored. Accordingly, the bank managers need to design and
innovate a low-cost business model suitable for their branch as
guided by the RBI .

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• The financial service sector has to tackle many challenges in

the globalized field to fulfill the ever-growing financial demands of
the economy. The main challenges that have to be managed by the
financial agencies are as follows:

The financial service sector is fully geared to the task of "financial

literacy" as financial inclusion is the basic norm of financial market
operations. However, this sector faces many challenges like lack of
qualified personnel. Hence, it is very important that proper and
suitable training must be given to the various financial
intermediaries by the financial agencies, who in turn can educate
investors to make wise investment decisions. The introduction of
new financial products and instrument
will be of no use unless the investor is aware of the merits and uses
of the new and innovative products and instruments. Therefore, it
is suggested that the bank and other financial agencies must create
financial literacy among the urban and rural masses.
In India the whole financial system is undergoing a phenomenal
change in accordance with the requirements of the national and
global environments. It is time that this sector gave up their
orthodox attitude of keeping accounts in a confidential manner.
Hence, this sector should opt for better levels of transparency in
their transactions. In other words, the disclosure requirements and
the accounting practices have to be in line with the international
standards of banking.

In the Indian scene, each financial intermediary seems to deal in

different financial service lines without specializing in one or two
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areas. In other countries, financial intermediaries like Newton's

Solomon Brothers specialize in one or two areas only. This helps
them to achieve high levels of efficiency and excellence. Hence, in
India also, financial intermediaries can go for specialization, to
gain more knowledge on investors' behavior and design
products/service according to their need.
Most of the intermediaries do not spend more time on research. It
is very vital that one should build up a proper data base on the
basis of which one could embark upon "financial literacy among
potential investment populations''.

• From the extensive literature review it is to be understood

that policy makers and financial agencies need to adopt two
strategies in promoting "financial literacy" program to make
"financial inclusion" successful and meaningful. One is developing
personal financial management skills and the other is developing
financial operation skills for availing various financial services.

• Personal financial management literacy includes the

component of awareness building for financial planning and
changing impulsive financial decisions, understanding the
importance of regular savings, borrowing only for productive
purposes, minimizing risks through availing insurance services and
also understanding financial principles. These include the
following:

 The Principle of fundability of money;

 Principle of power of compounding;
 Principle of productive versus unproductive use of money;

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 Principle of borrowed versus own capital; and Principle of

insurance.

A proper understanding of the principle of power of compounding

will make the provision of "no frills" accounts meaningful because
the poor will understand the importance of regular savings for the
long term. Similarly, the principle of productive versus
unproductive use of money will reduce the use of borrowed money
for productive purposes and the principle of fundability of money
may help them to save and plan for different purposes or different
life-cycle needs. Personal financial management literacy should be
accompanied by financial operational literacy, like account
opening procedure, explaining a nomination facility, types of
savings accounts and how to avail credit from a bank etc.

• The financial inclusion program can become meaningful if

parallel work is done on both the demand and supply side.
Excluded population should be prepared to avail of financial
services from formal financial institutions and creating effective
financial literacy can play a very important role in bringing in the
desired results. Of course, it will be too much for banks to play this
role of preparing people for availing financial services or
converting need into demand.

• Thus, a parallel financial literacy movement should be

encouraged, may be through the media, even as they may build a
cadre of financial counselors at the grassroots level to educate
people by building financial awareness. Even micro financing
agencies like SHG can be involved in this process.
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• The Bank-SHG linkage scheme is of extreme importance in

establishing a strong relationship between the organized financial
system, like commercial banks, and those people who need credit.
Self-Help groups have become a fairly established institution in
India.

• There is need for up scaling to cover productive loans while

ensuring that the process of group formation and capacity building
is given sufficient time to create transparency in accounting and
book keeping, and financial education of members should be part
of due diligence undertaken by banks.

• As far as Indian economy is concerned, financial illiteracy

in rural India is one of the major reasons for the underdevelopment
of Banking and Financial Industry. Therefore, initiatives can be
undertaken by private banking institution like, identifying Self
Help groups to utilize the banking facilities and financial products
and services provided by them.

• Then educating rural area customers with financial inclusion

benefits by conducting financial literacy programs and encouraging
people to participate in financial inclusion initiatives with
monetary rewards or by providing employment opportunities for
suitable competent persons of those regional districts

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CONCLUSION

Financial literacy, in that sense, enables an individual to improve

the management of one's finances and avoid distress. At a very
basic level, financial education is about disseminating knowledge
and information about the products and services offered by banks
and other institutions. The objective is to make people aware of the
risks and rewards so that they can make an informed choice.

The country naturally benefits through higher savings and

investments. Realizing the imperatives as well as the advantages,
several countries have set up specialized bodies to spread financial
literacy, supplementing the work done by regulators, financial
institutions, non-governmental organisations and other less formal
agencies. India has no nationwide structured financial education
programme, but significant work is being done by the RBI, SEBI,
Indian Banks' Association, various self-regulatory organisations
and the Banking Code and Standards Board of India under the
financial inclusion programme.

As far as India is concerned, financial literacy and awareness

should go hand in hand, if the very important socio-economic
objective of financial inclusion is to be achieved. The task is
challenging because the majority of the rural population is still
beyond the pale of the banking system. Alternative financial
delivery channels involving the use of modern technology are
being tried out but by the RBI. These will succeed only if financial
literacy deepens. It is heartening that public sector banks have set
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up dedicated centers to promote financial literacy and, eventually,

inclusion.

But the private sector banks will do well to follow this lead, only if
they confirm that this process will benefit them monetarily. They
still wait for the feedback to be received on the success of financial
inclusion programmes initiated by the public sector banks.

In near future surely the private sector banks and other financial
service renders will relatively be benefited from the new markets if
they offer region specific products and financial services.several
related benefits also will flow from concerted programme of
spreading financial literacy.

Consumers who are better informed will demand accountability

and seek redressal of grievances. That, in turn, would enhance the
effectiveness and integrity of financial markets. As financial
education empowers the common person, it reduces the
government's burden in the matter of protecting him or her from
the elements of market failure arising from information
asymmetries. For these and other reasons, the RBI Governor has
said financial literacy is not just a public good but a merit good to
the functioning of financial institutions operating in India.

From the detailed study, it has been inferred that the investment
habit of a large section of Indian society is still unchanged
especially in rural areas. For decades they had never looked beyond
the Government operated schemes for their investment needs or
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they have not moved from banking savings and secure investment
schemes to more sophisticated financial market operations like
trading or investment in mutual funds/debentures. By investing in
zero-risk products, they have become slaves of protectionist
investment behaviour and did not kept pace with the changing
market order. Moreover, common man today is fearful of investing
in other asset classes.

The reason given by many for not investing or avoiding certain

asset classes is lack of knowledge about those asset classes.
Further, the general negative perception that gets built-up by
people around us who failed in their investment, is passed on to the
asset class, instead of the faulty investment decisions made by
those people. The point is, the investment ideology which our
parents and grandparents followed may not be suitable today.
There is a need to evolve and acclamatize ourselves with changing
times and it is becoming increasingly important. For the financial
literacy programme to take wings, the markets will have a big role
to play. Financial illiteracy is a major stumbling block in furthering
financial inclusion. This has led to the financial illiterate segment
making negative savings in many cases. Therefore, banks need to
view the situation as not an obligation to be met but an opportunity
that is to be woven into their business strategies.

The Finance Minister of India, Mr. Pranab Mukherjee, urged

private sector banks to build in financial inclusion plans in their
respective business strategies. Mr. Mukherjee urged the private
sector to support the designing of physical products including
devices, software and financial services, training and capacity
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building so as to create a large manpower pool including business

correspondents, and develop a business plan to tap the local talent
that exists in the rural areas, on the lines of the e-choupal model.
To conclude, Financial Inclusion can emerge as a commercial
profitable business and can truly lift the financial condition and
standard of life of the poor and the disadvantaged. As bankers have
a small but significant role to play in this unfolding of the future
story of economic growth and distribution, other financial market
participants must be included in this process of creating financial
literacy as a measure towards complete financial inclusion and
strive to achieve the set goals. Financial inclusion is not a one-
person show. Its success will depend on the presence of an
institutional environment with clear lines of accountability and
coordination between Government, regulators, financial
institutions, and other key stakeholders. It will be a fruitless
exercise if regulators’ efforts to make relevant and enabling
regulations does not match the corresponding responses from the
financial institutions. Therefore, the research work on Financial
Services Awareness and Investment pattern of the rural masses
would give proper solutions for the people living in the rural areas.

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CHAPTER-7
BIBLIOGRAPHY

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BIBLIOGRAPHY

Priya, B. (2006). Improving Access to Finance for India’s Rural

Poor, Direction in Development, International Bank for
Reconstruction and Development/World Bank, 36448, Washington
DC.
Shetty, V.P. (2006). Challenges of Inclusive Banking, Speech at
IDRBT, Hyderabad, September 2.
Available at www.idrbt.ac.in/speeches_ archives.html
[Thorat, U. (2006). Reading on Financial Inclusion, Indian Institute
of banking and finance, New Delhi, Taxman Publications Pvt: Ltd.
Pandey, D.P. (2007). Financial Inclusion: Role of Micro Finance
Institutions, Rajiv Gandhi Institute of Professional Management,
Allahabad.
Kelkar, V. (2008). Financial Inclusion for Inclusive Growth, N P
Sen Memorial Lecture at
Administrative Staff College of India-Hyderabad, January
Suryanarayana, M.H. (2008). Inclusive Growth: What is so
exclusive about it? WP-2008- 019 Indira Gandhi Institute of
Development Research, Mumbai, October, available at
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Sarma, M. (2008). Index of Financial Inclusion, Indian Council for
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Cuddalore District. Pune and Chennai: College of Agricultural

Banking and IFMR Centre for Microfinance.
Drabu, H.A. (2009). Economics and inclusion, In Sameer Kochaar,
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Ramji, M. (2009). Financial Inclusion in Gulbarga: Finding Usage
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Mukherjee, P. (2010). Speech delivered by Hon’ble FM at the RBI
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22-23, 2010, RBI Bulletin, April.
Rao, S. (2010), RBI Bulletin, January.
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Nagpurkar, S. (2010). Financial Inclusion In the City of Mumbai -
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