FINANCIAL INCLUSION AND FINANCIAL LITERACY
Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by regulated, mainstream institutional players. Financial Inclusion and Financial Literacy are two pillars, where Financial Inclusion acts on the supply side i.e., for creating access and financial literacy acts from the demand side i.e., creating a demand for the financial products and services.
To connect the excluded with the formal banking system in order to help them obtain an understanding of the financial services available and equipping them with the confidence to make informed financial decisions.
Providing door step banking services to all the 6 lakh villages and meeting their life cycle financial needs through savings, credit, remittance and insurance products.
MINIMUM BOUQUET OF PRODUCTS AND SERVICES
To meet the criterion of availability of banking services, Banks have been advised to offer a minimum of four basic products to customers as part of their FI initiatives.
- A savings cum overdraft account.
- A pure savings account, ideally a recurring or variable recurring deposit
- A remittance product to facilitate EBT and other remittances, and
- Entrepreneurial credit products like a General purpose credit card (GCC) or a Kisan Credit Card (KCC)
COMBINATION OF BRANCH AND BC STRUCTURE TO DELIVER FINANACIAL INCLUSION
RBI has advocated use of a combination of Brick and Mortar structure and BC outlets in extending financial inclusion especially in geographically dispersed areas. Banks have been advised to effectively use technology to provide banking services in remote areas through the Business correspondent (BC) model. The BC model allows banks to provide doorstep delivery of services, especially cash transactions. In this direction RBI, in its Monetary policy statement of April 2012, had advised banks to open intermediate brick and mortar structure between the present base branch and BC locations so as to provide support to about 8-10 BC units at a reasonable distance of 3-4 kilometers. This could be in the form of a low cost simple brick and mortar structure consisting of minimum infrastructure such as a Core Banking Solution (CBS) terminal linked to a pass book printer and a safe for cash retention for operating larger customer transactions. This will lead to efficiency in cash management, documentation, redressal of customer grievances and close supervision of BC operations.
RELAXED REGULATORY DISPENSATION ON KYC NORMS
Know Your Customer (KYC) requirements for opening bank accounts have been relaxed and simplified, especially to small accounts with balances not exceeding Rs.50,000/- and aggregate credits in the accounts not exceeding Rs. one lakh a year. In modification to the earlier guidelines on KYC norms, RBI has now advised banks not to insist on introduction for opening bank accounts of customers. In addition to this RBI has now allowed banks to use Aadhar card as a proof of both identify and address and the MGNREGA job card as an officially valid document for opening of bank accounts.
SIMPLIFIED BRANCH AUTHORISATION
To address the issue of uneven spread of Bank branches, since December 2009, domestic scheduled commercial banks are permitted to freely open branches in Tier 2 to Tier 6 centers with population of less than 1,00,000 under general permission, subject to reporting. In the North Eastern states and Sikkim, domestic scheduled commercial Banks can now open Branches in rural, semi urban and urban centers without the need to take permission from Reserve Bank in each case, subject to reporting.
BUSINESS CORRESPONDENT/ BUSINESS FACILITATOR MODEL.
In January 2006, the Reserve Bank permitted banks to utilize the services of non-governmental organizations (NGOs) micro-finance institutions (other than Non-Banking financial companies) and other civil society organizations as intermediaries in providing financial and banking services through the use of business facilitator and business correspondent (BC) models. The BC model allows Banks to do ‘cash in-cash out’ transactions at a location much closer to the rural population, thus addressing the last mile problem.
ELECTRONIC BENEFIT TRANSFER/DIRECT BENEFIT TRANSFER (DBT)
The Reserve Bank has encouraged banks to use IT –enabled financial inclusion by leveraging on the smart cards/mobile technology. Business correspondents of Banks are making extensive use of hand held devices/mobile phones to reach banking services to remote villages, and especially for Electronic Benefits Transfer of all social security payments & schemes. In this direction, the Reserve Bank has issued an “ Operational guidelines for implementation of Electronic Benefit Transfer and its convergence with Financial Inclusion”, wherein we have advised adoption of the “one district many Bank One Leader Bank Model” for implementation of EBT. In order to implement EBT for routing MGNREGA wages, other social security benefits including proposed cash transfers in respect of subsidies on kerosene, LPG, Fertilizers etc. RBI vide its circular dated November 30, 2011, has advised all scheduled commercial banks to ensure opening of Aadhar Enabled Bank Accounts (AEBA) of all the beneficiaries including those residing in villages with less than 2000 population. Our proactive role has facilitated rollout of DBT for Direct credit of benefits in the account of beneficiaries in related district w.e.f January 1, 2013.
ROADMAP FOR PROVIDING BANKING SERVICES IN VILLAGES WITH POPULATION BELOW 2000.
Pursuant to the achievement under the roadmap for villages’ population above 2000, the focus has now been shifted to providing banking services in all the remaining unbanked villages of the country. In this direction, state Level Bankers committee(SLBC) have been mandated by RBI vide circular dated June 19, 2012 to prepare a roadmap for providing banking services to all the unbanked villages with population less than 2000 and to notionally allot these villages to banks for providing banking services. The objective is to provide a bank account to every household/person throughout the country so that the banking channel can be effectively leveraged for transfer of all state benefits including MGNREGA wages and various other cash subsidies, provided by central/state Governments, directly into the bank accounts of the beneficiaries, through the Electronic Benefit Transfer channel. To ensure success of this endeavour it is necessary that a BC touch point is present in each unbanked village of the country. Further, to start with, Banks have been advised to provide door step services to EBT beneficiaries through regular visits of BCs to the allocated villages, for making it a self sustaining model and over a period of time, provide all kinds of banking services i.e., remittances, recurring deposit, entrepreneurial credit in the form of KCC and GCC, insurance (life and non-life) and other banking services to all the residents of the village through a mix of brick and mortar branch and BC network.
FINANCIAL INCLUSION PLAN 2013-16
The first three year Financial Inclusion plan of Banks for the period 2010-2013 has come to an end. Though there has been reasonable progress as regards penetration of banking services and opening of basic bank accounts are concerned. The number of transactions through the ICT based BC outlets are still very low. In this direction, in order to continue with the process of ensuring access to banking services to the excluded, banks have now been advised to draw up a fresh 3 year Financial Inclusion plan for the period 2013-16. Banks have been advised that the FIPs prepared by them are disaggregated and percolated down up to the branch level. The disaggregations of the plans are being done with a view to ensure involvement of all the stake holders in the FI efforts to ensure uniformity in the reporting structure under the Financial Inclusion plan.
TRANSACTIONS – DIRECT BENEFIT TRANSFER
The recent introductionof Direct Benefit Transfer, leveraging the Aadhar platform, will help facilitate delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries. The government, in future, has plans to route all social security payments through the banking network, using the Aadhar based platform as a unique identifier of beneficiaries. In order to ensure smooth roll out of the Governments direct Benefit Transfer (DBT) initiative. Banks have been advised to:
- Open accounts of all eligible individuals in camp mode with the support of local Government authorities.
- Seed the existing and new accounts with Aadhar numbers.
- Put in place an effective mechanism to monitor and review the progress in implementation of DBT.
Financial Literacy is considered an important adjunct for promoting financial inclusion, consumer protection and ultimately financial stability. Financial Inclusion and financial Literacy need to go hand in hand to enable the common man to understand the need and benefits of the products and services offered by formal financial institutions. Financial Literacy primarily relates to personal finance, which enables individuals to take effective action to improve overall wellbeing and avoid distress in financial matters.
In India, the need for financial Literacy is even greater considering the low levels of literacy and the large section of the population still out of the formal financial set up. Financial literacy has assumed greater importance in recent years as financial markets have become increasingly complex and the common man finds it very difficult to make informed decisions. Further, in view of higher percentage of household savings in our country, financial literacy can play a significant role in the efficient allocation of household savings and the ability of individuals to meet their financial goals.
IMPLEMENTATION OF FINANCIAL INCLUSION – OPENING OF ACCOUNTS AND COMMENCEMENT OF TRANSACTIONS.
The financial Inclusion is on top priority of Government of India and Reserve Bank of India agenda. The progress in implementation of FI is being reviewed by RBI at regular intervals.
For successful implementation of Financial Inclusion, following has to be adopted.
- Authorization of accounts uploaded by BCAs.
- Opening of Ultra Small Branches in FI villages.
- Providing logistic support to BCAs sitting at USBs.
- Issue of passbooks to accounts opened under FI through BCAs.
- Issue of Smart cards to the account holders.
- Commencement of transactions in FI villages.
BCAs have put in lot of efforts for enrolment of accounts. These records are to be authorized, uploaded by branches for opening of accounts in CBS. As per the agreed norms, the accounts are to be opened by 3rd day from the date of receiving AOFs from BCA. It is reported that Branch Managers are keeping the AOFs pending and not authorizing the same. As a result large pendency is being reported, which is adversely commented by our Board of directors also. In the absence of opening of accounts, the BCAs are harassed by the villagers and cannot share their account number with various Govt agencies for receipt of benefits like LPF subsidy, kerosene, pension etc.
In the absence of proper support from Branch Managers, the villagers are not eager to explore the option of doing transactions through POS machines with BCA at USBs. If BCA is defunct, the customer will move to the branch for his transaction as a result the purpose of diverting small amounts (mass transactions) to BCAs will be defeated.
It is advised in many fora that to educate the villagers about Financial Inclusion. Every rural branch is also advised to conduct Financial Literacy meetings in their villages, once in a month.