Financial inclusion is proving to be a game changer in the Indian banking and financial sector.
In the past few years, banking services have penetrated nearly 60 per cent of the population, covering 14.48 crore of 24.66 crore households across the country. A staggering 25.50 crore new bank accounts were added since the Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched on August 15, 2014.
Although the growth in banking services has been significant, it is well below 80 per cent penetration in the developed economies including the UK,Germany and the US.
The Government of India and Reserve Bank of India have taken a series of measures towards financial inclusion — the delivery of financial services at affordable costs to unbanked people, especially the disadvantaged and low-income segments of society.
The Jan Dhan Yojana, in particular,is an integrated approach to provide financial services to unbanked households, such as savings anddeposit accounts and access toremittance, credit, insurance andpension facilities. The mission envisages at least one bank account per household.
In addition, account holders get RuPay debit card inclusive of accident insurance cover of Rs 1 lakh.
Until a couple of years ago, penetration of banking services was slow because of the tediousprocess of opening bank accounts, especially in rural areas where financial literacy is poor. As a result, people hesitated to approach banks. To cite one example, a nurse working in a government hospital and living on its premises was refuseda basic saving bank deposit (BSBD) account because she did not have address proof. She was allowed to open the account, mainly for salary credit, only after the hospital intervened on her behalf.
But ever since the RBI simplified the procedure, anyone can open an account by producing Aadhaar card. The scheduled commercial banks operating in rural areas and Business Correspondents (BCs) assist the unbanked people in their efforts to become a part of the banking system and also instruct them on how to operate their accounts.
As part of its financial inclusion initiative, the RBI has said that a person who cannot produce KYC documents should be allowed to open a “Small account”, subject to conditions. These accounts offer basic banking services without fees or charges or the need to maintain minimum balance.
If a BSBD account is opened based on simplified KYC norms, it would be treated as a ‘Small Account’ and subject to conditions stipulated for such accounts in the RBI Master Circular, July 1, 2015, on KYC norms, AML standards and obligation of banks under PMLA, 2002.
A ‘Small Account’ also has the following restrictions:
The aggregate of all credits in a financial year should not exceed Rs 1 lakh The aggregate of all withdrawals and transfers in a month should not exceed Rs 10,000 The balance should not exceed Rs 50,000at any point of time In view of this, people in rural areas can easily avail of banking services and encourage others to open accounts. On their part, banks and Business Correspondents must educate villagers on the advantages of banking and financial services.
The Banking Codes and Standards Board of India (BCSBI) continue to emphasize the importance of financial inclusion in the Code of Bank’s Commitment to Customers. The main focus of these Codes is on undertaking financial literacy programmes and asking banks to introduce a system where officials regularly visit the unbanked areas and bring as many people into the formal banking system as possible. On its part, BCSBI has recently published a pictorial representation of the Codes depicting the basic banking rights of a Jan Dhan Yojana customer.
Banking in India will go the last mile only when financial literary is backed by proper technology and infrastructure.