“India has stolen a march in financial inclusion with the initiation of Prime Minister Jan Dhan Yojana (PMJDY) accounts since 2014, using the banking correspondent (BC) model judiciously for furthering financial inclusion,” the report noted.
It also said that the BC model has enabled to provide a defined range of banking services at low cost and is instrumental in improving financial inclusion.
What in financial inclusion
The World Bank defines financial inclusion as a situation where businesses and individuals have access to useful and affordable financial products and services.
Having easy access to a bank account through which an individual can conduct a transaction is the first step towards a broader financial inclusion.
Progress so far
Sound financial inclusion policies have a multiplier effect on economic growth, reducing poverty and income inequality, while also being conducive for financial stability.
With mobile and internet banking transactions rising to 13,615 per 1,000 adults in 2020 from 183 in 2015 and the number of bank branches inching up to 14.7 per 1 lakh adults in 2020 from 13.6 in 2015, India is now higher than Germany, China and South Africa in financial inclusion metrics.
Centre’s PMJDY push has led to a rise in number of bank deposit accounts.
During the past 7 years of the financial inclusion drive, the number of no-frills bank accounts opened has reached 43.7 crore with Rs 1.46 lakh crore in deposits as of October 20, 2021. Of these, nearly two-thirds are operational in rural and semi-urban areas and over 78 per cent of these accounts are with state-owned banks, 18.2 per cent with regional rural banks, and a paltry three per cent are opened by private sector banks.
The number of bank branches in rural areas has also increased from 33,378 in March 2010 to 55,073 in December 2020. The number of banking outlets in villages/ banking correspondents (BCs) has soared from 34,174 in March 2010 to 12.4 lakh in December 2020.
Public sector banks have opened 34 crore of the total 44 crore no-frills accounts and the private sector ones just 1.3 crore of them.
Benefits of financial inclusion
Economists at SBI studied the impact of Jan Dhan accounts on crimes.
It said that states with higher financial inclusion and more bank accounts have seen a perceptible decline in crime along with a meaningful drop in consumption of alcohol and tobaccos.
“Crimes against women and children has increased by 7.3 per cent in 2018 and 4.5 per cent in 2019, however, there is a decline of 8.3 per cent in 2020,” the report said.
It was also observed that there was a meaningful drop in consumption of intoxicants like alcohol and tobacco products in states where more PMJDY accounts were opened.
“This could be because of Jan Dhan-Aadhaar-Mobile (JAM) trinity which has helped in better channelising of government subsidies and helped in curbing the unproductive expenditure such as alcohol and tobacco expenses in rural areas,” it added.
BC model and its challenges
Banks have been making efforts by expanding their brick and mortar branches to reach the unbanked population in remote and unbanked villages.
The major credit for the financial inclusion drive should go to the RBI which in January 2016 allowed the business correspondent model of branchless banking.
This not only made financial services accessible for the un-/underbanked population through a branchless banking
facility but also supported the national agenda for employment generation.
Calling for fine-tuning the non-branch banking correspondent model by making it uniform across all banks since after the 2017 new branch authorisation policy came into force, there is a need to make the BCs interoperable.
The new norms recognise BCs that provide banking services for a minimum of four hours per day and at least five-day a week, as banking outlets has progressively obviated the need to set up brick-and-mortar branches.
According to RBI guidelines, while a BC can work for more than one bank, at the point of customer interface, a retail outlet or a sub-agent of a BC shall represent and provide banking services of only one bank.
However, the model comes with its own challenges.
It is sometimes observed that there is no uniformity among the BCs across banks regarding adherence to guidelines.
PSBs mostly follow ‘Branch Led BC Model’, while other banks follow ‘Branch Less/Corporate BC model’.
The BCs of PSBs are extending all the basic banking services, including opening of accounts, from a fixed location under the oversight of specific bank branch.
The report said that as per estimates, Rs 1.0-1.5 lakh capital expenditure is required to set-up a Kiosk under Bank led BC model.
While, the capex of other banks BC model in ‘Micro ATM/Kiosk Application on Mobile’ is around Rs 30,000 or less, the report noted.