###### 1.3 LITERATURE REVIEW

######### EVOLUTION OF FINANCIAL INCLUSION IN INDIA

Prior to 1990, several initiatives were undertaken for enhancing the use of the banking system for sustainable and equitable growth. These included nationalization of private sector banks, introduction of priority sector lending norms, the Lead Bank Scheme, branch licensing norms with focus on rural/semi-urban branches, interest rate ceilings for credit to the weaker sections and creation of specialized financial institutions to cater to the requirement of the agriculture and the rural sectors having the bulk of poor population. The different phases of financial inclusion measures at various points of time could be described as under.

######### Credit channeling (The first phase 1960-1990)

The term Credit channeling was introduced in India in late 1960s. In the first phase (starting in the late 1960s to the 1980s), the focus was on channeling of credit to the neglected sectors of the economy. Special emphasis was also laid on weaker sections of the society. Although the term 'financial inclusion' was not in vogue in India then, both the Government of India and the Reserve Bank have been concerned about the non availability of banking facilities to the under- privileged and weaker 5 sections of the society. Accordingly, several initiatives have been taken over time such as nationalization of banks, prescription of priority sector targets, lending to weaker sections at concessional rates and initiation of the lead bank scheme. These initiatives were undertaken at different point of time to expand the outreach of banking facilities and thereby increase the flow of credit to the rural areas. During this period, 19 banks were nationalized to improve the rural and agricultural credit. Henceforth, the nationalized banks have started mobilizing deposits on a massive scale and lending funds for all productive activities. In order to encourage commercial banks and other institutions to grant loans to various categories of small borrowers, the Reserve Bank promoted the establishment of the Credit Guarantee Corporation of India in 1971 for providing guarantees against the risk of default in repayment. The scheme, however, was subsequently discontinued. But, the broad approach towards financial inclusion followed in India in the 1970s and the 1980s were more oriented towards credit requirements of specific sectors/segments and there was relatively low emphasis on individual / household level inclusion. Hence, the social control of banking policy was soon followed by the nationalization of major Indian banks and also the promotional aspects of banking policy have come into greater prominence. The major emphasis of the branch licensing policy during the 1970s and the 1980s were the expansion of commercial bank branches in the rural areas, resulting in a significant expansion of bank branches thereby increasing effective services to the population in every branch. The branch expansion policy was designed, inter alia, as a tool for reducing inter-regional disparities in banking development, deployment of credit and urban-rural pattern of credit distribution. After the major emphasis of the branch licensing policy of commercial banks, the National Bank for Agriculture and Rural Development (NABARD) was established as 6 an apex rural development bank in the year 1982, through an Act of Parliament. It aims to provide refinance for agriculture, allied activities, small scale industries, cottage industries, rural artisans and crafts in an integrated manner.