K C Chakrabarty: Revving up the growth engine through financial
inclusion
Address by Dr K C Chakrabarty, Deputy Governor of the Reserve Bank of India, at the
32nd Skoch Summit, Mumbai, 6 June 2013.
* * *
1. Mr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission;
Mr. U.K. Sinha, Chairman, SEBI; Mr. Sameer Kochhar, Chairman, Skoch Group; Ms. Stuti
Kacker, Secretary, Department of Disability Affairs, Ministry of Social Justice and
Empowerment; Mr. S.S. Tarapore, Distinguished Fellow, Skoch Development Foundation;
Ms. Chitra Ramkrishna, Managing Director and CEO, NSE; Mr. Bhaskar Pramanik,
Chairman, Microsoft Corporation (India); delegates to the Summit; members of the print and
electronic media; ladies and gentlemen. It is a pleasure and privilege for me to be present
here today at the inaugural session of the 32nd Skoch Summit on the theme of "Regaining
8% Growth with Equity". I find the theme of the conference particularly relevant now as the
temporary loss of growth momentum provides us an opportunity to recalibrate our growth
strategies to ensure that the benefits of future economic growth are shared by all sections of
the society, particularly, the poor and excluded groups. This objective needs to be at the core
of any strategy that we adopt to rekindle the growth momentum. Hence, I congratulate Skoch
for choosing this particular theme for its Summit.
2. Considering the illustrious and respected bevy of speakers who would be sharing
their views on regaining the higher growth trajectory during the day, I would concentrate on
highlighting some of the recent initiatives that we have taken to ensure that the objective of
equitable growth is achieved through financial inclusion (FI) particularly, inclusion of the poor
and marginalised sections of the society. I would also share some of the challenges that
currently hinder our FI initiatives.
Our approach to financial inclusion
3. We have sought to adopt a structured and planned approach towards FI by not just
focussing on improving access to financial services but also encouraging demand for
financial services through financial literacy initiatives. Some of the defining features of our
approach to FI are:

We have adopted a bank-led model for FI, but have permitted non-bank entities to
partner banks in their FI initiatives.

We have encouraged banks to leverage technology to attain greater reach and
penetration while keeping the cost of providing financial services to the minimum.
While we remain technology neutral, we require banks to seamlessly integrate
whatever technology they choose, with their CBS architecture.

As a philosophy, we have always encouraged banks to pursue FI as a commercial
activity and to not view it as social service or charity. The self-sustainability and
commercial viability of the FI initiatives are important if banks have to scale up their
operations to cover more unbanked areas.

We have advised banks to adopt innovative business models and delivery channels
to expand their FI efforts. There is a need for banks to develop new products and
design new delivery models that are customized to the unique needs of the
financially excluded population, both in the rural and urban areas.

The Reserve Bank has sought to play a supportive role in FI by creating a conducive
regulatory environment and providing institutional support to banks in their FI efforts.
Importantly, we have provided banks the freedom and the space to determine their
own strategies for rolling out FI and have encouraged them to identify their own
goals and targets through their respective Financial Inclusion Plans.
Institutional mechanism
4. Our strength lies in the fact that we have created a robust institutional mechanism to
support the roll out of banking services across the country. This was essential considering
the enormity of the task in terms of the number of excluded people and the geographical size
of the country. Our institutional architecture includes:

The Financial Stability and Development Council (FSDC) chaired by the Union
Finance Minister and involving heads of all financial sector regulators, which has
financial inclusion and financial literacy as one of its important mandates.
 A technical group on financial inclusion and financial literacy under the FSDC
involving not just the financial sector regulators, but also the education boards and
curriculum developers.

A high level Financial Inclusion Advisory Committee (FIAC) set up by RBI to focus
on providing strategic direction to FI initiatives across various stakeholders.

A strong institutional mechanism at the level of banks through 35 State level
Bankers' Committees, 644 Lead District Managers and more than 100 thousand
bank branches.

More than 700 Financial Literacy Centres and RSETIs imparting financial literacy to
complement the financial inclusion measures.
Recent financial inclusion initiatives
5. Learning from the experience gained from the outcomes of our FI initiatives over the
years, the Reserve Bank has taken certain additional steps to provide greater impetus to the
process of financial inclusion.
 We have encouraged banks to adopt a structured and planned approach to financial
inclusion with commitment at the highest levels, through preparation of Board
approved Financial Inclusion Plans (FIPs). The first phase of FIPs was implemented
over the period 2010-2013. The Reserve Bank has sought to use the FIPs as the
basis for FI initiatives at bank level through certain measures:
- Banks advised to prepare Board approved FIPs for the period 2013-2016.
- RRBs also advised to prepare comprehensive FIPs, consequent to their
migration to CBS in 2011.
- In order to ensure closer monitoring of FI performance of bank branches,
banks have been advised to disaggregate their FIPs up to controlling office
and branch level.
- Structured, comprehensive monitoring mechanism put in place by RBI for
evaluating banks' performance against their FIP plans. Annual review
meetings are being held with CMDs of banks to ensure top management
support and commitment to the FI process.

In the Annual Policy Statement for 2013-14, banks have been advised to consider
frontloading (prioritizing) the opening of branches in unbanked rural centres over a
three year cycle co-terminus with their FIPs. This is expected to facilitate the branch
expansion in unbanked rural centres.

After successful achievement of the target of ensuring provision of banking services
through a banking outlet in every village with population above 2000 by March 2012,
SLBCs were advised to prepare a road map for provision of banking services in all
unbanked villages with population below 2000 in a time bound manner. Under the
road map, SLBCs have identified about 485000 unbanked villages with population
less than 2000 and the same have been allotted to banks.

An integrated approach has been adopted for achieving financial inclusion through
financial literacy. Financial Literacy Centres and rural branches of scheduled
commercial banks have been advised to conduct outdoor Financial Literacy Camps
at least once a month.

In order to ensure consistency in the messages reaching the target audience of
financially excluded people through these financial literacy camps, the Reserve
Bank has released a comprehensive Financial Literacy Guide containing guidance
note for trainers, operational guidelines for conduct of financial literacy camps and
financial literacy material.

In order to ensure smooth roll out of the Government's 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 Aadhaar numbers.
- Put in place an effective mechanism to monitor and review the progress in
implementation of DBT.

Emphasis is on increasing the proportion of brick and mortar branches vis-a-vis BC
outlets. The guidelines on opening 25% of all new branches in unbanked rural
centres and opening of intermediate brick and mortar structures have been issued
for this purpose.

Greater emphasis is being placed on volume of transactions carried out through the
newly opened bank accounts. The monitoring format for progress in FIP has been
modified to include detailed coverage of transactions in savings, credit and EBT
accounts through BCs. Besides, banks have also been advised to monitor cost
incurred on financial inclusion activities.
Challenges to financial inclusion
6. While several initiatives are being taken for ensuring widespread financial access,
certain factors continue to impede progress. Let me highlight some of the major issues that
various stakeholders face in their quest for universal financial inclusion:

The goal of universal financial access is yet to receive the complete conviction/
commitment of the Board/ top management of banks. This is often due to a lack of
genuine belief that this can be pursued as a profitable business activity. I have
always maintained that the expenses incurred on FI initiatives need to be viewed as
an investment instead of being considered as expenses, and the same should be
weighed against present/ future benefits likely to accrue from the same.

Another major challenge is that banks are yet to develop sustainable and scalable
business and delivery models to guide their FI initiatives. While several alternate
models have been tried out, the time has come for banks to zero in on the models
that they find most suited to their goals and to focus on scaling up the same.

While access to financial services has improved, the usage of the financial
infrastructure continues to be tardy. While more than 2.70 lakh banking outlets are
available across the country, the number of transactions in these accounts remains
unimpressive. For instance, nearly half of the Basic Savings Bank Deposit accounts
are not seeing transactions. This not only restricts the potential benefits that could
accrue from increased financial access but also reduces the viability of FI activities
for banks and BCs. The reduced viability, in turn, impacts the scalability of the
model, thereby hampering FI efforts.

Technology issues: While banks have innovated on technology, the same has not
resulted in significant reduction in the cost of providing financial services.
Beneficiaries/ stakeholders often complain of constraints in digital/ physical
connectivity. This coupled with delays in issuance of smart cards, reliability issues in
hardware infrastructure such as hand held devices, etc. have impacted the quick roll
out of financial services across the country. It is, indeed, disheartening to note that
India, despite being the software service provider to the world, is unable to develop
reliable software solutions and back office services for supporting our own FI
activities.

The process of seeding the bank accounts with Aadhaar numbers is faced with
various constraints which could impact the roll out of the Government's DBT
initiatives.

At last, I would say that the collective will power of the society and of all the
concerned stakeholders is lacking and, consequently, the mission of complete
financial inclusion is yet to become a national ambition.
Conclusion
7. The task of financial inclusion in a country like ours with large population and
geographical spread is, indeed, challenging. The data released from the recent census of
India indicates that only 58.7% of households in India avail of banking services with the
figure being 54.4% for rural areas and 67.8% for urban areas. While there is greater
awareness among policy makers and financial sector participants about the importance of
prioritising the goal of universal financial access, there is a need to ensure that progress on
the ground is in line with these expectations. The opening of bank accounts is only the first
stage and the focus now is not just on improving access but also on better use of the
financial infrastructure. In this regard, the collaborative approach combining financial
inclusion with financial literacy, along with closer monitoring of progress in transactions, is
expected to boost operations in FI accounts.
8. Considering the enormity of the task, the combined will power of the society is
required to ensure success in this challenging objective. All stakeholders, including policy
makers, regulators, state and district administration, IT solution providers, software and
hardware vendors, civic society, media and public at large have to come together and pool
their collective might if we have to ensure that the goal of meaningful financial inclusion and
leveraging financial access as a means for economic empowerment of the excluded masses,
is successfully achieved.
Thank you.
Annex:
Progress in financial inclusion
Year Year Year Year Progress
SR Particulars ended ended ended ended April 10-
Mar 10 Mar 11 Mar 12 March 13 March 13
1 Banking Outlets - Rural
Branches 33378 34811 37471 40845 7467
2 Banking Outlets - BCs 34174 80802 141136 221341 187167
3 Banking Outlets - Other
Modes 142 595 3146 8424 8282
4 Banking Outlets -TOTAL 67694 116208 181753 270610 202916
5 Urban Locations covered
through BCs 447 3771 5891 27124 26677
6 BSBD Accounts (No. in lakh) 734.53 1047.59 1385.04 1833.30 1098.77
7 OD facility availed in BSBD
Accounts (No. in lakh) 1.83 6.06 27.05 39.42 37.59
8 KCCs (No. in lakh) 243.07 271.12 302.35 337.87 82.43
9 GCC (No. in lakh) 13.87 16.99 21.08 36.29 22.28
10 BC-ICT Accounts (No. in
lakh) 132.65 316.30 573.01 810.38 677.73
11 ICT Accounts-BC-Total
Transactions (No. in lakh) 265.15 841.64 1410.93 2546.51 4799.08