s financial system, first as a commercial banker and now as a central banker, i intend to use this opportunity today to share my perspectives on the approach adopted by rbi as the regulator of indian banks for making the indian banking bis central bankers ’ speeches sector more inclusive and relevant to a large cross - section of the indian economy and society. i shall also delve on the challenges which the banking system is encountering in realizing the goal of universal financial inclusion and the innovation and reforms that may be necessary to overcome some of these challenges. i also wish to emphasize that having bright and innovative ideas do not have any meaning until and unless they are acted upon. i, therefore, compliment the organizers for including “ implementation ” as an element of the theme for the conference, as i believe that rigor in implementation is extremely important for realization of the dream of universal access to financial services and products. why is financial inclusion necessary? 9. the ilo declaration of philadelphia in 1944 proclaimed that “ poverty anywhere is a threat to prosperity everywhere. ” it is universally agreed now that financial inclusion helps build domestic savings, bolster household, domestic and financial sector resilience and stimulate business and entrepreneurial activity, while exclusion leads to increasing inequality, impediments to growth and development. thus, financial inclusion is an important tool for poverty alleviation as it not only connects individuals to the formal financial system, but also inculcates savings habit among them. hence, financial inclusion or inclusive banking is a precursor for inclusive and sustainable economic growth. financial exclusion : dimension of the problem 10. an accusation that has come to be levied against the banking sector in the aftermath of the financial crisis is that it has failed to be “ inclusive ”. let me tell you that the indian banking system is not alone in failing the “ inclusion ” test. it is only the degree of exclusion that varies between different jurisdictions. the financial inclusion action plan ( fiap ) developed by the g20 global partnership for financial inclusion mentions that the universal financial inclusion initiative requires bringing the 2. 5 billion people ( or about half the working age population ) currently excluded, into the formal financial system. 11. that brings us to the question how inclusive is the indian financial system? census 2011 gives us some answers. out of 24. 67 crore households in the country, only about 14. 48 crore or 58. 70 per cent households had access to banking services. further, of the 16. 78 crore rural households only about 9. 14

in about 300 b. c., has also mentioned about the existence of powerful guilds of merchant bankers who received deposits, and advanced loans and issued hundis ( letters of transfer ). in the modern times, an experienced scottish goldsmith, william paterson, is credited with the idea of setting up a national bank in britain in 1688, which gave birth to the bank of england. the modern day banking, in its simplest form, is meant to facilitate financial intermediation between the savers and the borrowers. it also seeks to act as a safe place to store money and earn some return in the process, as also a place to seek simple financial solutions to individual problems. the advent of technology in modern times has heralded three distinct phases in banking : a ) computerization of back office processes during the 1980s, b ) facilitating higher customer convenience during the 1990s and c ) enabling lifestyle / life stage banking during the 2000s. thus, over time, the banks have witnessed significant changes in their outlook and have emerged as financial supermarkets offering a range of complex financial products and services on a round the clock basis, duly customized to the needs of their customers through multiple delivery channels. 7. rbi, as the regulator of banks in india, has increasingly deregulated the sector and has allowed the market players to develop products and services best suited to their customers. as a result, both in terms of products & services and delivery channels, there has not been any dearth of innovations. on the product front, the innovations have led to emergence of complex offerings like swaps, derivatives and securitization, while on the other hand, the delivery channel is no more limited to brick and mortar branches, but has spread to modern, technology - driven channels like atms, mobile, internet and the social media, besides the business correspondent model. thus, over the years, there has been tremendous amount of progress and innovations in the sector. however, these developments have, simultaneously, raised certain pertinent questions : • whom have these innovations benefited? • are these product offerings demand driven? • have the banks addressed the “ suitability and appropriateness ” question? • have the charges for various services been made transparent and nondiscriminatory? why banks are still a place where ordinary mortals fear to tread? • why has a large section of the society remained financially excluded despite sincere efforts of the regulator as well as the policy makers? 8. having an insider ’ s view of india ’