usha thorat : financial inclusion and information technology keynote address by ms usha thorat, deputy governor of the reserve bank of india, at the “ vision 2020 – indian financial services sector ”, hosted by ndtv, mumbai, 12 september 2008. * * * it is indeed very heartening to be here at this wipro - ndtv convergence conference on “ vision 2020 – indian financial services sector ”. i thank the organizers for inviting me here today. introduction the banking system has grown enormously in the last five years keeping pace with and in some cases leading the country ’ s remarkable economic growth. simultaneously, the banking system has improved its strength, efficiency and resilience. there have also been significant improvements in the payments and settlements system and electronic payments and rtgs is now much more in use. it has played a major role in these achievements. today banks have centralised operations, more and more banks and branches are moving to cbs, network based computing, new delivery channels such as networked atms, internet banking, smart card based products, mobile access etc and are using it for customer relationship management, customer transaction pattern analysis credit profiling and risk management. at the same time, large number of households continues to be excluded from the formal banking system and as per some recent surveys their share has increased. the extent and reasons for exclusion are many and have been well documented in the rangarajan committee ( rc ) and more recently in the very comprehensive and analytical section on financial inclusion in rbi ’ s latest currency and finance ( rcf ) released a few days ago. the rcf points out that despite the broad international consensus regarding the importance of access to finance as a crucial poverty alleviation tool, it is estimated that globally over two billion people are currently excluded from access to financial services ( united nations, 2006 ). definitional issues no universally accepted definition of financial inclusion is available. financial inclusion has generally been defined in terms of exclusion from the financial system. broadly, financial exclusion is construed as the inability to access necessary financial services in an appropriate form due to problems associated with access, conditions, prices, marketing or self - exclusion. the working or operational definitions of financial exclusion generally focus on ownership or access to particular financial products and services. there is no single comprehensive measure that can be used to indicate the extent of financial inclusion across economies. specific indicators such as number of bank accounts, number of bank branches, that are generally used as measures of financial inclusion

’ identification and credit reporting “ technologies that reduce asymmetric information in credit markets are technological innovations which can be leveraged for improved borrower identification. bio - metric authentication helps to reduce leakages and ensure that government transfers direct to bank accounts achieve the desired objective of financial inclusion, thus creating a better enabling environment and increasing penetrative outreach for optimal results. ” “ financial inclusion is critical to ensure equitable economic growth and a just society. ” leveraging technology makes it easy to leap frog the barriers of geography for sustainable, scalable financial inclusion. empowering small banks alternate types of payment banks are also viable options. we also require effective financial literacy to bridge the gap to demand and supply of financial services. one key barrier the poor and small businesses face in accessing financial services is the lack of sufficient understanding of these services and the opportunities and risks they present. financial literacy has been given a great push by the rbi to help the poor people, better manage their finances and protect them against exploitation. rbi has advised banks to organise literacy camp. usage of credit bureau also helps to build credit histories and it affects how they are evaluated for credit. there are three sides of the triangle – financial literacy, financial inclusion leading to financial stability. financial literacy we also require effects of financial literacy to bridge the gap between demand and supply of financial products and services. financial literacy is an important adjunct for promoting financial inclusion, consumer protection and ultimately financial stability. rbi has advised banks to set up financial literacy centre ’ s ( flc ) in all the districts of the country. banks have already set up around 942 flcs as of march 2014. banks have been further advised to scale up financial literacy efforts through conduct of outdoor financial literacy camps, at least once a month, both by the flcs and also by all the rural branches. in order to ensure consistency in the messages reaching the target audience of financially excluded people during the financial literacy camps, rbi has prepared a comprehensive financial literacy guide containing guidance note for trainers, operational guidelines for conduct of financial literacy camps & financial literacy material as also a financial diary and a set of 16 posters. banks have been advised to use the material as a standard curriculum to impart basic conceptual understanding of financial products and services. while improving financial literacy is a necessary step in protecting consumer from exploitation or exclusionary practices, it is not a sufficient step. regulation must be redesigned to ensure that while extending adequate precaution the poor are not kept within the financial services because of regulatory