25-07-2012, 02:40 PM
Financial Inclusion and Performance of Rural Co-operative
Banks in Gujarat
Financial Inclusion.pdf (Size: 130.05 KB / Downloads: 66)
Abstract
In an Index of Financial Inclusion, India has been ranked 50 out of 100 countries. Only 34% of the India’s
population has access to basic banking services. The objective of the paper is to study financial inclusion in
rural areas, reasons for low inclusion, satisfaction level of the rural people toward banking services and to
assess the performance of the banks which are working in the rural areas which mainly include the co
operative banks and regional rural banks. Structured questionnaire designed on the basis of literature
review was used to collect data from 200 people residing in Ambasan, Jotana and Khadalpur villages of
Gujarat. The paper first describes in detail the financial inclusion status in India and Gujarat followed with
a review of scenario at the global level. The third section analyses the data with the help of Chi-square test
and Tabulation followed with the discussion of analysis, recommendations and conclusion indicating that
there is lot of opportunity for the commercial banks to explore the rural unbanked areas. Though Regional
Rural Banks (RRBs) and Primary Agriculture Credit Societies (PACS) have good coverage but most of
them are running into losses. Commercial banks should seize this opportunity rather than looking at it as a
social obligation.
Keywords: Financial inclusion, rural banking, Gujarat, rural cooperative banks
Introduction
The Committee on Financial Inclusion was constituted by the Government of India (Chairman Dr. C.
Rangarajan) on June 26, 2006 to prepare a strategy of financial inclusion. The Committee submitted its
final Report on January 4, 2008. The Report viewed financial inclusion as a comprehensive and holistic
process of ensuring access to financial services and timely and adequate credit, particularly by vulnerable
groups such as weaker sections and low income groups at an affordable cost. Financial inclusion, therefore,
according to the Committee, should include access to mainstream financial products such as bank accounts,
credit, remittances and payment services, financial advisory services and insurance facilities. Several steps
have been taken by the various banks, NGOs and government to bring the financially excluded people to
the fold of the formal banking services. The 100 per cent financial inclusion drive is progressing all over
the country. The financial inclusion in rural areas is necessary and profitable for banking sectors so the
researcher has studied the financial inclusion among the rural people with the help of sample survey and for
that have taken three villages of Gujarat for research purpose. Mainly the focus is on the financial inclusion
in rural areas and what are the problems faced by banks and reasons of financial exclusion of rural people.
Financial Inclusion in India
In India, the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a
savings bank account without frills, to all. Internationally, the financial inclusion has been viewed in a
much wider perspective. Having a current account / savings account on its own, is not regarded as an
accurate indicator of financial inclusion. 'Financial Inclusion' efforts should offer at a minimum, access to a
range of financial services including savings, long and short term credit, insurance, pensions, mortgages,
Research Journal of Finance and Accounting www.iiste.org
money transfers, etc. and all this at a reasonable cost. Out of 19.9 crore households in India, only 6.82 crore
households have access to banking services. As far as rural areas are concerned, out of 13.83 crore rural
households in India, only 4.16 crore rural households have access to basic banking services. In respect of
urban areas, only 49.52% of urban households have access to banking services. Over 41% of adult
population in India does not have bank account.
The RBI recently came up with a State-wise Index of Financial Inclusion. RBI considered three basic
dimensions of an inclusive financial system -- banking penetration, availability of the banking services and
usage of the banking system. In the group of 23 states for which a 3-dimensional IFI (Index of Financial
Inclusion) has been estimated by using data on three dimensions of financial inclusion, Kerala leads with
the highest value of IFI followed by Maharashtra and Karnataka. Gujarat lagged behind at 11th place.
In an Index of Financial Inclusion, India has been ranked 50 out of 100 countries. At present, only 34% of
the India’s population has access to basic banking services. The latest National Sample Survey
Organisation survey reports that there are over 80 million poor people living in the cities and towns of India
and they lack access to the most basic banking services. The Report Committee on Financial Inclusion
headed by Dr.C.Rangarajan (2008) has observed that financial inclusion must be taken up in a mission
mode and suggested a National Mission on Financial Inclusion (NMFI) comprising representation of all
stakeholders for suggesting the overall policy changes required, and supporting stakeholders in the domain
of public, private and NGO sectors in undertaking promotional initiatives.
A sample study carried out by the Banking Codes and Standards Board of India in Mumbai revealed the
poor awareness about ‘no-frills’ accounts and relaxed KYC norms amongst the bank staff itself, a general
unwillingness by the bank staff to open ‘no-frills’ accounts for persons of small means, the account opening
forms were not simplified and did not contain any information about the required documents under
simplified KYC norms and none of the branches the staff were in a position to offer any guidance in case
the prospective customer was not in a position to produce required documents in proof of identity and
address. As a result, the weaker sections of India hesitate to take part in financial inclusion and help to
increase economic growth of the country.
Literature Review of Financial Inclusion
Cole et al. (2009) concluded that financial literacy program has no effect on the likelihood of opening a
bank savings account, but do find modest effects for uneducated and financially illiterate households. In
contrast, small subsidy payments have a large effect on the likelihood of opening a savings account. These
payments are more than two times more cost-effective than the financial literacy training.
Increasing proliferation of mobile services and ATMs in rural areas of India has created a new opportunity
to attain financial inclusion and thus an effective tool to provide financial services to the un-banked areas
with reduced overheads with providing access to banking services in remote rural destinations of India
(Gupta and Gupta, 2008).