Financial Inclusion in India and Its Challenges

Financial Inclusion in India and Its Challenges

National Strategy for Financial Inclusion (NSFI)Priority 1


From UPSC perspective, the following things are important :

Prelims level : National Strategy for Financial Inclusion (NSFI)

Mains level : Financial inclusion in India

The Reserve Bank of India (RBI) has chalked out an ambitious strategy for financial inclusion of all till 2024.

National Strategy for Financial Inclusion (NSFI)

  • Financial inclusion is increasingly being recognised as a key driver of economic growth and poverty alleviation the world over.
  • The strategy aims to strengthen the ecosystem for various modes of digital financial services in all Tier-II to Tier VI centres to create the necessary infrastructure to move towards a less-cash society by March 2022.
  • One of the objectives of the strategy includes increasing outreach of banking outlets of to provide banking access to every village within a 5-km radius or a hamlet of 500 households in hilly areas by March 2020.
  • RBI said that the aim was also to see that every adult had access to a financial service provider through a mobile device by March 2024.
  • With the aim of providing basic of financial services, a target has been set that every willing and eligible adult, who has been enrolled under the PM Jan Dhan Yojana, be enrolled under an insurance scheme and a pension scheme by March 2020.
  • The plan is also to make the Public Credit Registry (PCR) fully operational by March 2022 so that authorised financial entities could leverage the same for assessing credit proposals from all citizens.
Financial Inclusion in India and Its Challenges

[op-ed snap] Small and inclusiveop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Small Finance Banks

Mains level : Financial Inclusion


INDIA’S central bank has been criticized for being conservative in lifting entry barriers for new players in the banking sector.

On tap licensing

  • It has been three years after the RBI approved licenses to 10 small finance banks.
  • It has now issued the final guidelines for licensing such banks throughout the year or on tap.


  • The bar has been raised for new entrants in terms of higher capital requirements — Rs 200 crore from Rs 100 crore earlier.
  • Stiffer prudential norms on a continuing basis.
  • Mandatory requirement to list after three years when the net worth tops Rs 500 crore.


  • The new approach to granting differentiated licenses to small finance banks and payment banks is welcome.
  • In the current context, established full-service large banks are scaling back their franchises to reduce expenditure.
  • There is also the impact of the planned mergers of some of the state-owned banks.

Small banks

  • Small finance banks have the potential to provide an alternative to some of the existing institutions.
  • Their mandated focus on small and medium businesses, the informal sector, small and marginal farmers will increase financial inclusion.
  • It also serves a variety of unserved clients in the hinterland and tier three and four cities and towns.

Performance of SFBs

  • The RBI’s review of the performance of small finance banks shows that they have achieved their priority sector targets and attained the mandate for furthering financial inclusion.
  • These banks account for less than 0.5% of total deposits and less than 1% of total advances.
  • Many of them have been growing their loan books at a good clip. 


  • Their challenge is in building a franchise.
  • There are also the challenges of ensuring relatively low-cost operations by diversifying their loan portfolios and lowering the old legacy loan stock and wholesale deposits. All these can get costly. 
  • They need to put in place robust technology platforms and modern risk management systems.

Way ahead

  • Experience has shown that a competitive banking system can help foster a more inclusive financial sector. 
  • Small finance banks could occupy the space being gradually vacated by some of the bigger banks.
  • They can complement them in segments such as micro and small businesses and the informal sector.
  • Their success will depend on asset quality, the level, and standards of governance and regulatory oversight.


Small Finance Banks

  • The small finance bank shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganized sector entities.
  • There will not be any restriction in the area of operations of small finance banks.
Financial Inclusion in India and Its Challenges

[op-ed snap] India scores on financial inclusionop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Financial Inclusion in India


According to the report, Global Microscope report on inclusion, by the Economist Intelligence Unit (EIU), India has the fifth most conducive environment among emerging countries for inclusive finance.

Facts of report

    • Only Columbia, Peru, Uruguay and Mexico are ahead of India. 
    • The EIU’s analysis takes four basic parameters into account: 
      • whether non-banks can issue e-money
      • the presence of financial service agents
      • proportionate customer due diligence
      • effective financial consumer protection
    • Of the 55 countries assessed, only four scored perfectly across all four enablers.  India is among them.

India – Financial Inclusion

    • Amartya Sen has famously once remarked that “poverty is the deprivation of opportunity”. 
    • Former US president Bill Clinton, on a visit to an Indian village, was quoted as saying all that India’s poor needed was “education and some credit”. 
    • It’s the credit part that financial inclusion initiatives aim to provide. 
    • The poor opened bank accounts under the government’s Jan Dhan Yojana. In 2011, only 40% of Indian adults had an account, according to the Global Findex report; now almost 80% have one.

Way ahead

    • It remains unclear whether poverty itself is being alleviated as a result of such inclusion. 
    • At least it’s possible for the government to directly reach a vast chunk of the population with cash transfers. 
    • Such handouts could help bridge gaps in people’s ability to use these accounts. 
    • Over time, if rural incomes witness an uptrend and non-financial inclusion goes up, India could fulfill the objective of the whole exercise.



Financial Inclusion in India: Need and future; PMJDY; Payment Banks and Small Banks

Financial Inclusion in India and Its Challenges

[op-ed of the day] Governing India through fiscal mathMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Concerns with maintaing Strict Fiscal Deficit approach

Note- Op-ed of the day is the most important editorial of the day. Aspirants should try to cover at least this editorial on a daily basis to have command over most important issues in news. It will help in enhancing and enriching the content in mains answers. Please do not miss at any cost.


While it is important for a government to pursue a sound economic policy, including management of the public finances, it is yet another matter to make a fetish of any one aspect of it. The latter appears to govern this government’s approach to policy when the fiscal deficit is given pride of place in its self-assessment.

Thread of fiscal discipline

  • Soon after the Budget for 2019-20 was presented, one of the Finance Minister’s predecessors remarked that “fiscal prudence rewards economies”.
  • It figured in the most recent Economic Survey, and its anticipated magnitude for 2019-20 was the final statement in the Budget speech that had followed.
  • The Finance Minister had commenced the speech saying how the government was committed to fiscal discipline.

Fiscal discipline

  • In the context, “fiscal discipline” is understood as taking the economy towards the 3% of the gross domestic product.
  • Actually, the point is two-fold:
    • whether the fiscal deficit should be the sole index of fiscal management
    • what a reduction in the deficit would achieve.

Not always a perfect measure

While a sound fiscal policy is highly desirable, the magnitude of the fiscal deficit is not always and everywhere — think here of the state of the economy — a good measure of soundness.

 Overall imbalance in the Budget

  • First, the fiscal deficit reflects the overall imbalance in the Budget.
  • Embedded in the accounts of the government is the revenue account which is a statement of current receipts and expenditure.
  • A fiscal deficit may or may not contain within it a deficit on the revenue account, termed the “revenue deficit”.
  • The possible embeddedness of a revenue deficit within a fiscal deficit muddies the waters somewhat.
  • For movements in the overall, or fiscal, deficit by itself tell us nothing about what is happening to the revenue deficit.
  • A revenue deficit implies that the government is dissaving.
  • Therefore, unless the revenue deficit is kept explicitly in the picture, we cannot deduce the soundness of economic management from a mere reduction in the fiscal deficit.

Rewards yet to be seen

  • A revenue deficit of the Central government is relatively recent, having been virtually non-existent till the 1980s.
  • After that a rampant populism has taken over all political parties, reflected in revenue deficits accounting for over two thirds of the fiscal deficit such as the case today.

Implications of Revenue deficits

  • Revenue deficits have become structural in India by now.
  • This has three implications:
    • That the public debt is only bound to rise;
    • we are permanently borrowing to consume,
    • And leaving it to future generations to inherit the debt.

International borrowing

  • Of late an entirely new dimension has been added to fiscal management, but here again the appropriateness of conducting economic policy by reference to the magnitude of the fiscal deficit remains the issue.
  • In the last Budget the government has signalled its intention to borrow in foreign currency from the international market.
  • This is an innovation alright as the Government of India has so far never borrowed in the international markets, leaving it to public sector organisations and the private corporate sector to do so.

Justification of the move

  • In the Budget speech of the 17th Lok Sabha, the Finance Minister justified the move in terms of the very low share of foreign debt to GDP.
  • The proposal has received criticism, some of it focussing on the consequences of exchange rate volatility.

Concerns with it 

  • Benefits have been flagged too, such as that Indian sovereign bonds will attract a lower risk premium because the price of the foreign-currency-denominated sovereign bond will now be discoverable.
  • This though ignores the biggest lesson from the global financial crisis of 2007, that the market cannot be relied upon to price risk correctly.
  • And, both arguments overlook the foreign exchange constraint.
  • Dollar-denominated debt has to be repaid in dollars.
  • Right now our reserves are fairly high but this could change.
  • Oil prices could go back to where they were, the trade war initiated by U.S. President Donald Trump holds little prospect for faster export growth, and portfolio investment may flow out.
  • While these are only possibilities, they point to the need to ultimately base your borrowing plan on expected dollar earnings.
  • The opportunity offered by low global interest rates right now is not matched by the likelihood of robust export growth.


  • In the final analysis though, it is not the risk of exchange rate depreciation or stagnant exports or even capital flight that is the issue; it is the rationale for borrowing.
  • With revenue deficits the overwhelming part of the fiscal deficit, we would be borrowing to finance consumption.
  • Dollar denominated sovereign debt is just a matter of shifting this borrowing overseas.
  • That is the real issue.


Financial Inclusion in India and Its Challenges

Kisan Vikas PatraPrelims Only


From UPSC perspective, the following things are important :

Prelims level : Kisan Vikas Patra

Mains level : Not Much

  • In view of falling interest rates, the government has increased the time period by 1 month for doubling the money invested in Kisan Vikas Patra (KVP) to 9 years and 5 months.

Kisan Vikas Patra (KVP)

  • KVP is a saving certificate scheme which was first launched in 1988 by India Post wherein invested money doubled during the maturity period.
  • It was discontinued in 2011 and later reintroduced in 2014.It is considered a part of the National Small Savings Fund.
  • The amount (Principal) invested in KVP would get doubled in 112 months. The rate of interest is 7.6% from 29th June 2019
  • KVP certificates are available in the denominations of Rs 1000, Rs 5000, Rs 10000 and Rs 50000.
  • The minimum amount that can be invested is Rs 1000. However, there is no upper limit on the purchase of KVPs.

Refund conditions

  • KVP does not offer any income tax benefits to the investor.
  • The amount of KVP can be withdrawn after 118 months (9 years and 10 months).The maturity period of a KVP is 2 years 6 months (30 months).
  • Premature encashment of the KVP certificate is not permissible. The certificates can only be encashed in event of the death of the holder or forfeiture by a pledge or on the order of the courts.
Financial Inclusion in India and Its Challenges

[pib] Various loan schemes for weaker sectionsGovt. SchemesPIB


From UPSC perspective, the following things are important :

Prelims level : Various schemes mentioned

Mains level : Credit facilities for EWS in India

  • In terms of RBI guidelines on Priority Sector Lending (PSL) a target of 40 percent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent amount of Off-Balance Sheet Exposures (OBE), whichever is higher has been mandated for lending to the priority sector.
  • This has been mandated for all domestic Scheduled Commercial Banks and Foreign Banks with 20 branches and above.

Various schemes for benefitting poor people are as under:

Pradhan Mantri Mudra Yojana (PMMY)

  • It provides access to institutional finance to unfunded micro / small business units by extending loans upto Rs.10 lakh for manufacturing, processing, trading, services and activities allied to agriculture.
  • These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs.
  • The borrower can approach any of the lending institutions mentioned above or can apply online through its portal.

Pradhan Mantri Awas Yojana – Urban (PMAY-U)

  • The mission aims to provide assistance to all States/UTs in addressing the housing requirement of urban poor including EWS/ Low Income Group (LIG).
  • This scheme is converged with other schemes to ensure houses have a toilet, Saubhagya Yojana electricity connection, Ujjwala Yojana LPG gas connection, access to drinking water and Jan Dhan banking facilities, etc.

Central Sector Interest Subsidy Scheme (CSIS)

  • It is an unique Scheme which pivots around the vision that no student desiring to pursue higher education is denied of the opportunity if he/ she is financially poor.
  • This Scheme benefits all categories of EWS students for pursuing professional/ technical courses in lndia and intends to provide affordable higher education.
  • Under this scheme full interest subsidy on educational loans upto Rs 7.50 lakh is available during the period of moratorium on loans availed under the Indian Banks’ Association (IBA) Model Education Loan Scheme from Scheduled Banks.

Deendayal Antyodaya Yojana- National Rural Livelihoods Mission (DAY-NRLM)

  • It aims at promoting poverty reduction through building strong institutions of the poor, particularly women and enabling these institutions to access a range of financial services and livelihood services.
  • DAY-NRLM has a provision for interest subvention, to cover the difference between the Lending Rate of the banks and 7% per annum, on all credit availed by women Self Help Groups (SHGs)
  • It permits a maximum loan of Rs. 3 Lakh per SHG.
  • Further there is also provision of additional interest subvention of 3% for all prompt payee SHG accounts in selected 250 districts.

Deendayal Antyodaya Yojana – National Urban Livelihoods Mission (DAY-NULM)

  • It is a centrally sponsored scheme to reduce poverty and vulnerability of the urban poor households by enabling them to access gainful self-employment and skilled wage employment opportunities.

Differential Rate of Interest (DRI) Scheme

  • Under the DRI Scheme, banks provide finance up to ₹15,000/- at a concessional rate of interest of 4 percent per annum to the weaker sections of the community for engaging in productive and gainful activities.
Financial Inclusion in India and Its Challenges

Financial Stability and Development Council (FSDC)DOMR


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Everything about FSDC

Mains level: Mandate of the FSDC


  • The Sub-Committee of the FSDC has discussed ways to address challenges pertaining to the quality of credit ratings in the wake of the IL&FS defaults crisis.

Against faulty Credit Rating

  • Credit rating firms, currently regulated by the SEBI had come under sharp criticism from the RBI recently for failing to identify financial troubles in various companies, especially in the case of IL&FS, which commanded AAA rating just before it started defaulting.
  • RBI officials had expressed concerns over the inability of rating agencies’ to assess credit risk and take timely rating actions.

About  FSDC

  1. FSDC is an apex-level body constituted by the Government of India to create a super regulatory body as mooted by the Raghuram Rajan Committee in 2008.
  2. Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up such an autonomous body dealing with macro prudential and financial regularities in the entire financial sector of India.
  3. An apex-level FSDC is not a statutory body. No funds are separately allocated to the council for undertaking its activities.


  1. Chairperson: The Union Finance Minister of India
  2. Members:
  • Governor Reserve Bank of India (RBl),
  • Finance Secretary and/ or Secretary, Department of Economic Affairs (DEA),
  • Secretary, Department of Financial Services (DFS),
  • Secretary, Ministry of Corporate Affairs,
  • Chief Economic Advisor, Ministry of Finance.
  1. Other members include chairman of SEBI, IRDA, PFRDA and IBBI


  • Financial Stability
  • Financial Sector Development
  • Inter-Regulatory Coordination
  • Financial Literacy
  • Financial Inclusion
  • Macro prudential supervision of the economy including the functioning of large financial conglomerates
  • Coordinating India’s international interface with financial sector bodies like the Financial Action Task Force (FATF), Financial Stability Board (FSB) and any such body as may be decided by the Finance Minister from time to time.
Financial Inclusion in India and Its Challenges

[op-ed snap] Ensure a minimum income for allop-ed snap


Mains Paper 3: Economy | Inclusive growth & issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: UBI

Mains level: Debate surrounding Universal Basic Income



  • The idea of a universal basic income (UBI) is gaining ground globally.
  • It has supporters among the political left and right, and among proponents as well as opponents of the free-market economy.

Working of the UBI

  • The UBI is neither an antidote to the vagaries of market forces nor a substitute for basic public services, especially health and education.
  • Besides, there is no need to transfer money to middle- and high-income earners as well as large landowners.
  • However, there is a strong case for direct income transfers to some groups: landless labourers, agricultural workers and marginal farmers who suffer from multi-dimensional poverty.
  • These groups have not benefited from economic growth.
  • They were and still are the poorest Indians. Various welfare schemes have also failed to bring them out of penury.

Credit Alternatives

  • A case in point is the access to institutional credit issued by banks and cooperative societies.
  • According to NSSO data from the 70th round, institutional credits account for less than 15% of the total borrowing by landless agricultural workers; the figure for marginal and small farmers is only 30%.
  • These groups have to borrow from moneylenders and adhatiyas at exorbitant interest rates ranging from 24 to 60%.
  • As a result, they do not stand to benefit much from the interest rate subsidy for the agriculture sector. Likewise, the benefits of subsidised fertilizers and power are enjoyed largely by big farmers.
  • In urban areas, contract workers and those in the informal sector face a similar problem.

Alternative Schemes

  • A UBI requires the government to pay every citizen a fixed amount of money on a regular basis and without any conditionalities.
  • Crucial to the appeal for such a demand for a UBI — is that millions of people remain unemployed and are extremely poor, despite rapid economic growth in the last three decades.
  • The government has already unfolded a limited version of the UBI in the form of the PM Kisan Samman Nidhi Yojana (PM-KISAN) which promises ₹6,000 per annum to farmers who own less than 2 hectares of land.

How UBI will work?

  • An income support of, say ₹15,000 per annum can be a good supplement to their livelihoods — an amount worth more than a third of the average consumption of the poorest 25% households, and more than a fourth of the annual income of marginal farmers.
  • This additional income can reduce the incidence of indebtedness among marginal farmers, thereby helping them escape moneylenders and adhatiyas.
  • Besides, it can go a long way in helping the poor to make ends meet.
  • At high levels of impoverishment, even a small income supplement can improve nutrient intake, and increase enrolment and school attendance for students coming from poor households.

Better productivity

  • In other words, income transfers to the poor will lead to improved health and educational outcomes, which in turn would lead to a more productive workforce.
  • It seems to be a good idea to transfer the money into the bank accounts of women of the beneficiary households.
  • Women tend to spend more of their income on health and the education of children.
  • The effect of an income transfer scheme on unemployment is a moot point. In principle, cash transfers can result in withdrawal of beneficiaries from the labour force.

Encourages employment

  • The income support suggested above is not too large to discourage beneficiaries from seeking work.
  • In fact, it can promote employment and economic activities. Moreover, such a scheme will have three immediate benefits.
  • One, it will help bring a large number of households out of the poverty trap or prevent them from falling into it in the event of exigencies such as illness.
  • Two, it will reduce income inequalities.
  • Three, since the poor spend most of their income, a boost in their income will increase demand and promote economic activities in rural areas.

Income Transfer: A better Alternative?

  • Nonetheless, an income transfer scheme cannot be a substitute for universal basic services.
  • The direct income support to the poor will deliver the benefits mentioned only if it comes on top of public services such as primary health and education.
  • This means that direct transfers should not be at the expense of public services for primary health and education.
  • If anything, budgetary allocation for these services should be raised significantly.
  • Programmes such as the MGNREGS should also stay. With direct income support, the demand for the programmes will come down naturally.
  • However, in the interim, it will serve to screen the poorest in the country and give them a crucial safety net.

Targeting beneficiaries

  • The Socio-Economic and Caste Census (SECC) 2011 can be used to identify the neediest.
  • Groups suffering from multidimensional poverty such as the destitute, the shelter-less, manual scavengers, tribal groups, and former bonded labourers are automatically included.
  • The dataset includes more than six crore landless labourers.
  • It also includes many small farmers who face deprivation criteria such as families without any bread-earning adult member, and those without a pucca house.
  • The other needy group, small farmers, missing from the SECC can be identified using the dataset from the Agriculture Census of 2015-16.
  • The Aadhaar identity can be used to rule out duplications and update the list of eligible households.

Limited corpus: The only hurdle

  • As an approximation, the number of eligible households is 10 crore.
  • That is, even in its basic form, the scheme will require approximately ₹1.5 lakh crore per annum.
  • The PM-KISAN Yojana can be aligned to meet a part of the cost.
  • Moreover, the tax kitty can be expanded by reintroducing wealth tax.
  • Nonetheless, the required amount is beyond the Centre’s fiscal capacity at the moment.
  • Therefore, the cost will have to be shared by States. States such as Telangana and Odisha are already providing direct income support to their farmers.
Financial Inclusion in India and Its Challenges

[op-ed snap] The promise of fintech revolutionop-ed snap


Mains Paper 3: Science & Technology | developments & their applications & effects in everyday life

From the UPSC perspective, the following things are important:

Prelims level: Bali Fintech agenda

Mains level: Issues being faced by fintech sector and future prospects


Bali Fintech Agenda

  1. The recent International Monetary Fund/World Bank annual meetings marked the launch of the Bali Fintech Agenda
  2. It is a set of 12 policy recommendations aimed at better harnessing the benefits and opportunities of rapid advances in financial technology
  3. The Bali Agenda sets out a roadmap to be used by national authorities as a reference point for policy design and implementation
  4. It also highlights the importance of managing risks

Digital banking a boon

  1. The innovations spurred by digital breakthroughs are starting to revolutionize the availability of financial services, which is sorely needed, with 1.7 billion worldwide unbanked
  2. The spread of formal banking has been constrained by the cost of physically reaching people in rural and remote areas, as well as the economics of servicing low-income populations, informal sectors and small- and medium-sized enterprises
  3. In this regard, fintech has the potential to broaden the reach of formal financial services, sharply lower costs and spur efficiency gains
  4. The resulting income and employment gains and poverty reduction should help bring more inclusive growth in support of the UN’s 2030 Agenda for Sustainable Development

Developments in the fintech sector

  1. The technology drivers of the fintech revolution are multifaceted
  2. The private sector-led development of telecom infrastructure and falling costs are facilitating the greater use of smartphones as well as broadband internet services
  3. Advances in cryptography and biometrics bolstering security and customer-identification are also powerful drivers, as are distributed computing and the use of big data and machine learning
  4. The promise of fintech is epitomized in the wave of innovation in payments, clearing and settlement, offering both the banked and unbanked cheaper and faster services, besides powering e-commerce

Impact of these developments

  1. As a result, financial inclusion can fundamentally reshape the lives of people and have a hugely positive economic and social impact
  2. Another positive spillover comes from governments benefitting from reduced leakages and better targeting of public services, while an expanding tax base through improved compliance allows greater resource-generation for public investment

Associated risks of fintech

  1. Fintech tends to be lightly regulated or unregulated in some jurisdictions and soundness and stability are concerns
  2. Payments and e-money operators use essentially private money, which carries credit and settlement risks
  3. Broader financial stability questions arise as fintech expands from a low base and linkages with banks grow
  4. There are increasing concerns associated with data privacy, data security and money laundering
  5. Cryptocurrencies raise issues related to excessive price volatility, lack of investor, illicit activities, and regulatory arbitrage and contagion
  6. Other fintech risks relate to monetary policy transmission, financial safety nets, lender-of-last-resort and questions regarding financial crisis management and resolution

Required interventions in the sector

  1. The risks call for an appropriate supervisory and regulatory approach at the country level, backed by international cooperation to address cross-border concerns
  2. Policy needs to strike the right balance between not stifling innovation while guarding against financial stability risks
  3. Regulatory sandboxes, incubators and accelerators can be used to test new products and technologies, but bringing fintech under strengthened, effective and unified supervisory oversight is a priority
  4. Regulation/licensing and risk management should be based on activity rather than the type of institution for a level playing field for financial service providers
  5. Appropriate rules also need to be set for data protection, privacy and technology, along with cybersecurity protection and reporting standards

Bali agenda a guiding light

  1. The promise and concerns are set out in the Bali Agenda, which strikes the right balance and provides a useful framework for policymakers
  2. The Bali Agenda also correctly sees a role for central banks to issue digital currency, and expanding access to and improving the resilience of payments services
  3. The issue of digital fiat currencies by central banks would help preserve their control and relevance as well as trust, interoperability, openness and security of payments and settlements systems, besides addressing concentration and competition concerns

Way forward for India

  1. In India, planned reforms include overhauling payments system laws to foster competition, consumer protection, stability and resilience
  2. Another reform is a digital fiat currency, under consideration by the RBI. Besides regulation, bridging the digital divide is a pressing issue for India
  3. Whether to establish a separate regulator or keep the Reserve Bank of India (RBI) in charge, in line with usual global practice, is still under debate which should be resolved at the earliest
Financial Inclusion in India and Its Challenges

[pib] “Jan Dhan Darshak” Mobile AppPIBPrelims Only


Mains Paper 3: Indian Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: Jan Dhan Darshak mobile app

Mains level: Financial Inclusion


Jan Dhan Darshak App

  1. Department of Financial Services (DFS), Ministry of Finance and National Informatics Centre  (NIC) has jointly developed a mobile app called Jan Dhan Darshak as a part of financial inclusion (FI) initiative .
  2. This app will act as a guide for the common people in locating a financial service touch point at a given location in the country.
  3. Jan Dhan Darshak app is a unique solution to provide a citizen centric platform for locating financial service touch points across all providers such as banks, post office, CSC, etc.
  4. These services could be availed as per the needs and convenience of the common people.
  5. While over 5 lakh FI touch points (Bank branches, ATMs, Post Offices) have been mapped on this App, approx. 1.35 lakh Bank Mitras would be on-boarded by 01.12.2018.

Salient features of the App

  1. Find nearby Financial touch points,  based on current location (Branches/ATM/Post offices)
  2. Search by place name
  3. Search by place name also available with Voice Interface
  4. Phone number of bank branches available in app, with the facility of call button for integrated dialing
  5. Users’ feedback will go directly to the concerned bank for carrying out the necessary updation in data on financial touch points.
Financial Inclusion in India and Its Challenges

[pib] Financial Inclusion IndexPrelims OnlyPriority 1


Mains Paper 3: Indian Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: Financial Inclusion Index

Mains level: Financial Inclusion



  • The Union Minister of Finance and Corporate Affairs has launched the Financial Inclusion Index.

Financial Inclusion Index

  1. Department of Financial Services (DFS), Ministry of Finance will release an Annual Financial Inclusion Index (FII).
  2. The index will be a measure of access and usage of a basket of formal financial products and services that includes savings, remittances, credit, insurance and pension products.
  3. The index will have three measurement dimensions:
  • Access to financial services
  • Usage of financial services
  • Quality
  1. The single composite index gives a snap shot of level of financial inclusion that would guide Macro Policy perspective.

Utility of the Index

  1. The various components of the index will help to measure financial services for use of internal policy making.
  2. Financial Inclusion Index can be used directly as a composite measure in development indicators.
  3. It enables fulfillment of G20 Financial Inclusion Indicators requirements.
  4. It will also facilitate researchers to study the impact of financial inclusion and other macro-economic variables.
Financial Inclusion in India and Its Challenges

JanDhan Yojana made an open-ended schemeGovt. SchemesPrelims OnlyPriority 1


Mains Paper 3: Indian Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: Changes in the PMJDY

Mains level: Financial Inclusion



  1. The Cabinet has given its nod to turn the Pradhan Mantri JanDhan Yojana (PMJDY) into an open-ended scheme with higher insurance cover and double the overdraft (OD) facility.
  2. This is being done to continue the scheme also known as the National Mission on Financial Inclusion beyond August 28, 2018.

Whats new?

  1. The Centre has shifted its emphasis from “each household” to “all adult individuals”.
  2. The Centre has decided to make it open ended, with the OD limit increased to ₹10,000 from the existing ₹5,000.
  3. In addition, no condition will be attached for any overdraft up to ₹2,000.
  4. The age range for availing the OD facility has been revised from the 18-60 years to 18-65 years.
  5. The accident insurance cover for new RuPay cardholders has been raised to ₹2 lakh.

Success of PMJDY

  1. Under the PMJDY, 32.41 crore accounts have been opened so far, with deposits worth ₹2 crore.
  2. It has been touted as the world’s biggest scheme by institutions such as the World Bank.
  3. Nearly 53 per cent of the account holders are women.
  4. Around 59 per cent belong to rural and semi-rural regions and about 83 per cent are Aadhar-seeded.
Financial Inclusion in India and Its Challenges

[op-ed snap] How India should close the financial gender gapop-ed snapPriority 1


Mains Paper 1: Social issues | Role of women & women’s organization

From UPSC perspective, the following things are important:

Prelims level: Global Findex data, Pradhan Mantri Jan Dhan Yojana (PMJDY)

Mains level: Problems being faced by women in terms of financial inclusion & solutions to these


India’s efforts in financial inclusion

  1. The World Bank’s latest Global Findex data proves that India has made rapid strides in improving access to formal financial services
  2. In 2014, just 53% of adults had a formal account. Today, more than 80% do
  3. At the same time, it has cut its gender gap in financial access from 20 percentage points to six

How did this happen?

  1. The government has made financial inclusion and expanding the formal sector a top priority
  2. The Pradhan Mantri Jan Dhan Yojana (PMJDY) programme—launched in 2015 with a mission to provide a basic account to every adult—has enrolled more women than men

Problems that were being faced and how PMJDY resolved them

  • Millions of women were deterred from going to banks because of the long distances involved as they have a more restricted “economic geography” than men, making brick-and-mortar banks harder to access
  1. Under the PMJDY, banks went door-to-door enrolling customers and held camps in villages
  2. It also increased the number of banks’ business correspondents (BCs or bank mitras), bringing services closer to more households
  • Establishing identity
  1. Aadhaar and the India Stack’s biometric eKYC verification capability make it easier for women, who possess the required documents less often than men, to establish their identity to a bank
  2. Until recently, fulfilling know your customer (KYC) requirements was a significant barrier for many women
  • Directed benefits for women
  1. The government has also mandated that certain defined benefit schemes, such as Pradhan Mantri Vaya Vandana Yojana (PMVVY), distribute payments to accounts in a woman’s name
  2. The benefits are being deposited directly in the recipients’ Aadhaar-linked accounts

Thrust toward digital payments

  1. The government has made a major policy thrust toward digital payments since demonetization
  2. The widespread rollout of Aadhaar enabled customers to use digital BC payment points in addition to ATMs and service terminals

Closing the gender gap is still difficult

  1. PMJDY has opened more than 100 million new bank accounts, but many of them are inactive or carry a zero balance
  2. More women have been enrolled, but a larger gender gap persists in account usage
  3. In terms of credit and insurance usage, the gender gap remains high

How to reduce this gap?

  • First, we need to put smartphones into the hands of more women
  1. The mobile phone is still the most promising empowerment tool for financial inclusion, and yet, fewer than half of adult women in India own a mobile phone, compared to 73% of men
  2. One reason for this technological divide is that smartphones are not marketed as an empowerment tool, but rather as an entertainment and social media platform
  3.  In India, many women have internalized social fears that smartphones will expose them to “bad influences”, leading to sexual harassment or broken marriages
  • Second, when women gain access to digital financial services over mobile, many face a three-step learning curve at once:
  1. Becoming familiar with using a smartphone
  2. Understanding how credit, insurance, and other financial products work
  3. Using an interface that’s not even written in their native language
  4. A goal of inclusion efforts is to improve women’s financial literacy, but the second lesson is that these efforts must also improve women’s digital literacy
  • Third, financial products are often not structured, distributed, or bundled to meet the needs of women
  1. Financial responsibilities differ between men and women, who are generally tasked with back-stopping and stretching the family budget
  2. Bundled solutions of savings, credit, and insurance could be designed to be more relevant to women’s financial lives
  • Extending emergency credit
  1. In markets with high card penetration, customers often have the option of linking their checking accounts to a credit card account for extra liquidity
  2. In emerging markets, adding microcredit to accounts could help women cover unexpected expenses and emergencies in their day-to-day management of the household finances
  3. Women also go through more life transitions than men, moving in and out of the workforce more frequently, so making it easier to reactivate dormant accounts could increase usage

Way Forward

  1. As the world nears the long-held goal of universal financial access, we can see the road ahead for eliminating the gender gap in basic access and increasing usage among all customers, by making financial services more digital, flexible, and relevant to both men and women’s lives
Financial Inclusion in India and Its Challenges

UN report for social inclusion

Image source


Mains Paper 3: Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: UN Economic and Social Commission (ECOSOC),

Mains level: Establishing a link between economic growth and social inclusion


UN Economic and Social Survey of Asia and the Pacific (ESCAP) Report, 2018

  1. A UN report on the Asia-Pacific region has urged the regional powers to invest in inclusive and sustainable growth
  2. The UN Economic and Social Survey of Asia and the Pacific (ESCAP) 2018, the annual report from the UN Economic and Social Commission (ECOSOC) for Asia and the Pacific have urged countries to take advantage of high growth rate and share the benefits with the national society
  3. Governments of countries in the Asia-Pacific region are advised to take advantage of the currently favourable economic conditions in order to address vulnerabilities and enhance the resilience, inclusiveness, and sustainability of their economies stated the report highlighting the urgency facing the economies of the region
  4. The report was launched at the Indian Council for Research in International Economic Relations (ICRIER)
  5. The report described South and Southwest Asia as the fastest growing sub-region of the Asia-Pacific region and urged the countries to increase social spending



  1. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is the regional development arm of the United Nations for the Asia-Pacific region.
  2. It is established in 1947 with its headquarters in Bangkok, Thailand.
  3. Parent Organisation: UN ECOSOC
  4. ESCAP works to overcome some of the region’s greatest challenges by providing results-oriented projects, technical assistance, and capacity building to member States in the following areas:
  • Macroeconomic Policy and Development including the publishing of Asia-Pacific Development Journal (APDJ) twice a year
  • Trade and Investment
  • Transport
  • Social Development
  • Environment and Sustainable Development
  • Information and Communications Technology and Disaster Risk Reduction
  • Statistics
  • Sub-regional activities for development
Financial Inclusion in India and Its Challenges

[op-ed snap] On growth and equality, two trajectoriesop-ed snap


Mains Paper 3: Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: IMF, World Bank, World Economic Forum, MGNREGA, PDS

Mains level: Rising inequality in India in recent years and its effects on the economy as well as society


Rising inequality

  1. At the global level, inequality has become a central concern
  2. It is on the agenda of major international institutions such as the IMF and the World Bank and is a key subject of debate in the Davos meetings of the World Economic Forum
  3. High inequality can be a threat to both political stability and economic growth

Growth in Brazil

  1. Brazil went through a period of rapid growth before 1980
  2. In this process, the labour market became more segmented, with an increasing number of protected, regular workers but a widening gap with the informal economy
  3. The middle class also expanded, with high incomes and consumption
  4. Growing private investment led to an increasing concentration of wealth, while in rural areas, land distribution remained highly unequal
  5. A bulk of the benefits were captured by a relatively small fraction of the population

Comparing India with Brazil

  1. India’s growth pattern since the 1980s clearly echoes of the earlier pattern in Brazil
  2. In India, liberalization released some of the factors that had previously prevented an increase in the concentration of income
  3. This has led to wider gaps in the labour market where many are excluded from the new opportunities and has generated a highly unequal accumulation of wealth

Checking rising inequality

  1. In India, policies were introduced after 2005 which helped to moderate the rise in inequality, especially in rural areas
  2. These include MGNREGA and improvements in the PDS
  3. Despite this, formal employment stagnated, minimum wages hardly rose in real terms and urban inequality continued to rise

Problems related to employment in India

  1. In India, standard measures of women’s labour force participation have been declining, suggesting that gender inequality in access to employment is increasing
  2. There are also persistent differentials in employment and incomes by caste and community in India
  3. This results less from direct wage discrimination, and more from differences in access to education and decent jobs

Not addressing the issue

  1. In India, inequality is strangely absent from the political agenda
  2. Attention is more focused on poverty reduction and the relative position of particular social groups
  3. There is a lack of reliable data on changes in inequality in recent years, but wages have been rising more slowly than output per capita, and there is no sign that the increasing trend in inequality has been reversed

Way forward

  1. Inequality is not an issue that can be dealt with minor adjustments to economic strategy
  2. It needs a more fundamental shift to a view of development in which growth and equality are two sides of the same coin
Financial Inclusion in India and Its Challenges

Government proposes amendments in small savings schemes


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Government Savings Certificates Act, 1959, Public Provident Fund (PPF) Act, 1968, Government Savings Banks (GSB) Act, 1873, National Savings Certificates, Kisan Vikas Patra, Post Office Savings Bank

Mains level: Encouraging savings and its impact on economy

Merger of different acts governing small saving schemes

  1. Many different small saving schemes have come up over the years, under many different rules and Acts
  2. Government of India has proposed to merge the Government Savings Certificates Act, 1959 and the Public Provident Fund (PPF) Act, 1968, with the Government Savings Banks (GSB) Act, 1873

Various acts and their scope

  1. Government Savings Certificates Act, 1959 covers National Savings Certificates and Kisan Vikas Patra
  2. GSB Act covers Post Office Savings Bank, and banking companies or any other company or institution that the central government may include in this Act

Consolidation of acts and schemes

  1. The main objective in proposing a common Act is to make implementation easier for the depositors
  2. They need not go through different rules and Acts for understanding the provision of various small saving schemes

Other amendments

  1. As per the current PPF Act, it can’t be closed prematurely before completion of five financial years
  2. Under the proposed Bill, benefits of premature closure of Small Savings Schemes may now be introduced to deal with medical emergencies, higher education needs and so on
  3. Investment in Small Savings Schemes can be made by guardian on behalf of minor(s) under the provisions made in the proposed Bill
  4. Provisions have been made more clear for the operation of accounts in the name of physically infirm and differently abled persons


National Savings Certificates

  1. The National Savings Certificate (NSC) is an investment scheme floated by the Government of India
  2. It is a savings bond that allows subscribers to save income tax
  3. The certificates earn a fixed interest, which is currently at the rate of 8.1% per annum
  4. These certificates can also be used as collaterals while taking loans from banks
  5. There is no maximum limit on the purchase of NSCs, but investments of up to Rs 1.5 lakh in the scheme can earn a tax break under Section 80C of the Income Tax Act

Kisan Vikas Patra

  1. Kisan Vikas Patra is a saving certificate scheme which was first launched in 1988 by India Post
  2. Even though this scheme was popular, a Government Committee formed in 2011 suggested that KVP could be misused for purposes like money laundering
  3. This was again reintroduced in 2014 with some changes
  4. Any resident Indian can invest in a KVP scheme and can obtain a certificate either jointly, individually or in the name of a minor
  5. The principal amount invested in KVP will be doubled in a time of 8 years and 4 months or 100 months
Financial Inclusion in India and Its Challenges

India’s richest 1% corner 73% of wealth generation: Survey


Mains Paper 3: Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: ‘Reward Work, Not Wealth’ report, Oxfam, World Economic Forum

Mains level: Income inequality in India

Rising income inequality in India

  1. The richest 1 percent in India cornered 73 percent of the wealth generated in the country last year
  2. 67 crore Indians comprising the population’s poorest half saw their wealth rise by just 1 percent

Changes since last year

  1. Last year’s survey had shown that India’s richest 1 percent held a huge 58 percent of the country’s total wealth –higher than the global figure of about 50 percent
  2. The wealth of India’s richest 1 percent increased by over Rs 20.9 lakh crore during 2017 — an amount equivalent to total budget of the central government in 2017-18

‘Reward Work, Not Wealth’ report

  1. All these findings are a part of the survey released by the international rights group Oxfam
  2. The annual Oxfam survey is keenly watched and is discussed in detail at the World Economic Forum Annual Meeting
  3. Rising income and gender inequality is among the key talking points for the world leaders at the summit

Status of income inequality

  1. In India, it will take 941 years for a minimum wage worker in rural India to earn what the top paid executive at a leading Indian garment firm earns in a year
  2. In the US, it takes slightly over one working day for a CEO to earn what an ordinary worker makes in a year

Rising billionaires

  1. 2017 saw an unprecedented increase in the number of billionaires, at a rate of one every two days
  2. The billionaire boom is not a sign of a thriving economy but a symptom of a failing economic system
  3. Those working hard, growing food for the country, building infrastructure, working in factories are struggling to fund their child’s education, buy medicines for family members and manage two meals a day
  4. The growing divide undermines democracy and promotes corruption and cronyism
Financial Inclusion in India and Its Challenges

Income inequality in India worsens, but slower than Russia and China: report


Mains Paper 3: Economy | Inclusive growth & issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: World Inequality Report, new direct tax code, universal basic income

Mains level: Various types of inequalities persistent in India and ways to reduce them

Top 10% of earners now corner more than half of the country’s national income

  1. Income inequality in India has worsened over the past three-and-a-half decades
  2. The top 10% of earners now corner more than half of the country’s national income in 2016
  3. Their share was 30% of the national income in 1980

World Inequality Report 2018

  1. It is published by World Wealth & Income Database, which tracks information on income distribution
  2. Among major economic blocks, with the exception of West Asia, India’s record on inequality is the worst
  3. The level of income inequality in India in 2016 matched that in sub-Saharan Africa and Brazil, where top earners accounted for a very high share of income

Role played by tax laws

  1. Rise in income inequality has been more gradual in India since 1980 compared to Russia, where it has been abrupt and compared to China, where it was moderate
  2. This indicates the role played by policies and institutions in evening out inequality by using “tax progressivity” i.e. higher taxes on the rich
  3. Income taxes are levied based on a person’s ability to pay and the rate increases as income level progresses

Efforts by India to bridge the gap

  1. India has been trying to tackle income inequality with a combination of direct transfer of entitlements to the intended beneficiaries, drive against tax evasion and schemes meant to improve access to energy and finance by the poor
  2. The findings of the report come at a time when the central government has started working on drafting a new direct tax code which is likely to rejig the tax structure
  3. The state of Jammu and Kashmir is set to make a bold experiment with a universal basic income scheme from the next financial year

What does report suggest?

  1. Robust public policy intervention was required to address income inequality
  2. The report advocated higher public spending in education to reduce income inequality
  3. It also suggested setting up an international registry of financial asset ownership for curbing tax evasion
Financial Inclusion in India and Its Challenges

80% Jan Dhan accounts have balance now, says Jaitley

  1. Total number of accounts: 240 million
  2. Getting them connected to an insurance scheme in the next goal
  3. World Bank Prez: The progress made by India in financial inclusion is a model that is inspiring for the rest of the world
  4. Also the Unique Identity Card scheme has now covered 80% of Indian population and it makes it easier for the banks to know who their customers are
Financial Inclusion in India and Its Challenges

Almost every household has a bank account: Labour Bureau- II

  1. While 93.4% households in rural areas had a bank account, 96.8% houses had a savings bank account in the urban parts
  2. In Daman and Diu and Lakshwadeep, all the households surveyed had saving bank accounts
  3. Chandigarh had 99 per cent households with saving bank accounts
  4. North-east: Banking penetration is particularly low– Manipur (82.8%), Meghalaya (85.1%) and Arunachal Pradesh (88.9%)
Financial Inclusion in India and Its Challenges

Almost every household has a bank account: Labour Bureau- I

  1. Source: The Fifth Annual Employment-Unemployment Survey by Labour Bureau
  2. The penetration is mainly due to Govt’s recent initiatives to enhance the financial inclusion and accessibility of financial institutions
  3. Initiatives: Pradhan Mantri Jan Dhan Yojana and Pradhan Mantri Micro Units Development and Refinance Agency (Mudra) Yojana
  4. Around 94.4% households had a saving bank accounts in 2015-16
  5. The figure is much higher than the official figure (58.7%) of households with saving bank accounts in India, as per Census 2011

Pradhan Mantri Jan Dhan Yojana has been launched for: [Prelims 2015]

a) providing housing loan to poor people at cheaper interest rates
b) Promoting women’s Self Help Groups in backward areas
c) promoting financial inclusion in the country
d) providing financial help to marginalised communities

Financial Inclusion in India and Its Challenges

Remittances impacting financial inclusion

  1. Source: ‘Remittances and its impact on financial inclusion and development in India’ by Western Union, the world’s biggest money transfer firm
  2. Inward remittances have had positive impact on financial inclusion, poverty and social factors, such as health and education
  3. Kerala and Tamil Nadu used most of the money that came in not just for subsistence and debt repayments, but also for education, healthcare expenses and bank savings
  4. Remittances lead to women empowerment in Tamil Nadu
  5. A majority of migrant husbands send home money in the name of the wife, who becomes the key decision-maker regarding financial matters as well as other household decisions
Financial Inclusion in India and Its Challenges

Rural areas pose hurdle for small finance banks

  1. News: With merely 8 months remaining to start operations, small finance banks are facing problems to open 25% of their total branches in unbanked areas as it will impact their profitability
  2. Context: RBI has mandated that the small finance banks have to open at least 25% of their branches in unbanked rural areas within 1 year of their operations
  3. The small finance bank representatives have requested RBI to give them 3 years to comply with the norms
  4. Unbanked rural areas: Centres having a population less than 9,999 as per latest census
  5. The annual branch expansion plans of the small finance banks for the initial 5 years would need prior approval of RBI
Financial Inclusion in India and Its Challenges

Faster credit for urban poor

  1. News: The Ministry of Housing and Urban Poverty Alleviation (MHUPA) has proposed to appoint a Central nodal agency
  2. Aim: To speed up disbursal of bank loans to the urban poor, by removing hurdles in credit flow
  3. A conference dedicated to the Deendayal Antyodaya Yojna-National Urban Livelihoods Mission (DAY-NULM) to be held
  4. Discussions on ways and means of scaling up skills training and credit flow for self-employment of urban poor to be focused
Financial Inclusion in India and Its Challenges

SBI floats Rs 200 crore fund to aid fintech firms

  1. News: State Bank of India (SBI) has floated a Rs 200 crore fund, ‘IT Innovation Start-up Fund’, to help the fintech start-ups
  2. Limits: Up to a maximum of Rs 3 crore per a fintech start-up
  3. Fintech: Fintech (Financial Technology) industry uses technology to increase the efficiency of financial services
  4. Indian examples include Paytm, MobiKwik, Citrus Payments etc.
  5. Global trend: Traditional banks across the globe have been open to work with new age fintech firms, which are disrupting business models by using technology to deliver services at lower cost
Financial Inclusion in India and Its Challenges

Postal payments bank to be set up in major districts

  1. The Govt is plannig to set up 650 branches of India Post Payments Bank at all major district headquarters by September 2017
  2. Aim: To leverage the extensive outreach of the Department of Posts
  3. In the coming days, the role of all employees, including Grameen Dak Sevaks, will be very significant in successful rollout of the Payments Bank to make financial inclusion possible for every Indian
Financial Inclusion in India and Its Challenges

India Post to boost financial inclusion

  1. India Post got the approval for starting payments bank
  2. The new entity would be known as India Post Payments Bank (IPPB), a public limited company under the Department of Posts, with 100% Government of India equity
  3. Competition: It would be the single largest bank in terms of accessibility
  4. Accessibility: India Post has a strong pan-India network (especially in the rural areas) and the huge franchise built over the years
  5. It would also encourage the move towards a cash less economy
  6. Challenges: Lack of technological upgradation and training of its personnel
Financial Inclusion in India and Its Challenges

Jan Dhan accounts more vulnerable to frauds: RBI’s Mundra

  1. Context: Concerns about the newly opened Jan Dhan accounts being vulnerable to fraud practises
  2. Money mules: Jan Dhan accounts can be misused by money mules
  3. RBI asked banks to be on guard against such activities
  4. Action: Failure to guard against misuse of customer accounts, might result in banks incurring supervisory sanctions and enforcement action from the RBI
Financial Inclusion in India and Its Challenges

RBI for easier bank permits

  1. RBI has proposed relaxation of norms for on-tap licenses for universal banks
  2. Reason: RBI seeks to open the key economic sector to wider participation.
  3. This is first time since the financial industry was opened up in 1991 that the RBI has decided to make the bank licensing process continuous as opposed to a ‘stop-and-go’ approach
  4. The norms are broadly in line with guidelines issued for bank licensing in 2013
  5. However, RBI has made it clear that business houses predominantly in financing activities, for example, NBFCs would be preferred
Financial Inclusion in India and Its Challenges

Payments banks do not have a viable business model: SBI chief

  1. What? Small and payments banks have not yet devised a business model which can be termed viable
  2. Competition: It is hard for payment banks or small finance banks to take away customers or income from commercial banks in a big way
  3. How? A mobile banking customer, who is also a customer for payment services, will be less free to migrate to a competition for mobile services
  4. Also, with deep-pocket corporates entering payments banking, it would be a dog eat dog scenario in the sector
Financial Inclusion in India and Its Challenges

NABARD to conduct survey on financial inclusion

  1. NABARD: National Bank for Agriculture and Rural Development
  2. Scope: 40,000 households spread across 29 states
  3. Focus: Household expenditure on production and consumption and financial inclusion charactersitics
  4. Will cover credit, savings, insurance, remittances, payments and pensions
  5. Why? To understand & assess the progress in financial inclusion since the launch of PMJDY & JAM trinity
Financial Inclusion in India and Its Challenges

Duplicate accounts under PMJDY rising

  1. Context: A survey by financial inclusion consulting firm MicroSave
  2. Finding: The number of duplicate accounts (those already having a bank account) under Jan Dhan Yojana is growing
  3. 30% customers indicated that PMJDY was not their first account
  4. Problem: Raghuram Rajan had earlier warned that duplicate accounts would lead to wastage of resources
Financial Inclusion in India and Its Challenges

Over 70% of PMJDY accounts are now active

  1. Context: A recent survey about PMJDY
  2. Findings: More than 7 of every 10 accounts opened for the unbanked, mainly for DBT, are seeing transactions
  3. Relevance: Most of the account activity is due to higher government subsidies flowing in
  4. The share of zero-balance accounts (which indicates lack of activity) has fallen
  5. Number of PMJDY accounts increased to 210 million, and total deposits stand at Rs.33,704 crore
Financial Inclusion in India and Its Challenges

Rs.2,000-cr fund to push financial inclusion

  1. The RBI announced merger of two funds to create a new Financial Inclusion Fund with a corpus of Rs.2,000 crore.
  2. It seeks to support developmental and promotional activities’ for expanding reach of banking services.
  3. FIF receives contributions from the interest differential in excess of 0.5% on RIDF and STCRC deposits on account of shortfall in priority sector lending kept with NABARD by banks.

RBI has merged the Financial Inclusion Fund and Financial Inclusion Technology Fund into a single Financial Inclusion Fund.

Financial Inclusion in India and Its Challenges

Restructuring the DoP for financial inclusionop-ed snap

A corporate structure for DoP may allow different wholly-owned subsidiaries to carry out specific commercial activities

  1. The RBI’s licence for payments bank to India Post should separate the banking business from various other services provided by DoP. A commercial focus on the banking business is desirable for viability and efficiency.
  2. With RBI’s licence comes the condition that India Post cannot accept deposits of more than Rs.1 lakh per account.
  3. Concerns expressed by Public sector banks (PSBs) about increasing competition for their low-cost current and savings deposits on account of payments banks are entirely misplaced because DoP was already in this business before, nor would other payments banks make things worse for PSBs.
  4. RBI’s insistence on charging ATM withdrawals and imposing absolute limits on deposits per account may discourage people from doing business with payments banks.
  5. Opening a bank account is only a necessary condition to achieve financial inclusion.
  6. The sufficient condition is to ensure that all needy households get adequate institutional credit and insurance cover at affordable costs.
  7. The experience of commercial banking for a couple of years would have enabled India Post to improve its operations and become a major player in rural areas.

A corporate structure for DoP may allow different wholly-owned subsidiaries to carry out specific commercial activities, utilizing the network of post offices on a rental basis. This would enhance the quality of services provided with cost-efficiency and commercial viability.

Can we discuss if DoP is the future for rural financial inclusion ?

From Jan Dhan to Jan Suraksha: A Journey towards Financial Inclusion and Security

The budget 2015-16 had announced 3 Social Security Schemes:

#1. Pradhan Mantri Suraksha BimaYojna (PMSBY)
#2. Pradhan MantriJeevan Jyoti Bima Yojana (PMJJBY)
#3. Atal Pension Yojana (APY)

Why the schemes?

  • India faces the biggest challenge of providing banking facilities and insurance coverage to all
  • Having access to institutional finance has so far remained a far cry to a vast chunk of rural population
  • As of May 2015, only 20% of India’s population has any kind of insurance and only 11% has any kind of pension scheme
  • Insurance is a way of managing risks & give necessary protections in case of financial loss
  • When one has an insurance policy, certain rights and protections are derived out of it to the person and his family
  • There is a dire need for providing social security at a very nominal cost to the millions and economic empowerment of the poor Answer in comments.>
  • PMJDY is a major step to bring people across the country closer to institutionalized finance, and save them from the clutches of informal financiers
  • However, most of the PMJDY accounts had zero balance initially. The government aims to reduce the number of such zero balance accounts by using these schemes Answer in comments.>




  • Implementation: The scheme will be offered by all Public Sector General Insurance Companies and all other insurers who are willing to join the scheme and tie-up with banks for this purpose
  • Govt Contribution: Various Ministries can co-contribute premium for various categories of their beneficiaries from their budget or from Public Welfare Fund created in this budget from unclaimed money
  • Auto-debit: The premium amount will be auto debited from subscriber’s bank account
  • The schemes will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan Yojana scheme

Criticisms of PMSBY:

  • Private banks have complained that the Govt should focus on upper middle class instead of the poorer section
  • Western scholars have argued that financial inclusion is a myth and serving such large number of people would only increase the burden and work-load of public sector

Criticisms of PMJJBY:

  • The banks have complained that revenue received will be very low
  • Some bankers have claimed that amount they are receiving is not sufficient to cover the service costs
  • Insurers have also pointed out that no health certificate or information of pre-existing disease is required for joining

Atal Pension Yojana

  • It focuses on the unorganized sector where nearly 400 million employees representing more than 80% of all employees are engaged Answer in comments.>
  • The aim is to make sure that needy people could get fixed amount when they get old
  • It is the improved version of Swavalamban scheme, launched in 2010-11, which has been found lacking in clarity with regard to pension benefits at the age after 60


  • All citizen of India aged between 18-40 years are eligible
  • A guaranteed minimum monthly pension will be provided to the subscribers varying from Rs. 1000 to Rs. 5000 per month
  • The pension amount depends on contribution by subscriber
  • Government of India will guarantee the minimum benefit of pension
  • Most interesting part of the scheme is that the government will contribute 50% of the contribution made by the subscriber or Rs. 1000 whichever is lower
  • However, contribution by the govt is available for only those who are not income tax payers and are not covered by any Statutory Social Security Schemes
  • Bank account holder of Any Bank account is eligible

Suraksha Bandhan drive- Spreading the social security message

  • Aim: To take forward the Govt’s objective of creating a universal social security system in the country, targeted especially at the poor and the under-privileged
  • Participating Banks supported by the participating Insurance Companies are carrying out local outreach, awareness building and enrolment facilitation under the drive
  • Public service organizations supported by peoples representatives are participating in these efforts through various outreach activities such as enrolment drives, camps etc. in large numbers during this period

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