Dr. Rajagopala Nair, Dept. of Commerce, St. Albert’s College, Ernakulam
Introduction
Access to finance, especially by the poor and vulnerable groups, is an essential requisite for employment, economic growth, poverty alleviation and social upliftment. Further, financial inclusion will enable the poor and the rustics of our country to open a bank account to save and invest, to borrow and to repay, to insure and to take part in the credit. This will enable them to break the chain of poverty. Till 1960s, Indian banks were more conservative and inward looking, concerned with their profits. Banking services were greatly used by a segment of the people. Class banking was prevalent during those days. Majority of the banks were private commercial banks, local oriented and primarily serving the business community. They had limited range of activities. Competition did not exist during those days. They basically concentrated on selling their loans to those who are financially sound and are capable of providing security for their borrowings. The banks tend to positively appropriate their liabilities for keeping their funds safe and give modest interest on deposits. However, after the Nationalization of 14 major commercial banks in 1969, Indian banks woke from their isolation, and evaluated the rapidly changing environment. The slogan during the Bank Nationalization was ‘transformation from class banking to mass banking’. The banking industry in India has undergone drastic changes during the last two decades. Reforms since the early nineties, has paved the way for the economic transformation of the country.
Rural Banking Scenario
In India more than 70 per cent of households live in rural areas. Therefore, existence of rural banks assumes a significant importance. A rural bank is one whch serves a population of less than 10,000. Since Nationalisation, the lending to the select elite in the urban areas gave way to lending to the rural masses. The policy makers recognized the fact that the potential of rural India should not be under estimated. The banks have to play a dual role in rural areas to institutionalize the rural savings for developmental activities as a part of commercial banking. Then the help in the social upliftment of the poor as a part of social banking. As at the end of March 1992, there were 60,528 branches of commercial banks ( including RRBs ) in the country, of which 35,275 ( 58.3 per cent ) were in rural areas as against 22.3 per cent at the time of bank nationalization. In spite of huge branch expansion in rural areas and developmental policies of the Government it is to be noted that the commercial banks have not made systematic efforts to squeeze the rural business. Often it is felt that the commercial banks have started their branches in rural areas not to satisfy the rural asses but to satisfy the Govt. Inadequate management and marketing competence in individual banks is the major cause for the non-viability of rural banks. Analysis of the available statistics on rural banks reveals that the rural deposits in the country shows a compound growth rate of 27.29 per cent during the 39 years period from 1969 to 2008. It is worth noting that the number of rural branches will form 45 per cent of the total bank branches in the country. The compound growth rate of rural credit of the country is 30.57 per cent during the 39 years from 1969 to 2008. Hardships in obtaining loans from the banks has paved the way for the growth of private money lenders in rural areas especially in States like Kerala.
Financial Exclusion:
According to K.C.Chakrabarty “Financial Exclusion is the lack of access by certain consumers to appropriate, low cost, fair and safe financial products and services from main stream providers.” There are three types of exclusions : (a) people who do not have any accss to a regulated financial system; (b) people who have limited access to banks and other financial services; and (3) individuals who have inappropriate products. Mostly low income, unemployed and illiterate people, women and disabled are excluded from the formal financial services. Lack of Banking habits, high transaction cost, lack of banking knowledge and insufficiency of knowledge on banking products prevents the unbanked people from knocking the door steps of banks. Financial exclusion means : No Savings, No Insurance, No access to money advice, No affordable credit, No Bank account and No assets. There are people who desire the use of financial services, but are denied access to the same. In countries with a large rural population like India, Financial Exclusion has a geographic dimension as well. Inaccessibility, distance and lack of proper infrastructure hinder financial inclusion. Going by the available data on the number of savings bank accounts and even assuming that one person has only one account, on an all India basis less than 60 per cent of adult population in the country have bank accounts. To compound matters, there are regional disparities among different regions of the country in this respect. In the rural parts of the country, where the farming community is living, the farm house holds having bank accounts is showing a miserable picture. The region-wise data regarding the farm house holds not having access to formal credit is given in the table. The unbanked population is higher in the North Eastern and Eastern Regions as compared to other regions. Further the extent of credit inclusion is even lower at 14 per cent of adult population. The financially excluded sections largely comprise marginal farmers, landless labourers, self employed and unorganized sector enterprises, ethnic minorities, socially excluded groups, senior citizens and women. While there are pockets of large excluded population in all parts of the country, the North-East, Eastern and Central region contain most of the financially excluded population.
Table showing the percentage of farm house holds not having access to formal credit
Region
|
Percentage to total farm households
|
Northern
|
74.95
|
North-Eastern
|
95.91
|
Eastern
|
81.26
|
Central
|
77.59
|
Western
|
56.02
|
Southern
|
57.25
|
Union Territories
|
89.86
|
The Farm households not accessing credit from formal sources as proportion to total farm households is especially high at 95.91 %, 81.26% and 77.59% in the North-Eastern, Eastern and Central Regions. The Southern and Western Regions, on the other hand, exhibits relatively better level of access to forma/non-formal sources when comparing with the All India level of 72.7%. This is mainly on account of spread of banking habits and a more robust infrastructure.
Social Exclusion:
Another facet of exclusion which needs to be addressed is ‘Social Exclusion’ – which is an extreme consequence of what happens when people do not get a fair deal throughout their lives, often because of disadvantages they face at birth, and this can be transmitted from one generation to the next. Social exclusion is about more than income poverty. It is a short and term for what can happen when people or areas have a combination of problems such as unemployment, discrimination, poor skills low incomes and poor housing. Their problems are linked and mutually reinforcing.
Financial Inclusion:
Providing various financial services like, loans, insurance, payments, remittances and financial advisory services to the downtrodden who have no access to the formal financial structure of the country is the basic objective of Financial Inclusion. An open and efficient society is always characterized by the unrestrained access to public goods and services. As banking services are viewed as public goods, availability of banking and payment services to the entire population without discrimination of any type is called Financial Inclusion. Unrestrained access to public goods and services is the sine qua non of an open and efficient society.
Financial Inclusion is a critical component of the inclusive growth envisaged for the overall development of the economy. The spread of banking facilities has been uneven in the country, throwing up challenges for achieving financial inclusion. Even after Nationalisation of commercial banks in 1969 and in 1980, a good proportion of households, specially rural, is still outside the coverage of the formal banking system. Often it is asked, why are so many bankable people of rural India are unbanked? An inclusive financial sector would provide access to credit for all ‘bankable’ people and firms, to insurance for all insurable people and firms and to savings and payments services for everyone.
The working definition of Financial Inclusion - “Financial Inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.”
Initiates of RBI for Financial Inclusion:
In the Annual Policy Statement of the RBI ( 2005-06), policies were made to encourage banks to provide extensive banking services to the unbanked mass of the country. The nature, scope and cost of services would be monitored to assess whether there is any denial, implicit or explicit, of basic banking services to the common person. Banks are being urged to review their existing practices to align them with the objective of financial inclusion.
A study on the Income and Savings of Rural Bank customers of Kerala :
The author has conducted a Correlation Analysis for measuring the intensity or magnitude of linear relationship between income and savings of rural bank customers in the State of Kerala. This Analysis was conducted on the Primary Data collected from 3000 rural bank customers who have been selected as a part of his project study on “Poverty Alleviation Programme in Kerala”. The study reveals that the average income of a rural bank customer in the State is Rs.2544 per month and average saving is Rs.432 per month. Standard deviation of income is Rs.2236.98 per month and standard deviation of savings is Rs.930.26 per month. Coefficient of correlation is 0.8286. There is a high degree of correlation between the income and savings of rural bank customers in the State. It is also revealed in the study that the the saving capacity of the higher income group is more than that of lower income group. An increase in income will tend to have an increase in savings.
Coefficient of Determination:
This gives the percentage variation I the dependent variable that is accounted for by the independent variable. The above analysis reveals a coefficient of determination of 0.7441. It means, as the increases, savings will also increase. About 74 per cent of the increase in the savings is purely due to the increase in the income of rural bank customers. Approximately 26 per cent of the increase in savings is not due to the increase in income but due some other qualitative factors.
Regression Analysis:
Regression line of saving ( y ) on income ( x ) is given by
Y = 0.3587x-481
This equation can be used for the prediction of saving for a specified income. The application of this equation will be clear from the following illustrations:
Illustration1:
When x is 0, ie, when there is no income
Y = -48.1 ie. there will be a debt of Rs.481
Illustration 2 :
When savings ( y ) is 0, that is when 0.3587x – 481 < 0
ie. 0.3587x < 481
ie. when x ≤1340 ( approximately )
It implies that, when the monthly income is below Rs.1340, the savings will be negative. A minimum monthly income of Rs.1340 is essential to avoid debt by a rural bank customer.
Illustration 3 :
When income is Rs.5000
y = 0.3587x5000 – 481
y = 1312.5
Illustration 4 :
When income is Rs.10,000
y = 0.3587x10000 – 481
y = 3106
On an average, rural customers with a monthly income of Rs.5000 and Rs.10,000 may save Rs.1313 and Rs.3106 per month respectively. An analysis of this nature will help the authorities and the policy makers to identify the bankable people and they may be brought to the main stream banking and credit system of the country.
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