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Financial Inclusion in India : Policies and Programmes
By N. Mani

First Published : 2015
ISBN : 9788177084085
Pages : 312
Binding : Hardbound
Size : 7 x 9
Price : US$ 88

It is well-known that in India, while one segment of the population has access to assortment of banking services encompassing regular banking facilities and portfolio counselling, the other segment of underprivileged and lower income group is totally deprived of even basic financial services. Exclusion of large segments of the society from financial services adversely affects the overall economic growth of a country. Apart from the rural areas, there is a significant degree of financial exclusion in urban areas as well. The cost of financial exclusion is recognised to be enormous for the society as well as for individuals, particularly in terms of inability to realise full potential due to financial constraints.

The recent developments in banking technology have transformed banking from the traditional brick-and-mortar infrastructure like staffed branches to a system supplemented by other channels like automated teller machines (ATMs), credit/debit cards, internet banking, online money transfers etc. However, access to such technology is restricted only to privileged segments of the society.

In order to ensure financial inclusion of the poor, particularly in rural areas, various initiatives have been taken by the Government of India and the Reserve Bank of India (RBI) from time to time. These have included nationalization of commercial banks in 1969 and 1980, establishment and expansion of rural credit co-operatives, regional rural banks (RRBs), urban co-operative banks (UCBs), micro finance and self-help groups (SHGs), mutual funds, pension funds and Pradhan Mantri Jan-Dhan Yojana (PMJDY), 2014.

There are several challenges that require concerted efforts from banks, the RBI and the Government to ensure convenient and cost-effective delivery of financial services to the public at large. In particular, the challenge is to introduce innovations in risk assessment, reduce transaction costs, devise new credit delivery channels, and use information technology to make financial inclusion a viable model. Looking to the immense potential lying ahead, rapid progress of financial inclusion efforts in India is the need of the hour. The stakeholders have come to realize the need for viable and sustainable business models which can sharply focus on accessible and affordable financial services, products and processes, synergistic partnerships with non-bank entities including the technology service providers.

Part I: Indian Economy, Poverty and Financial System
1. Indian Economy: An Overview
1.1 Human and Natural Resources
1.1.1 Human Resources
1.1.2 Natural Resources
1.2 Poverty, Five Year Plans and Economic Reforms
1.2.1 Poverty
1.2.2 Five Year Plans
1.2.3 Economic Reforms
1.3 Agriculture and Allied Activities
1.4 Rural Development
1.5 Industry and Minerals
1.5.1 Industry
1.5.2 Minerals
1.6 Infrastructure Development
1.7 Fiscal Policy
1.8 Monetary Policy, Prices and Credit Management
1.9 Financial Institutions, Financial Markets and Financial Instruments
1.9.1 Financial Institutions
1.9.2 Financial Markets
1.9.3 Financial Instruments
1.10 Labour and Employment
1.10.1 Unorganized Workers
1.10.2 Agricultural Workers
1.10.3 Women Workers
1.10.4 Child Workers
1.11 Health and Education
1.11.1 Health
1.11.2 Education
1.12 Social Security of Vulnerable Groups
1.13 Environment, Disaster Management and Climate Change
1.14 Foreign Trade, Debt, Aid and Investment
1.14.1 Foreign Trade
1.14.2 External Debt and External Aid
1.14.3 Foreign Direct Investment (FDI)
1.14.4 Foreign Portfolio Investment
2. Poverty in India: Concept, Causes and Incidence
2.1 Problem of Poverty
2.2 Meaning of Poverty Line
2.3 Causes of Poverty
2.4 Poverty and Millennium Development Goals
2.5 Incidence of Poverty
2.5.1 Eleventh Plan on Poverty
2.6 Expert Group on Poverty (Chairman: Suresh Tendulkar), 2009
2.7 Twelfth Five Year Plan (2012-17) on Poverty
2.8 Planning Commission Estimates of Poverty Released in March 2012
2.9 Direct Benefit Transfer (DBT) Scheme
3. Financial System and Regulators in India
3.1 Financial System: Theoretical Settings
3.1.1 Meaning, Importance and Functions of Financial System
3.1.2 From Financial Neutrality to Financial Activism
3.1.3 From Financial Volatility to Financial Stability
3.1.4 Role of the Government in Financial Development
3.1.5 Determinants of Access to Financial Services
3.1.6 Regulation and Supervision of Financial System
3.1.7 Financial Globalisation
3.2 State Domination of India’s Financial Sector (1947-1990)
3.2.1 Nationalisation of Imperial Bank of India (1955)
3.2.2 Nationalisation of Life Insurance Business (1956)
3.2.3 Nationalisation of Commercial Banks (1969 and 1980)
3.2.4 Nationalisation of General Insurance Business (1973)
3.2.5 Rethinking on State Domination of Financial Sector
3.3 Financial Sector Reforms since 1991
3.3.1 From Financial Repression to Financial Liberalisation
3.3.2 India’s Approach to Financial Sector Reforms
3.3.3 Strategy of Financial Sector Reforms
3.3.4 International Security Standards
3.3.5 Basel II and Migration to Basel III Norms
3.3.6 Accounting and Auditing Standards
3.3.7 Technological Solutions for Financial Services
3.3.8 Legal Reforms for Strengthening Financial Sector
3.3.9 High Level Committee on Financial Sector Reforms, 2008
3.3.10 Committee on Financial Sector Assessment (CFSA), 2009
3.3.11 Financial Sector Legislative Reforms Commission (FSLRC), 2013
3.3.12 Financial Stability and Development Council (FSDC)
3.3.13 Financial Action Task Force (FATF)
3.3.14 Achievements of Financial Sector Reforms and Areas of Concern
3.4 Financial Regulators in India
3.4.1 Ministry of Finance, Government of India
3.4.2 Reserve Bank of India (RBI)
3.4.3 Ministry of Corporate Affairs
3.4.4 Securities and Exchange Board of India (SEBI)
3.4.5 Pension Fund Regulatory and Development Authority (PFRDA)
3.4.6 Insurance Regulatory and Development Authority (IRDA)
3.4.7 Monitoring Framework for Financial Conglomerates (FCs)
Part II: Financial Inclusion Institutions in India
4. Financial Inclusion: Conceptual Framework
4.1 Origins of the Current Approach to Financial Inclusion
4.2 Financial Exclusion and Financial Inclusion Defined
4.3 Advantages of Financial Inclusion
4.4 Strategies for Financial Inclusion
4.5 Barriers to Financial Inclusion
4.5.1 Demand Side Barriers
4.5.2 Supply Side Barriers
4.6 Measuring and Monitoring of Financial Inclusion Impact
5. Recent Financial Inclusion Measures in India
5.1 Why Financial Inclusion?
5.2 RBI Measures for Financial Inclusion
5.2.1 No Frills Account
5.2.2 General Credit Card (GCC)
5.2.3 Business Facilitator and Business Correspondent (BC) Models
5.2.4 Passbook Facility
5.2.5 Simplified KYC Procedure
5.2.6 Credit Counselling and Financial Education
5.2.7 Use of Technology
5.2.8 Simplified Branch Authorization
5.2.9 Banking Services in Unbanked Villages
5.2.10 Financial Inclusion Plans of Banks for Three Years
5.3 Financial Inclusion Measures by NABARD
5.4 Committee on Financial Inclusion
5.4.1 Financial Inclusion Fund (FIF)
5.4.2 Financial Inclusion Technology Fund (FITF)
5.5 Committee on Comprehensive Financial Services for Small Businesses and Low-income Households (CCFS), 2014
5.6 Recent Important Guidelines on Financial Inclusion
6. Rural Credit Co-operatives
6.1 Credit Needs of the Indian Farmers
6.2 Sources of Credit for the Farmers
6.2.1 Institutional (Formal) Sources
6.2.2 Non-institutional (Informal) Sources
6.3 Co-operative Credit Societies
6.4 Co-operative Banks
6.4.1 Classification of Co-operative Banks
6.5 Rural Co-operatives
6.5.1 Short-term Rural Co-operatives
6.5.2 Long-term Rural Co-operatives
6.6 Rural Co-operatives: History and Recent Policy Measures
6.7 Primary Agricultural Credit Societies (PACS)
6.8 Problems of Rural Co-operatives
6.9 Task Force on Revival of Rural Co-operative Credit Institutions
6.10 NABARD and the Co-operative Sector
6.10.1 Credit Extended by NABARD
6.11 Advisory Committee on the Flow of Credit to Agriculture and Related Activities from the Banking System, 2004
6.12 Expert Group on Investment Credit in Agriculture, 2005
6.13 Working Group on Warehouse Receipts and Commodity Futures, 2005
6.14 Regulatory Framework and Supervision
6.14.1 Asset Classification for State Government Guaranteed Advances
6.14.2 Additional Provisioning Requirement for NPAs
6.14.3 Prudential Guidelines on Agricultural Advances
6.14.4 Inspections
6.15 Problem of Triangular Regulation of Rural Co-operatives
6.16 Agricultural Credit: Recent Policy Announcements
6.16.1 Agricultural Debt Waiver and Debt Relief Scheme, 2008
7. Regional Rural Banks (RRBs)
7.1 Nature and Objectives of RRBs
7.2 Amalgamation of RRBs
7.3 Autonomy for RRBs
7.4 RRBs as Vehicles of Financial Inclusion
7.5 Factors Influencing the Performance of RRBs
7.5.1 Area of Operation and Clientele Base
7.5.2 Capital Base and Organisational Structure
7.5.3 Loan Delinquencies
7.5.4 Cost Structure and Poor Financial Management Skills
7.5.5 Staff Structure
7.5.6 Dependence on Sponsor Banks
7.6 Restructuring of RRBs
7.7 Manpower Challenges of RRBs
7.8 Computerisation in RRBs
7.8.1 Working Group on Technology Upgradation of Regional Rural Banks, August 2008
8. Urban Co-operative Banks (UCBs)
8.1 Importance of UCBs
8.2 Vision Document and Medium-Term Framework (MTF) for UCBs
8.3 Regulation and Supervision of UCBs: Strengthening Measures
8.3.1 Memorandum of Understanding (MoU) with the State Governments
8.3.2 Licensing of New Banks/Branches
8.3.3 Income Recognition, Asset Classification and Provisioning Norms
8.3.4 Exposure Norms
8.3.5 Off-site Surveillance
8.3.6 Know Your Customer (KYC) Guidelines
8.3.7 Priority Sector Lending
8.3.8 Disclosure Norms
8.4 Mergers/Amalgamations of UCBs
8.5 Relaxation of Investment Portfolios of UCBs
8.6 Restructuring of Scheduled UCBs with Negative Net Worth
8.7 Problem of Dual Control in Co-operative Banking
8.7.1 Impairment in Governance and Management
8.8 IT Support for Urban Co-operative Banks
8.8.1 Findings of the Working Group
8.8.2 Problem Analysis and Possible Solutions
8.8.3 Issues in Computerization and Support
8.8.4 Recommendations
8.9 Working Group on Umbrella Organization and Revival Fund for Urban Cooperative Banks
8.9.1 Terms of Reference of the Working Group
8.9.2 Recommendations
9. Micro Finance and Self-help Groups (SHGs)
9.1 Micro Finance
9.1.1 Micro Finance Defined
9.1.2 Role of Micro Finance
9.1.3 Micro Finance Institutions (MFIs)
9.1.4 Legal Status
9.1.5 Problem Areas of Micro Finance
9.1.6 Micro Finance and Central Government
9.1.7 Micro Finance and Reserve Bank of India (RBI)
9.2 Self-help Groups (SHGs)
9.2.1 Self-help Group (SHG) Defined
9.2.2 Benefits of SHGs
9.2.3 SHG-Bank Linkage Programme
9.2.4 Problems of SHGs
10. Mutual Funds
10.1 Legal and Regulatory Framework
10.2 History of Mutual Funds
10.2.1 Bifurcation of UTI
10.3 Features of Mutual Fund Industry in India
10.4 Problems of Mutual Funds
10.4.1 Competition with Government Schemes
10.4.2 Competition from Insurance
10.4.3 Volatility of Mutual Fund Performance
10.4.4 Tax System Encourages Short-term Objectives
10.5 Mutual Funds and the Stock Market
11. Pension Funds
11.1 New Pension System (NPS)
11.1.1 Swavalamban Scheme
11.1.2 NPS Corporate Sector Model
11.1.3 Atal Pension Yojana (APY)
11.2 Pension Fund Regulatory and Development Authority (PFRDA)
12. Pradhan Mantri Jan-Dhan Yojana (PMJDY), 2014
12.1 Background
12.2 PMJDY: Brief Introduction
12.3 Six Pillars of PMJDY
12.4 Timeline for Financial Inclusion Plan
12.5 Strategy for Achievement of Objectives
12.6 Implementation of PMJDY
12.6.1 Reaching Out: Network Expansion and Geographical Coverage of the Banks
12.6.2 Opening of Basic Saving Bank Account of Every Adult Citizen
12.6.3 Financial Literacy and Credit Counselling (FLCC)
12.6.4 Credit Guarantee Fund
12.6.5 Micro Insurance
12.6.6 Unorganized Sector Pension Scheme (Swavalamban)
12.7 Monitoring Mechanism
12.8 Challenges Identified in the Implementation of the Mission
12.8.1 Telecom Connectivity
12.8.2 Keeping the Accounts “Live”
12.8.3 Brand Awareness and Sensitization
12.8.4 Commission to Bank on Direct Benefit Transfer (DBT)
12.8.5 Coverage of Difficult Areas
12.9 Roles of Major Stakeholders
12.9.1 Department of Financial Services
12.9.2 Other Central Government Departments
12.9.3 Reserve Bank of India (RBI)
12.9.4 Commercial Banks
12.9.5 Indian Bank Association (IBA)
12.9.6 National Bank for Agriculture and Rural Development (NABARD)
12.9.7 State Governments
12.9.8 State Level Bankers Committee (SLBC)
12.9.9 District Administration
12.9.10 Lead District Manager (LDM)
12.9.11 Local Bodies
12.9.12 National Payment Corporation of India (NPCI)
12.9.13 Unique Identification Authority of India (UIDAI)
13. Role of Technology in Financial Inclusion
13.1 Information Technology (IT) and Modern Banking
13.2 Technological Solutions for Financial Services
13.3 Technological Channels for the Delivery of Financial Services
13.3.1 National Electronic Funds Transfer (NEFT)
13.3.2 ATM Networks
13.3.3 Credit Cards
13.3.4 Satellite Banking
13.4 Technology for Financial Inclusion
13.5 Use of Technology for Pradhan Mantri Jan-Dhan Yojana (PMJDY), 2014
13.5.1 Electronically Know Your Customer (e-KYC)
13.5.2 Transaction through Mobile Banking
13.5.3 Immediate Payment System (IMPS)
13.5.4 Micro ATMs
13.5.5 National Unified USSD Platform (NUUP)
13.5.6 RuPay Debit Cards
Appendix: Main Findings and Recommendations of the Committee on Financial Inclusion (Chairman: C. Rangarajan), January 2008


Dr. N. Mani is presently Head, Post-graduate and Research Department of Economics, Erode Arts and Science College, Erode, Tamil Nadu. He holds M.A., M.Phil. and Ph.D. degrees from Bharathiar University, Coimbatore. Specializing in development economics, he has 23 years of teaching experience to post-graduate and undergraduate classes. He successfully completed a major research project sponsored by University Grants Commission (UGC), New Delhi. He is currently engaged in a research project sponsored by Indian Council of Social Science Research (ICSSR), New Delhi.

Dr. Mani has published five books and several papers in reputed journals on varied subjects. He is also the President of Tamil Nadu Science Forum and was organizing secretary of the National Children Science Congress, 2006. He has successfully guided and supervised the works of 6 Ph.D. and 14 M.Phil. scholars. He is a member of various academic bodies including Indian Society of Labour Economics and Indian Society of Agricultural Economics.

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