Financial Inclusion in India: Conceptual Analysis and its Relevance

Abstract

Banking sector in India forms the fulcrum of financial system since Independence. It carved out a niche in the public sector by providing a variety of financial services to the people. Beginning with early national plans, successive governments in India have emphasized the role of finance in promoting equitable growth. Accordingly, the banking policies were formulated in order to expand the scope of formal financial services to the ‘unbanked' population. These policies envisaged ‘social and development banking' to meet the credit needs of the rural people as well as to reduce the role of informal sector in the provision of credit. Despite these efforts, a large number of groups remain excluded from the basic services and products provided by the financial sector. In these circumstances, as a part of financial inclusion drive, Indian government with the help of Reserve Bank of India (RBI) has come up with some initiatives with an objective to include the hitherto financially excluded sections into the banking fold. Against this backdrop, as a conceptual paper, it attempts to introduce the concepts of financial exclusion and financial inclusion, and emphasize its need. It briefly reviews the Indian banking sector, reports the level of financial exclusion in India and highlights the various initiatives aimed at meeting the desired objective. It concludes by emphasizing some of the operational challenges in its functioning and suggests a way forward.