Even as the banking sector clocks decade-best financial metrics, is the growth touching all strata of the society? The central bank’s recently announced Financial Inclusion Index (FI Index) for 2024 shows things are improving but there is ground to cover.

Reserve Bank of India’s FI-Index (Financial Inclusion Index), which captures the extent of financial inclusion across the country, rose to 64.2 in March 2024 with growth in all parameters. The tool, which is constructed by the RBI to capture the extent of financial inclusion across the country, has shown significant improvements over the years growing steadily at a CAGR of 5.75% since 2017 when the index was at 43.4.

The FII ranges between 0 and 100 where 0 signifies complete financial exclusion, and 100 indicates full financial inclusion. The index comprises three broad parameters, Access, Usage and Quality with weights of 35 per cent, 45 per cent and 20 per cent respectively.

Overall credit growth and expansion of digital financial services has helped in better financial inclusion, experts said.

“Push on financial inclusion with initiatives like the Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Awas Yojna, etc have been encouraging. Moreover, there has been a sharp rise in microfinance lending post lifting of the margin cap by the RBI,” Jignesh Shial, Head of BFSI Sector at InCred Capital, said.

Bharat shines

RBI data shows number of banking outlets in villages increased from 67,694 as of March 2010 to 16.48 lakh in December 2023. There has also been an increase in the number of Basic Savings Bank Deposit Accounts (BSBDA) from 7.3 crore to 70 crore in the last 13 years.

A senior official from City Union Bank added that micro-ATMs have helped banks reach areas without physical branches. “This has significantly enhanced accessibility and usage, effectively addressing connectivity issues,” the official said.

UPI has been the game-changer with number of UPI transactions rising over 10x from FY20 to FY24. “Digital payments are the foundation and key enabler to access and usage across products. The kind of progress we have seen in digital payments undoubtedly shapes the FI-Index,” Sugandh Saxena, CEO, Fintech Association for Consumer Empowerment (FACE), said.

Major hurdles

However, as of 2021, India still lagged most other emerging economies and global peers when it comes to inclusion parameters. As of 2021 World Bank data, 78 per cent of India’s adult population owned bank accounts in their name compared to 84 per cent in Brazil, 89 per cent in China, 90 per cent in Russia and 85 per cent in South Africa.

Incred’s Shial says that frauds recognition and access to real-time and fast paced bureau (credit) data remain some of the key challenges for scaling inclusion.

RBI has launched a Financial Inclusion Dashboard called Antardrishti to track the metrics that help deepen financial inclusion. The portal is currently for internal purposes but the central banker aims to open it up soon. Reviewing priority sector lending guidelines and achieving “100 per cent coverage in 50 per cent districts” for digital payments by March 2025 is key priorities for achieving higher inclusion, RBI notes.

(The writer is an intern with businessline)

Related Topics