India accounts for 21 per cent of the world’s and 67 per cent of South Asia’s unbanked population; it is ranked 1 with respect to commitment to financial inclusion in Brookings Institution’s financial and digital inclusion project (FDIP) report, 2015. The ranking has been done by examining four parameters: a country’s commitment, mobile capacity, regulatory environment and adoption of traditional and digital financial services.

The report notes the importance of government initiatives in enhancing the access of formal banking services to the underserved population, in particular, the Pradhan Mantri Jan Dhan Yojana (PMJDY), one of the biggest financial inclusion initiatives in the world. It was launched in August 2014, and by September 2015, some 185 million bank accounts were opened.

However, more than half accounts do not have any balance.

Ironically, in India, due to the definition of financial inclusion that’s been adopted — universal access to financial services by the poor and disadvantaged — the focus has been on access rather than usage.

A definitive difference Over the years, the Centre and the RBI have made effort to advance the financial inclusion agenda by opening fresh branches in unbanked regions, allowing banks to appoint business correspondents to address last mile problem in providing banking services, extending No Frill Accounts to all unbanked households and relaxing KYC norms. Consequently, there was substantial improvement in the availability of financial services. Between 2001 and 2011, bank accounts in urban areas increased by over 80 per cent whereas in rural areas growth was a relatively modest 37 per cent. Overall, in 2011 almost two-thirds of households in India had a bank account.

But zoom into how frequently these bank accounts are being used to save and invest and the story gets complicated. For instance, World Bank’s Global Financial Development Report (2014) shows only 11 per cent of those who had a bank account had savings and only 8 per cent took loans. The number of dormant bank accounts is also huge. According to the RBI, almost 75 per cent of savings accounts lie dormant. Surveys by the Consultative Group to Assist the Poor (CGAP) and the College of Agricultural Banking (CAB) and Microsave (2012) indicate that an astonishing 80 to 96 per cent of such accounts opened by BCs in rural areas lie dormant.

Pushed to the wall, banks are doling out passbooks indiscriminately to anybody and everybody, including those who already have bank accounts. Consequently, reporting a large number of accounts opened under JDY does not mean the households that really need these accounts are getting them. Unfortunately, there is no single identity document that can help banks track duplicate accounts. A study on financial inclusion by CAB shows that while the proliferation of new accounts to excluded households has been quite small, accounts have gone to households that already had access to savings accounts.

Cruel irony Another issue of equal if not greater importance is who saves and invests. According to the NCAER- NSHIE 2011-12 survey and the InterMedia FII 2013 Tracker Survey, of those who save, the poorer and more disadvantaged group of agricultural households constitute just 1 per cent of the savings in the formal institutions. Non-agricultural white collar workers contribute to more than 70 per cent of the savings in formal institutions. With no financial capacity to save and invest, it is extremely difficult to visualize how merely opening bank accounts can help saving among the poor. It is cruel to ask them to save money, take insurance policies and use the mobile phone to transact funds.

If financial inclusion is to translate into ensuring smooth consumption and reducing risks for the poor, then it’s equally important to look at not just access to financial services but the use of such services. Issues related to financial capability and trust in service delivery needs to be tackled simultaneously. The government also needs to engage in building awareness and financial capability for small and marginal farmers and casual wage labour to make financial services more inclusive. Merely chasing numerical targets is meaningless.

The writer is with the National Institute of Bank Management, Pune. The views are personal

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