Banks to secure 350,000 villages’ access to financial services by 2013: RBI

As per the plan given by the Reserve Bank of India (RBI), around 350,000 villages across India would secure access to financial services offered by banks in the next two financial years. RBI has asked banks to ensure that 223,473 villages have access to basic financial services by March 2012. During 2010-11, banks have covered about 29,000 villages. The remaining villages are to be covered during 2011-12.

According to RBI, the number of ‘no frills’ accounts rose to 74 million from 50 million in a year in March, while the growth in no frills accounts with overdraft facilities has been slow. A ‘no frills’ account is one for which no minimum balance is insisted upon, and for which there are no charges levied if the balance is lower than the minimum balance permitted. K C Chakrabarty, deputy governor, RBI, stated that opening of no frills accounts was not enough to bring about financial inclusion. He said banks needed to strike a balance between opening branches and appointing business correspondents.

He also stated that all services cannot be covered only through banking correspondents. "We need to have brick-and-mortar branches, and for which RBI had, in its annual policy, mandated banks to allocate at least 25 percent of the total number of branches to be opened in a year to unbanked, rural centres". In March, 99,840 villages were covered by banks, of which, 76,801 were covered through business correspondents.

The lack of awareness and resultant anxiety amongst the communities is a major bottleneck and necessitates extensive mobilization and awareness campaigning (both planned and ad-hoc) to counterbalance these on-ground challenges. For which the Banks have been asked to include their financial inclusion performance when they evaluate the performances of their field staff.

One of the challenges in the financial sector that India faces today is the limited reach of financial services among the poor and vulnerable sections of the society. Financial inclusion is a key determinant of sustainable and inclusive growth, which in turn is essential for building an equitable society. Financial inclusion is important as it provides an avenue to the poor to bring their savings into the organized financial system. It gives them an avenue to remit money to their families in villages, besides weaning them away from the clutches of the exploitative money lenders. It is essential to extend banking services to the rural hinterland at the earliest, so as to integrate those regions with the growing India.