RBI/2008-09/357
RPCD.CO.MFFI. BC.No. 85/ 12.01.015/ 2008-09

January 22, 2009

The Chairman/ Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks
(Including RRBs)

Dear Sir/ Madam,

100 per cent Financial Inclusion - Evaluation by external agencies- Broad findings

In the Reserve Bank's Annual Policy Statement for the year 2007-08 it was announced that an evaluation of the progress made in the districts that have reported 100% financial inclusion would be taken up by independent external agencies. Accordingly, studies were conducted in 26 districts in the states of Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Orissa, Punjab, Rajasthan and West Bengal. The major study findings are annexed.

2. The findings reveal that although the State Level Bankers Committees (SLBCs) have declared several districts as 100% financially included, actual financial inclusion has not been to that extent in all the districts. Further, most of the accounts that have been opened as a part of the financial inclusion drive have remained inoperative due to various reasons. There is a need for SLBC/DCCs to actively step up the awareness with regard to 'no frills' accounts as this continues to be poor in many districts.

3. In order to sustain the momentum for financial inclusion, banks are advised to :

(i) ensure that steps are taken to provide banking services nearer to the location of the no-frills account holders through a variety of channels including satellite offices, mobile offices, business correspondents, etc.;

(ii) consider providing General Credit Card (GCC)/small overdrafts along with no-frills accounts to encourage the account holders to actively operate the accounts;

(iii) conduct awareness drives so that the no-frills account holders are made aware of the facilities offered;

(iv) review the extent of coverage in districts declared as 100% financially included so as to meet the gaps in banking facilities to those desirous of obtaining such facilities; and

(v) efficiently leverage on the technology enabled financial inclusion initiatives being implemented in various States with Reserve Bank support such as smart cards with bio-metric access involving hand held devices/ mobile phones.

4. Banks are advised to take appropriate action based on the findings of the evaluation study, under advise to our Regional Offices concerned. Copies of the evaluation studies for the respective States are also available for reference, if required, with the Regional Offices concerned.

5. Kindly acknowledge receipt.

Yours faithfully

(B.P.Vijayendra)
Chief General Manager

Annex

Financial Inclusion (FI) evaluation conducted by external agencies in various States: Major findings

The major findings of the study reports are presented below:

Ganjam district, Orissa

In the district, about 65% of population desirous of having banking facilities has been provided with such facilities. However, no bank branch has extended overdraft or GCC to any no-frills account holder. There were hardly any transactions in more than three fourth accounts opened under the no-frills account category. The villagers felt that it was very difficult to complete bank transactions within a reasonable time and branch officials were reluctant to sanction credit facilities for their basic needs. Hence villagers preferred to approach informal sources for quick credit.

Rajsamand district, Rajasthan

In the district, in villages, 92.27% households have a bank account. However, 52.39 % people had no transactions in their bank accounts due to distance of the branch (79.64%), illiteracy (6.60%) and not being interested (10.04%). In towns, 98% households had a bank account and 86.94% carried out transactions in the accounts. In towns, those who did not carry out transactions indicated non-availability of passbook (75.47%) as the major reason. Majority of the people contacted did not know about the process of opening the account and could not get their passbooks.

Hooghly district, West Bengal

FI level in the district stood at 51.23%. Among the no-frill account holders, 24.5% had not visited the bank for over three months. Only 4% account holders had got GCC facility. However, of the households who held these cards, 58% had drawn a loan against the card and the average loan amount was slightly over Rs. 13,000. 34% of account holders had availed bank loan and 56% of these needed to provide collateral security. No frills accounts were found the most in the lowest income categories and declined with the higher income groups. 18.4% surveyed had taken loans from moneylenders at some point of time.

Srikakulam District, Andhra Pradesh

About 71% of all those people desirous of having banking facilities had been provided with bank accounts. However, no single instance of providing KCC, OD or GCC facilities to the no-frill account holders had been reported. On an average, there were no transactions in 97% of the no-frills accounts opened. 5% of respondents still resorted to availing finance from moneylenders even after having a no-frills account. Some of the rural bankers were not motivated to open no-frills accounts because they felt that operationally the scheme was not viable.

Seven districts of Karnataka

(Bagalkot, Chamrajnagar, Davangere, Gulbaraga, Haveri, Kodagu and Koppal)
Banks availed the services of NGOs, SHGs, teachers, postmen, farmers' clubs for the household survey and opening of no-frills accounts (NFAs). Broadly, every household that desired to open the NFAs had been covered under the FIP. However, there were several pockets in the villages that were still excluded because of the unwillingness/ migratory nature of the families. Most of the NFAs remained inoperative. Accounts were opened for more than one member per household by banks, deviating from the main objective of the programme of linking all excluded families. Many households received passbooks after a lapse of six months.

Gandhinagar district, Gujarat

While 69.9% respondents had bank accounts, only 33.3% were actually utilizing the same. Banks had been providing guidance (43%), informing about benefits of savings (13%), helping in opening bank accounts (20%) and filling up various forms (12%). Among the 17% people who got loan facilities, 89.1% got loans upto Rs. 50,000. For loans up to Rs. 25000, 44% loanees provided collateral in terms of land (58%), third party guarantee (76%) or houses (19%). Bank branches issued 3100 GCCs to eligible applicants. However, none of the card holders used GCC even once. Recourse to moneylenders was low (7%) for the financially included.

Twelve districts of Himachal Pradesh

(Chamba, Bilaspur, Hamirpur, Kangra, Kinnaur, Kullu, Lahaul & Spiti, Mandi, Shimla, Sirmaur, Solan and Una)
Overall, 97.83 % of the sample respondents have been financially included with average financial inclusion in the rural areas at 97.58%. Out of 72 blocks, 38 blocks have achieved 99% inclusion. Majority of the respondents are satisfied with different aspects of quality of services in the State in terms of opening and closing timings (62.59%), ease in use of banking services (53.94%) and convenient location of bank branches (56.50%). There are certain pockets where there is scope for improving the quality of delivering banking services. More than three fourth of the respondents in the State agree that their income, savings, opportunities for livelihood and financial prudence have increased due to awareness and availability of banking services.

Gurdaspur and Mansa districts of Punjab

In Gurdaspur district, 95.44% of the respondents have been financially included. In Mansa district, the extent of FI is 98.48%. In the two districts put together, 96.88% of the respondents have been financially included. The inclusion rates are 96.39% for rural blocks and 97.82% for towns. Bank employees (50.67%), Sarpanches (22.09%) and friends (12.46%) of the respondents have played a dominant role in motivating respondents in opening of bank accounts. A majority of the respondents are satisfied with different aspects of quality of services in terms of opening and closing timings of bank branches, ease in use of banking services and convenient location of bank branches.

Main conclusions

The following main conclusions have emerged from the studies.

• Although the SLBCs have declared several districts as 100% financially included, the actual financial inclusion has not been to that extent.
• Most of the accounts that have been opened as a part of the financial inclusion drive have remained inoperative due to various reasons such as distance from the branch, illiteracy, lack of interest, non-availability of passbooks, etc.