Banking for all

Operating an ATM in Perumbavoor, Ernakulam district.-K.K. MUSTAFAH

The banking sector in Kerala becomes the first in the country to achieve 100 per cent financial inclusion.

IN 2011 Kerala made a landmark achievement: its banking sector became the first in India to achieve 100 per cent financial inclusion, guaranteeing at least one bank account in each household and banking facilities within reach of all the people in the 14 districts of the State.

The declaration made by Chief Minister Oommen Chandy in Thiruvananthapuram on September 30, 2011, said every household in Kerala has at least one bank account and the facility for need-based credit. The project to achieve total financial inclusion was part of a Government of India initiative aimed at providing banking services to every village with a population of over 2,000.

In Kerala, Canara Bank, the convener bank of the State-level Bankers' Committee, and other participating banks identified 127 villages with no banking channels for a special inclusion drive. Earlier, Palakkad in north Kerala had become the first district in the country to achieve total financial inclusion in 2007. Subsequently, the 127 villages were identified and a bank branch, mobile bank or banking counsellor started functioning there under a special initiative by lead banks in each district. Since then, several banks have launched financial literacy and credit counselling centres, facilities for opening no-frills accounts and issued smart cards as part of the initiative. However, it will require extension of credit and insurance facilities to all those with bank accounts for the inclusion plan to be fully effective, say bank officials.

The report of the Committee of Financial Inclusion 2008 appointed by the Union government defines financial inclusion as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at affordable costs.

The most important objective of the drive for financial inclusion was thus to provide access to finance for the poor and vulnerable sections of society. Even though technological developments have changed the face of the banking sector in India, access to technological initiatives, including ATMs, credit/debit cards, Internet banking and online money transfers have been restricted only to certain sections of society. Those who are thus financially excluded, especially the poor, cannot access mainstream financial products such as bank accounts, credit, remittances and payment services, financial advisory services, insurance facilities, and so on.

According to a 2008 National Bank for Agriculture and Rural Development (NABARD) report on financial inclusion, the essence of financial inclusion is in trying to ensure that a range of appropriate financial services is available to every individual and enabling them to understand and access those services. Apart from the regular form of financial intermediation, it may include a basic no-frills banking account for making and receiving payments, a savings product suited to the pattern of cash flows of a poor household, money transfer facilities, small loans and overdrafts for productive, personal and other purposes, insurance (life and non-life), etc. While financial inclusion, in the narrow sense, may be achieved to some extent by offering any one of these services, the objective of Comprehensive Financial Inclusion' would be to provide a holistic set of services encompassing all of the above.

The Government of India hopes to bring 80 per cent of households in India into the formal banking network in the next five years, as against about 47 per cent households at present.

Kerala now tops the Index of Financial Inclusion (IFI) prepared by the Reserve Bank of India estimated on the basis of data on banking penetration, availability of banking services and usage of the banking system among 23 States. It had rare advantages in its financial inclusion programme, being a State with one of the largest government-run women-empowerment programmes in the country, called Kudumbashree', with 37 lakh members and covering more than 50 per cent of households in Kerala having linkages with banks.

All Kudumbashree NHGs (neighbourhood groups) have bank accounts through which members of NHGs have access to savings and credit services of banks. The NHGs act as the intermediary between banks and the beneficiaries. Kudumbashree has also chalked out a comprehensive financial literacy campaign in order to provide a platform for NHGs to be aware of and benefit from formal banking services. Moreover, over 24 lakh families have registered under the National Rural Employment Guarantee Scheme (NREGS) and have their wages paid through over 35 lakh bank accounts. Kerala also has the largest number of social security pensioners in India, over 15 lakh people, whose pension is paid only through bank accounts. A recent trend has been a flood of new accounts being opened by another vulnerable section living in Kerala, the lot of migrant labourers (about 10 to 30 lakh of them, according to various estimates) flocking to the State from all parts of the country.

Kerala had a total of 4,227 bank branches as of March 31, 2010. Of this, 342 are rural branches, 2,829 are semi-urban branches and 1,056 are urban branches. The State also has the largest number of semi-urban branches (2,829) compared with the other 14 major States in India. Kerala has over 6.5 million households and 33 million people.