Banking in India

Huge proportion of people in India do not have bank account. In fact India is home to the largest number of unbanked people in the world. Almost half the country is unbanked, only 55 percent of the population have deposit account and 9 percent have credit account. India has the highest number of households (145 million ) excluded from Banking. This is a huge global problem to be solved: About half of the people in the world do not use formal financial services. (Chakrabarty, Speech on Financial Inclusion, 2011)

Financial inclusion is a critical issue, because during the rapid economic growth in developing countries the only real winners have been already well-off citizens. This is against sustainable development and increases the gap between wealthy and poor. Evidence shows that there is a strong link between poverty and financial services: Ross Levine states in Handbook of economic growth that financial development disproportionately boosts the income of the poor and reduces income inequality. When poor people do not have chance to depend on reliable and formal bank systems they tend to turn towards less-efficient and risky money lenders and handlers. There is a high chance of being a victim of scam or financial betrayal. In fact the situation is so important that The Reserve Bank of India has made financial inclusion the cornerstone of its agenda.

There are plenty of reasons behind this phenomenon, but according to study made by the New American Foundation and MicroSave main problem is that Indian Banks and other financial service providers haven’t found a way to serve poor customers especially in inferior and rural areas and still make a profit. Even if it is profitable, big issue is that banks make more money out of wealthier customers in better areas than poor areas.

More information can be found from: Eric Tyler, Anjana Ravi, Sunil Bhat, Minakshi Ramji and A.Ballem, 2012. “From Social Banking to Financial Inclusion:Understanding