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ISSN (Print): 2319–5479, Volume-1, Issue – 1, 2012
1
Financial Inclusion of the Poor and Marginalised in Jharkhand :
Analysis of the Existing Model
Arup Mukherjee
1
& Sabyasachi Chakraborty
2
1
Dept. of Finance, Xavier’s Institute of Social Service, Purulia Raod, Ranchi, Jharkhand, India
2
Dept. of Management, Jharkhand Rai University, Jharkhand, India
E-mail : arup_120@rediffmail.com
1
, sabyasachi.chakraborty@jru.edu.in
2
Abstract - Promotion of financial inclusion has been an
important social and financial need across countries. In
India, the primary responsibility of ensuring financial
inclusion lies with the commercial banks subject to
guidelines of the central bank (RBI). However, due to the
huge size and diversity of population the commercial
banks have been taking the assistance of various social and
financial entities like co-operative banks, regional rural
banks (RRBs), self-help groups (SHGs ), joint liability
groups, and other non-banking finance companies
(NBFCs). The objective of the article is to critically
examine and highlight the role and efficacy of the
commercial banks doing business in the state of Jharkhand
in connection with their responsibility towards promoting
financial inclusion. The article also aims at examining the
capacity and role of other institutions mentioned above for
the purpose of promoting financial inclusion in the state.
Key words - Financial Inclusion, Self help groups,
I. INTRODUCTION : WHAT IS FINANCIAL INCLUSION?
Various models of promoting financial inclusion
have been practiced across the world with emphasis on
different style, ways and means, in different countries
like that of South Africa, Brazil, Kenya, Mexico,
Bangladesh, India and others. Hence, various definitions
of financial inclusion has emerged from time to time all
of them reckoning the need for (a) delivery of banking
and financial services, (b) at an affordable cost, (c) to
the people who do not have access to financial services,
(d) to the people pertaining to low income groups. The
providers for such facilities are the commercial banks
operating in the region. The commercial banks in India
as well as Jharkhand are expected to be profitable in
their trade because they are the main custodians of the
wealth of the citizens of India. The banking industry
also has a vital role in the capital and money market in
India. The apex bank, i.e., Reserve Bank of India (RBI)
at the same time has been issuing guidelines to the
commercial banks to promote the process of financial
inclusion throughout India, with special emphasis on
states which are economically underdeveloped like
Jharkhand. Hence, the commercial banks have a dual
role to play. On one hand it has to increase its
profitability and on the other hand it is also expected to
serve a social cause by bringing the poor and
marginalised in to the financial loop. Many ways and
means have been adopted but the fact still remains that it
has to be a win-win situation, which means that both
economically and politically it has become a compulsion
for the commercial banks to increase their outreach,
offering various products to the poor and marginalised
and remain profitable at the same time. Keeping this in
mind the RBI has permitted and recommended the use
of some other channels of promoting financial inclusion
to the commercial banks such as involving the self help
groups (SHG’s), Micro-finance institutions (MFI’s),
Regional Rural Banks (RRB’s), Non-Commercial Banks
such as National bank for agriculture and rural
development (NABARD), Non-Governmental
Organisations (NGO’s), Joint Liability Groups (JLG’s),
Co-operatives and Co-operative Banks. Even the other
players in the financial sector like the Non-Banking
Finance Companies (NBFC’s), Insurance companies,
and Mutual fund companies are expected to play a
positive role in the process of financial inclusion
throughout India. The commercial banks nowadays are
in to selling of various products such as insurance,
mutual funds, stocks and derivative products. Hence, it
is quite evident that the banks in their own interest have
taken the marketing position of the insurance companies
and other NBFC’s. So, the delivery of banking services
would now actually mean the delivery of all kind of
financial services to the poor and marginalised in
partnership with the other entities.
International Journal of Research and Development - A Management Review (IJRDMR)
ISSN (Print): 2319–5479, Volume-1, Issue – 1, 2012
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II. NEED FOR FINANCIAL INCLUSION IN JHARKHAND
A survey conducted by the RBI in India (All India
Rural Credit Survey-1947) revealed that financial
inclusion of rural marginalised people was dependant on
informal sources and that the money lenders met more
than 90 percent of the rural credit needs. (Jayasheela et
al 2008). The need for promoting financial inclusion in
the state can also be corroborated by the level of poverty
existing in the state.
Table : 1
Distribution of poverty in the state of Jharkhand
BPL %
DISTRICTS
80% and above
Gumla, Simdega, W.Simbhum,
Latehar
70% to 80%
Lohardaga, Saraikela, Kharsawan
60% to 70%
Ranchi, Dumka, Jamtara
50% to 60%
Deoghar, Pakur, Sahebgunj,
Garwah
40% to 50%
Giridih, Koderma, Godda,
Hazaribagh
Below 40%
Bokaro, Dhanbad
Source : Annual report 2004-05, Department of Food, Civil
supplies & Commerce, Govt. of Jharkhand, pp.50
Poverty in rural India especially Jharkhand is a
prolonged chain which can only be broken by providing
financial assistance. Most of the Central or State
sponsored schemes of financial welfare would also not
serve the purpose if proper banking and risk
management facilities are not available to the
marginalised section of the society. Proper ways and
means of financial risk management and investment, for
the rural and marginalised sections of the society is
necessary and the importance lies in the fact that
banking facilities have to be complemented by the
investment and risk management activities.
(Ravichandran & Alkhathlan, 2009).
The senior level executives of RBI have expressed
concerns on the issue of extremely low performance in
the process of financial inclusion in the rural areas of
Jharkhand and hence the branch of RBI was set up in
Ranchi (Capital of Jharkhand) in Nov’2007. This
actually indicates the non performance of the financial
institutions working in the state and also the serious
concern of the apex bank on the issue of financial
inclusion in Jharkhand where barter system is still
prevalent. (Das, 2008).
Census (1991)shows that the population density of
Jharkhand was 274 persons per square kilometre which
now has increased to more than 441 persons per square
k.m. which is higher than the national average of 364
persons per square kilometre. (Census 2011). Jharkhand
also has a relatively high number of people living below
poverty line. The national average people below the
poverty line in rural areas of India is 17.13% compared
to the alarming figure of Jharkhand at 40.2%.
(Government of India, Press Information Bureau-2007).
Moreover, due to absence of sustainable
industrialisation the role of agriculture and allied
activities has become more emphatic in Jharkhand. This
sector contributes around 13 percent to NSDP (Net State
Domestic Product) and is responsible for the livelihood
of around 80% of the state’s population. (Das, 2008).
These estimates call for a high level and efficient system
of financial inclusion in the state of Jharkhand. The
above findings of the researchers highlight the fact that
there is a vital need for quick and steady actions to
promote financial inclusion in the state of Jharkhand.
III. THE DEMAND AND COST FACTOR :
The commercial banks operating in India have been
found to be reluctant in opening of branches in the rural
area. The same phenomena also exist in the state of
Jharkhand owing to the demand and cost factor for
operation of branches. There are examples where, the
banks have opened branches in the rural areas of
Jharkhand with insufficient manpower and technology.
State Bank of India had 105 single officer branches out
of 382 branches in Jharkhand. (Das, 2008). At the same
time most of the branches are found in areas with thick
population density, thereby denying the facility to many
people who reside in remote areas. The number of
branches that the banks have, is an indicator of the
capacity of the bank to promote financial inclusion.
Extreme poverty has lowered the demand for financial
inclusion thereby making the commercial banks,
especially the private sector banks very cautious in
launching new branches. The distribution of branches of
the private sector banks are in contrast to the distribution
of population in Jharkhand as well as India. Although, a
major part of the population lives in the rural Jharkhand
the private sector banks have only 13% of the total
number of branches in the rural India. However, it may
be noted that with the increase in the number of bank
accounts opened and operated in the rural areas of
Jharkhand, the incidence of cost per unit of bank
account / bank transaction would automatically
decrease. According to the consulting giant Boston
Consulting Group’s (BCG) report “The Next Billion
Consumers” (Sinha & Subramanian,2007) the
emergence of more and more profitable business models
would lead to a reduction in the cost of manpower,
usage of technology for distribution and collaboration
across industry models. Financial inclusion is closely
related to the development of other physical facilities
and infrastructure in the state for example roads,
International Journal of Research and Development - A Management Review (IJRDMR)
ISSN (Print): 2319–5479, Volume-1, Issue – 1, 2012
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electricity, dams and bridges, which can only be
provided by the governments especially by the
concerned state governments. In the absence of such
infrastructural development the demand for credit
obviously goes down because many business activities
cannot be performed which otherwise would have
naturally co-existed with development of infrastructure.
Moreover, many business models become unviable due
to the lack of basic infrastructural facilities. Hence, the
state government of Jharkhand is also responsible for
promoting financial inclusion through development of
infrastructure and increasing the demand for financial
inclusion.(Rajan,2007). The penetration of private
sector banks in rural Jharkhand has been very dismal.
When compared on a national level the position of
Jharkhand in terms of branches was the worst before
2012 and 15
th
among the 20 states compared during
2012. The demand for financial inclusion should also be
considered as a business opportunity.(Raj,2011). Let us
consider an example in this context. A sales person of a
publisher was sent to a developing economy with a large
population to explore the market potential of the
economy. The executive came back and reported the
market potential to be very low as the literacy level was
very low. After one year another executive came and
observed the same scenario. However, on returning he
reported the market potential to be very high provided
more schools are set up and the literacy level is raised.
Hence, it is a matter of mindset, and only a change in
the mindset of the bankers and other related entities can
make financial inclusion a success. Bankers and other
related entities should therefore look at the concept of
financial inclusion as a viable business proposition and
adopt sustainable and low cost delivery models to
enhance their outreach. (Raj,2011). It is equally
important to note that the economic situation in some
parts of rural Jharkhand has improved considerably
leading to increased per capita income. However, such
features do not necessarily mean that human beings
would act rationally and become financially included.
This may be recognised from the fact that in the 1970’s
and 80’s many people from the urban middle class or
urban upper class did not care to get their life and
property insured. Similarly, if D-mat accounts were not
mandatory for participating in the stock market, many
would have taken the physical route to the capital
market. Such psychological phenomena exist in
Jharkhand primarily because of the aversion to new
technology and less awareness of financial risk
management. Taking lead from the above example it can
be inferred that people living in the rural areas may not
get financially included on their own. It is the
responsibility of the banks and other related institutions
to induce the rural population of Jharkhand in to
financial inclusiveness.
IV. ASSESSMENT OF STATE OF AFFAIRS IN JHARKHAND
The system of multi-agency banking has been the
basic plan for promoting financial inclusion in the state
of Jharkhand. Hence, the flow of credit to the rural poor
and marginalised is ensured jointly by the co-operatives,
commercial banks and RRB’s. The condition of Credit
deposit ratios (CDR) is a direct indicator of the state of
financial inclusion in any place. Out of the 24 districts
of Jharkhand only four districts, namely Bokaro, East
Simbhum, Ranchi and Saraikela have a CDR of more
than 40 percent. (Report of State Level Bankers
Committee(SLBC) Jharkhand). Among the factors of
CDR, one of the most important factors is the demand
for credit. In case of Jharkhand low demand for
financial inclusion can be attributed to the low
development of infrastructural facilities (roads and
connectivity, power supply etc) thus reducing the
chances of creation of viable business models and
opportunities. Thus the intervention of the state
government in improving and providing the required
infrastructure will also help the purpose of financial
inclusion in the rural areas of the state.
Under the initiatives of the RBI, Allahabad bank
has been designated as the convenor of the State level
banker committee (SLBC). Lead banks have been
identified, each having the responsibility of a particular
number of districts ( Allahabad Bank – 02, State Bank
of India – 07 and Bank of India – 15).
Apart from these, all other commercial banks
including the private sector banks are also supposed to
participate in the process of promoting financial
inclusion in the state. The first instance of
implementation of the “Financial inclusion plan” is for
the habitations which have population of above 2000
people (as per the census of 2001).
The importance of self-help groups (SHG’s) in
Jharkhand has been acknowledged by the RBI. After an
initial pilot study, the RBI set up a working group to
study the effectiveness of the NGO’s and SHG’s in the
early 90’s. The working group made important
recommendations for internalisation of the SHG concept
as a potential intervention tool for doing banking
business with the poor and marginalised. NABARD in
1991-92 launched a massive programme called SGH-
Bank Linkage programme (SBLP) (Pati, 2009). Hence,
the role of SHG’s has been officially accepted by the
banks through the guidelines of RBI. Data made
available by Jharkhand state level banker’s committee
(SLBC) convenor – Allahabad Bank. Report on self help
group – Bank wise as on 31.03.2012, shows that during
the year 2011-12 the number of new savings bank
accounts opened through intervention of SHG’s in case
of public sector banks were 5265, where as the figure
for the private sector banks was only one (1) by HDFC
International Journal of Research and Development - A Management Review (IJRDMR)
ISSN (Print): 2319–5479, Volume-1, Issue – 1, 2012
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bank. However, 1732 new savings accounts were
opened jointly by Jharkhand Grameen Bank and
Jharkhand Vananchal Bank. Similarly in the case of
establishing linkage with dormant accounts the public
sector banks outperformed the private sector. Source :
SLBC, Jharkhand,2011. Hence the role of the private
sector banks in Jharkhand is disappointing in promoting
financial inclusion. It is necessary to note that the
performance indicators of a financial intermediary like
banks, have little meaning, unless it is seen and
evaluated against a peer group in all activities related to
banking including development of the poor and
marginalised (Sharma, 2008). Innovative practices in
the process of promoting financial inclusion in
Jharkhand is the need of the hour. Adoption of more and
more innovative techniques and modernisation of
systems is very essential for all who are engaged in the
process. In rural Jharkhand banks offer very less and
remote options for depositing and transferring cash,
fewer ATM’s of branches which actually have been co-
located with the branches to relieve the branches from
work pressure, and at the same time reduce employee
cost. Considering the fact that these service providers
have to maintain their existence at affordable costs the
solution lies in more innovations.
Through application of internet banking, the
concept of “anywhere and anytime banking” has
become a reality. (Anjum & Tiwary, 2012). However,
this is not true in case of the state of Jharkhand because
of less number of branches opened by the private sector
banks in the state. The concept of “No Frills Account”
has been accepted by the banks in Jharkhand. However
it has been observed that most of these accounts have
remained dormant and unused. Ensuring activity in the
No-frills account is only a step towards achieving true
financial inclusion (Mishra, 2011). Nevertheless, in a
state like Jharkhand, where many schemes of the
government are in continuous operation, these no-frills
accounts could be very well put to use by making
payments to individuals towards subsidies through
direct cash transfers. The social security payments and
also the wage payment of Mahatma Gandhi National
Rural Employment Guarantee Programme
(MGNREGA) can be routed through these no-frills
accounts. This will minimise leakages and transaction
costs.
4.1 The Business Correspondent(BC) Model in
Jharkhand
The RBI has allowed the banks to use the services
of NGO’s, SHG’s, MFI’s and other civil society
organisations as intermediaries in providing financial
and banking services. Initially, only individuals being
insurance agents could act as BF’s while no individuals
could become a BC. Later on the RBI has allowed the
use of Governments servants like Postmasters, School
teachers and Headmasters as BF’s. (Rangrajan, 2008).
Brazil has seen a major success in financial inclusion
using BC model and Brazil also has a similar
demographic profile to India. (Mishra,2012) . In
Jharkhand the poor and marginalised people living in
remote areas have more faith and trust upon an
individual, in the capacity of a BC than on a bank
extension or ATM. Thus the positioning of the BC
model in Jharkhand is extremely relevant for promoting
financial inclusion. In India, especially in Jharkhand the
commercial banks have been advised by the RBI to
leverage the benefits of low cost technology solutions
and appoint BC’s who would serve as the “Doorstep
Bankers” and provide the last mile connectivity reaching
out to the vast population. (Forbes India, 2010).
4.2 Achievements of “Bank of India” in Jharkhand
being a lead bank
Bank of India (BOI) being one of the major lead
banks covers the highest number of districts (15
districts) in Jharkhand. It is considered as the back bone
of the public sector banks in the light of financial
inclusion in Jharkhand. BOI has around 4000 branches
all over India out of which 385 branches are located in
Jharkhand. However, the distribution of branches of
BOI across India is not the same. The following table
highlights the position of BOI in Jharkhand in
comparison with other states of India.
BOI has opened 385 branches in Jharkhand giving
the state the second position in the country in terms of
number of branches. 75.95% of the population of
Jharkhand belongs to the rural area standing fourth in
the country in terms of rural population, after Bihar,
Orissa and Uttar Pradesh. The average number of BOI
branches available per square km. Is 0.0048928, which
is the second highest in the country standing second
after Delhi. Average number of BOI branches available
per person is 0.00001168, which is the highest in the
country. The density of population of Jharkhand is 414
per sq.km, thus making the job of financial inclusion
even more difficult as compared to states like Punjab,
Tamilnadu, Uttarpradesh, West Bengal, Bihar and
Delhi. Hence, it can be observed that BOI has done a
commendable job in Jharkhand in terms of number of
branches that it has created. The products intended to be
offered by BOI for promoting financial inclusion are
Savings bank No-Frills accounts, Kisan Credit Card
(KCC) up to one lakh without mortgage, General Credit
Card (GCC) up to Rs.25,000/- without any collateral,
Other loans to start or run micro enterprises, Remittance
facilities (intra-bank & inter-bank) through hand held
devices (HDD’s) and mobile phones, Electronic benefit
transfers (EBT) to NREGA and social security payment
beneficiaries and Micro – insurance.
International Journal of Research and Development - A Management Review (IJRDMR)
ISSN (Print): 2319–5479, Volume-1, Issue – 1, 2012
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.
Comparative table showing number of BOI branches (state wise) along with population & geographical data.
Table : 2
State/U.T.
Area
No. of
branches
of BOI in
2012
Population
RURAL
(2011)
Population
TOTAL
(2011)
Population
Density
per Sq.km
Avg.No.of
branches
per
Sq.Km.
Avg.No.of
branches
per person
(Sq.Kms)
Andhra Pradesh
275068
169
56311788
84665533
308
0.0006144
0.00000200
Bihar
94160
251
92075028
103804637
1102
0.0026657
0.00000242
Delhi
1483
84
419319
16753235
11297
0.0566419
0.00000501
Gujarat
196024
228
34670817
60383628
308
0.0011631
0.00000378
Jharkhand
79714
385
25036946
32966328
414
0.0048298
0.00001168
Karnataka
191976
101
37552529
61130704
319
0.0005261
0.00000165
Madhya Pradesh
308252
347
52537899
72597565
236
0.0011257
0.00000478
Maharashtra
307731
758
61545441
112372972
365
0.0024632
0.00000675
Orissa
155707
173
34951234
41947358
269
0.0011111
0.00000412
Punjab
50362
126
17316800
27704236
550
0.0025019
0.00000455
Rajasthan
342239
86
51540236
68621012
201
0.0002513
0.00000125
Tamilnadu
130058
187
37189229
72138958
555
0.0014378
0.00000259
Uttar Pradesh
243286
374
155111022
199581477
828
0.0015373
0.00000187
West Bengal
88752
287
62213676
91347736
1029
0.0032337
0.00000314
Others
822451
444
114615698
164178043
N.A.
0.0005398
0.00000270
India
3287263
4000
833087662
1210193422
Source : Census data 2011 (Website : http//:censusindia.gov.in), & Data collected from Regional office BOI., Ranchi.
.
However, interbank remittances of BOI are still to
take off and the plan for micro insurance is not yet
finalised. In order to provide IT based solutions to the
rural people BOI has linked up with various technology
service providers (TSP’s) like M/s Integra Micro
Solutions (P) Ltd., M/s HCL Info Systems Ltd. And M/s
Tata Consultancy Services Ltd. In the process of
promoting financial inclusion in a cost effective way
through IT based services, the bank has partnered with
these TSP’s, where only the operating expenses is borne
by the bank and all hardware are owned by the TSP’s.
BOI has come up with the concept of ULTRA SMALL
BRANCHES in the remote areas of Jharkhand. These
branches do not have the facilities like other big
branches and are basically designed to meet the most
essential needs of banking like opening of savings
accounts, recurring deposit accounts and remittances.
Bio-metric payments which were not operative in 2011
also have picked up in few areas in 2012. Unique
identification number (AADHAR) based payments is
also still not fully functional.
4.3 Achievements and failures of the self help groups
(SHG’s) in Jharkhand :
The commercial banks have been empowering the
SHG’s and NGO’s financially. However, technical
empowerment of these small entities could be enabled
by the commercial banks through training and
development programmes of modern practices of
banking (eg.tele-banking), insurance and financial risk
management. The SHG’s and NGO’s are themselves
small entities, many of which are not financially and
technically sound. This could be one of the most
emphatic reasons for the huge gap between the
percentages of rural people living below the poverty line
in these two states. Andhra Pradesh – 7.5%, Jharkhand –
40.2%. The commercial banks being large entities
should take up the natural responsibility of, not only to
upgrade and make more user friendly systems of
financial inclusion but at the same time provide
necessary guidance, financial and technical assistance,
to the SHG’s and NGO’s to upgrade their systems. The
activity level of SHG’s in Jharkhand has definitely
International Journal of Research and Development - A Management Review (IJRDMR)
ISSN (Print): 2319–5479, Volume-1, Issue – 1, 2012
6
improved the situation of financial inclusion in the state.
However, the average number of households
participating in SHG’s run programmes in Andhra
Pradesh was 279 per 1000 whereas in case of Jharkhand
it was only 32 per 1000 during the year 2007.(Fouillet &
Augsburg, 2007). The working of SHG’s in Jharkhand if
generally found not being influenced by modern
technology. The use of technology brings transparency
in to the systems and serves the requirement of
maintaining and nurturing the faith and trust of the poor
and marginalised. (Hans, 2009). It has been observed
that the financial loans provided by such institutions
generally do not graduate to larger individual loans
while 10 to 20% of the NGO’s fail to take off.(Tankha,
2002). Nevertheless, SHGs linked to banks are emerging
as a low cost option to mainstream delivery systems of
financial services for the poor. Hence, better
empowerment of the SHG’s would serve to be a
milestone in the process of financial inclusion. Although
there is growing importance of SHG’s as a source of
credit to the poor and marginalised there little evidence
of systematic internal functioning. According to an
estimate more than one billion people in the world have
access to mobile phones, however more than 2.6 billion
people do not have access to financial services.
Development of mobile banking services can go a long
way in improving the condition of financial inclusion in
the state. (Dermish et al 2011).The literacy rate in
Jharkhand compared to the national average of 65.4% is
quite low at 53.6%. In case of females it is even more
low standing at 39.38%.(Das, 2008). This phenomenon
makes the job of financial inclusion even more difficult.
The difficulty arises from the fact that a big chunk of
population living in the rural areas of Jharkhand does
not understand English language. Even many of them do
not understand Hindi and are not able to read or write.
In such situations technology based devises like ATM
machines do not serve the purpose. Hence, instruments
designed to promote financial inclusion should be in
vernacular languages and understandable by the poor
mass. (Mehta,2012). It is only technology and
innovations which can make possible, the process of
financial inclusion in the remote areas of Jharkhand. The
banks should modify their products and ATMs in a way
so as to make them more user friendly for the people
who are illiterate or semi literate.(Leeladhar, 2006).
Branchless banking has the potential to go a long way in
this regard. Innovative application of mind may suggest
a partnership of the banks with the mobile operators and
thus reducing costs of banking for the poor in remote
areas. The Regional rural banks (RRB’s) have the
natural niche for micro finance programmes and
financial inclusion. They actually have been performing
well in the SHG-Bank linkage programme. However,
the RRB’s have a limited capacity and requires financial
and technical assistance from the Government and
NABARD should take up the matter
seriously.(Rangrajan,2008). Due to the over
dependency on agriculture and related occupations, the
default rate and irregularity of income is very high in
Jharkhand. This makes the situation extremely
vulnerable in the years when agriculture and related
businesses do not perform well (eg. a year with drought)
and all steps taken to promote financial inclusion in the
state may not serve the purpose. In order to cope up with
such situations innovative financial derivative products
could be put to good use. Farmers in Jharkhand in
general do not have access to formal finance for
growing crops because of high risks associated with the
trade. From a banker’s point of view, the interest they
are allowed to charge, would be too low, as compared to
the risks associated with agriculture. A nice example
related to this could be the idea of “Monsoon indexed
lending and insurance for small and marginal farmers”.
(Gupta’2011). The idea is to transfer the systematic risk
of the bank connected with defaulting farmers to the
insurance markets, thus creating avenues for the
insurance trade to participate in the process of financial
inclusion. The farmer has to pay a high interest rate
(inclusive of insurance premium) in the years with good
monsoon and in case of a year of drought, very low
interest rates or no interest will be charged on the loan.
Hence, in the years of trouble, the farmer is not
burdened with interest and the risk of the bank of default
on the part of the farmer is safely guarded by the
insurance market, creating a win-win situation. Hence,
the poor farmer is still bankable even in the years of
drought.
4.3 Know your customer (KYC) norms and financial
inclusion in Jharkhand:
Fulfilling KYC norms also presents a hindrance in
promoting financial inclusion in Jharkhand. Normally
when an unbanked person in rural Jharkhand tries to
open a bank account or to get insured there are three
questions that are always asked : (a) What is your name
– calling for identity proof, (b) What is your address –
calling for address proof and (c) What is your
occupation – calling for income verification. However,
in the remote villages of Jharkhand it is a very difficult
job to answer these questions with proof. Hence, the
responsibility of the banks and other financial
institutions regarding financial inclusion has to be seen
in the light of the existing KYC norms. However, the
RBI has reduced the stringency of the KYC norms for
the purpose of promoting financial inclusion for persons
who do not foresee having more than Rs.50000/- in all
their combined bank accounts and whose annual total
borrowing will not exceed Rs.1,00,000/-.(Ramji, 2009)
International Journal of Research and Development - A Management Review (IJRDMR)
ISSN (Print): 2319–5479, Volume-1, Issue – 1, 2012
7
V. POLICY SUGGESTIONS:
It is high time that the RBI in the course of
governing the commercial banks takes up the matter
more seriously. It is suggested that every bank, be it in
the public sector or private sector, reports to the RBI on
its achievement on financial inclusion more frequently
as a statutory requirement. The reporting intervals could
be fortnightly or monthly. It is also suggested that such
reporting is made public on their websites for the
purpose of transparency.
Banks have to undergo a statutory audit every year
apart from the internal audit system that they posses.
The bank auditors seldom are found to make comments
on the state of affairs of the work done by banks on
promoting financial inclusion. The RBI may also
include such provisions, which would enable the
auditors to examine and make comments on the banks
role in the process of financial inclusion with absolute
facts and figures.
It is also suggested that the RBI has a rating
procedure of the commercial banks not only on the basis
of financial performance but also on the basis of their
achievements in the process of promoting financial
inclusion in the state. The RBI may also have a scheme
where a minimum level of efficiency in this matter
becomes mandatory, failing which penalties would be
imposed as in the case when banks fail to meet the cash
reserve ratio.(CRR). Taking such precedence of
regulations the RBI, may also fix the reverse repo rate of
various banks on the basis of their performance in the
area of financial inclusion on a year to year basis. This
would obviously put psychological pressure on the
commercial banks to act significantly in the direction of
financial inclusion. The higher the level of performance
of the commercial banks in the area of financial
inclusion, higher would be the reverse repo rate
applicable for that particular bank, thus generating
additional income.
The state government may through its budget,
create a fund for opening savings accounts for school
going children in order to develop the habit of banking
activities. However, such proposal is subject to strict
monitoring of the usage of these accounts.
VI. ACKNOWLEDGEMENT
I take this opportunity of expressing my thanks
to Allahabad Bank (Convenor bank of Jharkhand) along
with Bank of India, Ranchi.
End Notes :
(a) From the banker’s point of view the CDR is the
portion of loan assets created by a bank from the
deposits received.
(b) MRP consumption is Mixed recall period
consumption in which the consumer expenditure
data for five non-food items namely, clothing,
footwear, durable goods, education and institutional
medical expenses are collected from 365 day recall
period and the consumption data for remaining
items are collected from 30 day recall period.
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