Definitions Financial inclusion may be defined 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 an affordable cost (The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan). Financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products (The Committee on Financial Sector Reforms, Chairman: Dr.Raghuram G. Rajan). Household access to financial services is depicted in Figure I. The essence of financial inclusion is to ensure delivery of financial services which include - bank accounts for savings and transactional purposes, low cost credit for productive, personal and other purposes, financial advisory services, insurance facilities (life and non-life) etc. Why Financial Inclusion ? Financial inclusion broadens the resource base of the financial system by developing a culture of savings among large segment of rural population and plays its own role in the process of economic development. Further, by bringing low income groups within the perimeter of formal banking sector; financial inclusion protects their financial wealth and other resources in exigent circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the usurious money lenders by facilitating easy access to formal credit. India’s Gini Index stands at 25.5. India's Gini coefficient for rural areas was 0.266, down from 0.283 in 2011–2012, and for urban areas it was 0.314, down from 0.363. Extent of Financial Exclusion The extent of financial exclusion from different perspectives / angularities is presented based on different data sources viz.: Financial Inclusion Index Government of India Population Census 2011 NSSO 70th Round Survey Results CRISIL - Inclusix RBI reports IMF ‘Financial Access Survey’ Results NABARD All India Rural Financial Inclusion Survey Financial Inclusion Index In consultation with the concerned stakeholders including the Government, the Reserve Bank of India had constructed a composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country, which was first published in August 2021 for the FY ending March 2021. The FI-Index has been conceptualised as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with Government and respective sectoral regulators. The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion. The FI-Index comprises of three broad parameters (weights indicated in brackets) viz., Access (35%), Usage (45%), and Quality (20%) with each of these consisting of various dimensions, which are computed based on a number of indicators. The Index is responsive to ease of access, availability and usage of services, and quality of services, comprising in all 97 indicators. A unique feature of the Index is the Quality parameter which captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services. The FI-Index has been constructed without any ‘base year’ and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion. The FI-Index will be published annually in July every year. The value of FI-Index for March 2025 stands at 67.0 vis-à-vis 64.2 in March 2024, with growth witnessed across all sub-indices, viz., Access, Usage and Quality. Improvement in FI-Index in FY 2025 is contributed by Usage and Quality dimensions, reflecting deepening of financial inclusion, and sustained financial literacy initiatives. Government of India Population Census 2011 As per census 2011, only 58.7% of households are availing banking services in the country. However, as compared with previous census 2001, availing of banking services increased significantly largely on account of increase in banking services in rural areas (Chart 2). NSSO 79th Round Survey Results Around 94.6 percent of persons, aged 18 years and above, have an account individually or jointly in any bank/other financial institution or with mobile money service provider at all-India level. In the same age group, the figure stands around 94.6 percent in rural areas and 94.4 percent in urban areas. Regarding the role of different entities/banks within the institutional sources category, cooperatives are found to have played a relatively more important role in states like Maharashtra, Gujarat, Kerala, and Punjab in providing loans to farmers. More than one-third of loans in these states come from cooperative societies. In most southern states, commercial banks and Regional Rural Banks have played a major role in providing credit to farmer households. Close to one-fourth of the loans in these states come from banks directly and indirectly through SHGs which are bank linked. Amongst farmers who have accessed credit, 83 per cent of the total loans taken by large farmers are from institutional agencies, while around 60 per cent of marginal farmers’ loans are from institutional agencies. Farmers in general, and small and marginal farmers in particular, depend quite substantially on moneylenders CRISIL-Inclusix In June 2013, CRISIL first time published a comprehensive financial inclusion index (viz.,Inclusix). For constructing the index, CRISIL identified three critical parameters of basic banking services namely branch penetration, deposit penetration and credit penetration. The CRISIL Inclusix indicate that there is an overall improvement in the financial inclusion in India. CRISIL –Inclusix (on a scale of 100) increased from 35.4 in March 2009 to 37.6 in March 2010 and to 40.1 in March 2011. It stood at 58.0 at the end of fiscal 2016. RBI Reports Sadhan Kumar (2011) worked out an Index on financial inclusion (IFI) based on three variables namely penetration (number of adults having bank account), availability of banking services (number of bank branches per 1000 population) and usage (measured as outstanding credit and deposit). The results indicate that Kerala, Maharashtra and Karnataka has achieved high financial inclusion (IFI >0.5), while Tamil Nadu, Punjab, A.P, H.P, Sikkim, and Haryana identified as a group of medium financial inclusion (0.3) IMF ‘Financial Access Survey’ 2023 - India statistics Access and use of Financial Services Indicator 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Automated Teller Machines (ATMs) per 100,000 adults 12.87 17.80 19.70 21.24 21.77 21.39 20.37 21.20 21.17 24.56 24.85 24.47 Branches of commercial banks per 100,000 adults 11.85 12.87 13.54 14.06 14.35 14.28 14.40 14.55 14.39 14.31 14.27 14.41 Deposit accounts with commercial banks per 1,000 adults 1,160.72 1,337.41 1,541.79 1,731.27 1,861.99 1,913.43 1,941.24 2,002.98 2020.08 2123.31 2341.99 2425.48 Loan accounts with commercial banks per 1,000 adults 141.18 149.78 152.78 168.75 175.72 197.18 228.57 263.79 284.71 302.08 334.26 368.64 Mobile money transactions: number per 1,000 adults 35.98 116.06 270.11 627.69 1661.52 3029.02 4074.78 4106.66 3816.09 4991.35 5484.92 5783.95 For the complete list, click here. NABARD All India Rural Financial Inclusion Survey 2021-22 Increase in Average Monthly Income: The average monthly income of households saw a substantial rise of 57.6% over a five-year period, increasing from Rs. 8,059 in 2016-17 to Rs. 12,698 in 2021-22. Rise in Average Monthly Expenditure: The average monthly expenditure of rural households rose significantly from Rs. 6,646 in 2016-17 to Rs. 11,262 in 2021-22. The annual average financial savings of households increased to Rs. 13,209 in 2021-22 from Rs. 9,104 in 2016-17. Overall, 66% of households reported saving money in 2021-22, compared to 50.6% in 2016-17. Agricultural households outperformed non-agricultural ones in terms of savings, with 71% of agricultural households reporting savings during the reference period, compared to 58% of non-agricultural households. In total, 44% of agricultural households were found to possess a valid Kisan Credit Card (KCC). The percentage of households with at least one member covered by any form of insurance increased significantly from 25.5% in 2016-17 to 80.3% in 2021-22. Pensions significantly enhance recipients' quality of life by offering financial support and reducing dependency on others, thereby boosting their self-worth and confidence. The percentage of households with at least one member receiving any form of pension (such as old age, family, retirement, or disability) increased from 18.9% in 2016-17 to 23.5% in 2021-22. Overall, 54% of households with at least one member over 60 years old reported receiving it, highlighting the importance of pensions in supporting elderly members of society. The percentage of respondents demonstrating good financial literacy increased by 17 percentage points, rising from 33.9% in 2016-17 to 51.3% in 2021-22. RBI Policy Initiatives and Progress in Financial Inclusion RBI has adopted a bank-led model for achieving financial inclusion and removed all regulatory bottle necks in achieving greater financial inclusion in the country. Further, for achieving the targeted goals, RBI has created conducive regulatory environment and provided institutional support for banks in accelerating their financial inclusion efforts. Financial Inclusion Initiatives Advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with minimum common facilities such as no minimum balance, deposit and withdrawal of cash at bank branch and ATMs, receipt/ credit of money through electronic payment channels, facility of providing ATM card. Relaxed and simplified KYC norms to facilitate easy opening of bank accounts, especially for small accounts with balances not exceeding Rs. 50,000 and aggregate credits in the accounts not exceeding Rs. one lakh a year. Further, banks are advised not to insist on introduction for opening bank accounts of customers. In addition, banks are allowed to use Aadhar Card as a proof of both identity and address9. Simplified Branch Authorization Policy, to address the issue of uneven spread bank branches, domestic SCBs are permitted to freely open branches in Tier 2 to Tier 6 centers with population of less than 1 lakh under general permission, subject to reporting. In North-Eastern Sates and Sikkim domestic SCBs can open branches without having any permission from RBI. With the objective of further liberalizing, general permission to domestic scheduled commercial banks (other than RRBs) for opening branches in Tier 1 centres, subject to certain conditions. Compulsory Requirement of Opening Branches in Un-banked Villages, banks are directed to allocate at least 25% of the total number of branches to be opened during the year in un-banked (Tier 5 and Tier 6) rural centers. Opening of intermediate brick and mortar structure, for effective cash management, documentation, redressal of customer grievances and close supervision of BC operations, banks have been advised to open intermediate structures between the present base branch and BC locations. This branch could be in the form of a low cost simple brick and mortar structure consisting of minimum infrastructure such core banking solution terminal linked to a pass book printer and a safe for cash retention for operating larger customer transactions. Public and private sector banks had been advised to submit board approved three year Financial Inclusion Plan (FIP) starting from April 2010. These policies aim at keeping self-set targets in respect of rural brick and mortar branches opened, BCs employed, coverage of un-banked villages with population above 2000 and as well as below 2000, BSBD accounts opened, KCCs, GCCs issued and others. RBI has been monitoring these plans on a monthly basis. Banks have been advised that their FIPs should be disaggregated and percolated down up to the branch level. This would ensure the involvement of all stakeholders in the financial inclusion efforts. In June 2012, revised guidelines on Financial Literacy Centres (FLCs). Accordingly, it was advised that FLCs and all the rural branches of scheduled commercial banks should scale up financial literacy efforts through conduct of outdoor Financial Literacy Camps at least once a month, to facilitate financial inclusion through provision of two essentials i.e. ‘Financial Literacy’ and easy ‘Financial Access’. Licensing of New Banks: The present round of licensing new banks is essentially aimed at giving further fillip to financial inclusion efforts in our country. Innovative business models aimed at furthering financial inclusion efforts would be looked into closely in processing applications for banking license. Financial inclusion plan would be an important criterion for procuring new bank licenses (Dr. D Subbarao). The four big successes of India’s public digital infrastructure have been Unified Payments Interface (UPI), Bharat QR, Bharat Bill Pay System (BBPS) and the RuPay card. Jan Dhan, Aadhaar and Mobile, popularly known as the JAM trinity, has been a game changer of sorts. In terms of the revised guidelines issued by Reserve Bank of India (RBI) vide circular dated May 18, 2017, the term 'Branch" has been substituted by "Banking Outlet (BO)" which includes both brick and mortar branches and Business Correspondent (BC) outlets to enable Banks in expanding their network even in remote rural areas in a cost-effective manner for hassle free services to customers in rural areas. The National Strategy for Financial Inclusion 2019-2024 (NSFI) and National Strategy for Financial Education 2025-2030 (NSFE) provide a roadmap for a coordinated approach towards financial inclusion, financial literacy, and consumer protection. State of Financial Inclusion in India - Financial Inclusion: Progress and Key Trends – 2019-24 Progress of financial inclusion since the launch of financial inclusion plans clearly indicates that banks are progressing in areas like opening of banking outlets, deploying BCs, opening of BSBD accounts, grant of credit through KCCs and GCCs. Banking Infrastructure The banking infrastructure in terms of the number of bank branches, Automated Teller Machines (ATMs), NBFC branches, and fixed-point business correspondents shows moderate but consistent expansion in branches and ATMs, along with rapid rise in the number of fixed-point business correspondents (FBCs). FBCs have provided a significant support to the last mile reach of banking infrastructure. In terms of banking infrastructure per lakh population, the progress shows 85.6 FBCs per lakh population, up from 30.1 FBCs per lakh population in 2019. The position of bank branches and ATMs has been consistent with the average number of branches per lakh population hovering around 12.5 and average number of ATMs per lakh population around 17 to 18 Usage of Banking Infrastructure Consistent growth in the parameters - usage of banking infrastructure in terms of per capita number of bank accounts and cards, followed by trend of mutual fund assets under management (MF-AUM), bank deposits, and credit indicating gradual expansion of footprints of the financial system, with none of the parameters showing any negative trend. Another important dimension of usage is the trend of insurance/pension (NPS) subscribers and the corresponding infrastructure (offices and agents of insurance companies). All the parameters, except office (non-life) indicate growth and there is a significant improvement in the subscriber base of Atal Pension Yojana. Digital Transactions and Usages Riding on the backbone of Digital Public Infrastructure, digital transactions both in terms of volume and value have contributed significantly to the deepening and broad basing of the reach of financial inclusion initiatives. There has been an exponential increase in the volume of digital transactions led by Unified Payments Interface (UPI). Amongst the retail digital payments, there has been substantial growth across the board in national electronic funds transfer (NEFT), immediate payment service (IMPS) and UPI, with UPI touching more than 13,000 crore transactions in 2023-24. The NEFT however, carried much higher value of transactions Quality of Financial Inclusion – Financial Literacy Financial literacy being one of the key enablers of the quality of financial inclusion has shown tremendous progress over the period 2019-24. There has been a consistent rise (except during the period of Covid-19) in the number of financial literacy programmes run by Centers for Financial Literacy (CFLs) and Financial Literacy Centers (FLCs), especially during the last two years with rapid expansion in the opening of CFLs touching more than 3.5 Crore participants. Besides financial literacy programmes run by RBI regional offices, National Centre for Financial Education (NCFE) and other sectoral regulators have also covered significant ground in this regard. Overall Progress – Financial Inclusion (FI-Index) The FI-Index and its sub-indices (Access, Usage, and Quality) and their respective contribution to FI-Index shows a consistent growth over the period of 5 years with improvements seen across all the sub-indices. In the year 2024, the major growth in the index was on account of the usage sub-index, which shows deepening of financial inclusion. The dip in quality sub-index in 2021 was due to reduced number of financial literacy activities due to lockdown led restrictions during the COVID-19 pandemic. Supply and Demand Side Impediments to Financial Inclusion Financial inclusion initiatives start from the supply side of financial services whereby the availability of financial services in terms of access points, products, etc. is ensured. Availability of adequate supply infrastructure for financial services in terms of well-functioning access points, physical or digital interfaces, suitable products, and services, etc., is necessary though not a sufficient condition for effective financial inclusion, as demand for financial services also plays a crucial role in effectiveness of financial inclusion initiatives. Hence, both supply and demand aspects of financial inclusion should be paid adequate attention to, while formulating financial inclusion strategies. Amongst the key supply side challenges, the quality and effectiveness of last mile reach to the financial services remains the most important element. On the other hand, demand side issues are conditioned by several factors in the usage and quality dimension of financial inclusion. The first set of challenges to the demand for financial services stem from information asymmetry, lack of proper knowhow about availability, cost, and use of financial services, and at times, inability to understand and comprehend the information due to language or literacy barriers. Secondly, behavioural factors, such as personality traits, experiential factors, bounded rationality, and impulsive actions also play a role in catalyzing or dampening the usage of financial services. Behaviourally, the perceived need for financial services, and trust in the system are the two most crucial determinants of the demand side of financial inclusion. If people trust that it is in their benefit to use formal financial services, they will seek access and ensure usage, provided the services are suitably and conveniently made available in an affordable manner. Another critical demand-side impediment to financial inclusion falls in the domain of financial constraints, which either sway away people from the banking system or their usage remains very low. The effectiveness of customer protection and grievance redressal measures remains at the core of the demand for financial services, especially for the underprivileged and vulnerable segments of the population. Moreover, the ecosystem gaps, namely, inefficient, or broken linkages between various initiatives, and gaps in market access coupled with funding constraints could dampen the demand side of financial inclusion. Source: RBI