Test: Indian Financial System - 1 - Banking Exams MCQ

Financial Inclusion is defined as the availability and equality of opportunities to access financial services and refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services.

• Government of India had set up a committee in 2006 whose chairman was Dr. C. Rangarajan to study the pattern of exclusion from access to financial services throughout the region, gender, and occupational mechanism and to identify the barriers confronted by vulnerable individuals in accessing credit and financial services and suggest the steps required for financial inclusion. The committee submitted its report in January 2008.
• According to the committee, Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups like weaker sections and groups with low income at an affordable cost.

The Government of India has introduced several financial Inclusion schemes. They are
i. Basic Savings Bank Deposit Account (BSBDA)
ii. Lead Bank scheme
iii. PradhanMantri Jan DhanYojana (PMJDY)
iv. Business correspondents
v. Stand up India scheme

• The concept of financial inclusion was first introduced in India in 2005 by the Reserve Bank of India.​ 
• Reserve Bank of India (RBI):-
  • The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act 1934
  • since Nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.
• AIM:
  • ​To regulate the issue of Banknotes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth.
  • It is known as Banker's Bank.
  • It has the power to provide and cancel the license to other commercials, scheduled banks.
  • Headquarters: Mumbai.
  • Governor: Shakthikantha Das.

To provide widespread access to banking services, no-frills bank accounts demand a zero or very low minimum balance, as well as additional financial services such as withdrawals, ATM, and Debit card services at no cost. In the year 2012, no-frills bank accounts were called Basic Saving Bank Deposit Accounts.

The need for financial inclusion can be observed in:

• Development – Greater access to financial services = Increase in savings + Decrease in income inequality & poverty + Increase in employment levels
•  Growth – It encourages the habit to save, thus enhancing capital formation in the country and giving it an economic boost. Also, the availability of sufficient and transparent credit from formal banking institutions will promote the entrepreneurial spirit among the people = increase in productivity and prosperity in rural areas.
• Service delivery – Direct cash transfers to beneficiary bank accounts rather than physical cash payments against the subsidy.

Conditions of BSBD Account:

1. Maximum balance in the account should not exceed Rs. 50000 rupees at any time
2. Total credit in the BSBD account should not exceed Rs.1 lakh in a year.
3. Total cash withdrawals and transfers shall not exceed Rs.10,000 in a month.
4. Small accounts are valid for 12 months initially which may be extended by another 12 months if the person provides proof of OVDs
5. Remittances from abroad cannot be credited to small accounts without completing KYC formalities.

A business correspondent is a bank-in-person, who is authorised to collect small ticket deposits and extend small credit on behalf of the banks. Business correspondents are an important medium of promoting financial inclusion in rural and backward regions, with limited availability of bank branches.

Lead Bank scheme:

• Establishment: 1969
• Objective: To promote the role of banks in the overall development of the rural sector.
• Recommendation: Prof. D. R. Gadgil Study group and Banker's committees.

• 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.
• 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.
• 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.  
• In the Indian context, the term ‘Financial Inclusion' was used for the first time in April 2005 in the Annual Policy Statement presented by Y.Venugopal Reddy, the then Governor, Reserve Bank of India.
• Pradhan Mantri Jan-Dhan Yojana, the National Mission for Financial Inclusion to ensure access to financial services, namely Banking Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.
• This Financial Inclusion campaign was launched by the Hon'ble Prime Minister on 28 August 2014.