Financial Inclusion and Currency Exchange Scenario

Introduction

Financial Inclusion is needed for the overall economic development of the nation. The main idea behind financial inclusion is to bridge the gap between rich and poor by getting excess money from rich and giving to poor. RBI has the pivotal role in this financial inclusion.

What is Financial Inclusion?

Financial Inclusion may be defined as the usage and access of varied quality financial services in a simple and controlled manner
Mainly targeted towards the low-income group of the society

Aim

Every Indian must have a bank account

Need for financial inclusion

To create awareness among poor people about banking systems and their applications
To develop a savings habit among Indian people
To provide a formal credit channel – Poor people rely on money lenders for credit
Many farmer suicides occur due to the capacity of non-paying the interest on money borrowed from money lenders
Financial inclusion will enable farmers to obtain credit from the banks
To bring the unorganised sector under organised formal banking sector
The credit channels will lead to increase in the economic growth and outputs rise
The most vital need of financial inclusion is to bridge the gap in welfare programs and public subsidies
Reduce the leakage of subsidies meant for poor to the rich

RBI major Initiative on Financial Inclusion

Jan Dhan Yojana was inaugurated on 15th August under RBI
Officially launched on 28 August across India with the Slogan “End of Financial Untouchability”
Prime Minister Mr Modi said “Beginning of freedom from poverty”
Jan Dhan Yojana is a successor of Swabhiman scheme

Jan Dhan Yojana Achievements

More than 15 million accounts taken in a day through special camps in more than 77000 locations
Jan Dhan Yojana created Guinness record
RBI issues Rupay debit card to Jan Dhan account holders
Life Insurance of 30000 rupees
Accidental Insurance of 1 lac
Joint network of banks and insurance companies

Other Steps were taken by RBI in lieu of Financial Inclusion

Introduction of No Frills accounts by RBI
Simplification of KYC norms
Establishment of Business correspondents to reach individual households
Business correspondents from the liaison between rural people in remote areas and banks
Electronic Bank Transfer by RBI to ensure that the full amount reaches the actual beneficiary without interruption of any intermediary

Successful model of Financial Inclusion

LPG Direct Benefit Transfer (DBT) is a successful model of financial inclusion of India
DBT eliminated LPG subsidies given to rich by adopting a ceiling of households earning above 10 lacs are not eligible for subsidy
Financial inclusion used effectively in DBT in transferring the subsidy directly to beneficiary bank account
DBT eliminated all duplicate LPG connections through integration with Aadhar
DBT helped bridge the gap between rich and poor by diverting the subsidies given to rich earlier to rural poor women
Ujjwala Yojana of giving 2 Crore free LPG connections to poor is a direct implication of DBT and proper utilisation of subsidies

Concern Areas

Duplication of bank accounts possible in Financial Inclusion
Banks need to convert old bank accounts into new bank accounts availing free life and accident insurance policies
Banking Infrastructure is still an area of concern with the need for more POS devices
Number of banking branches is limited
Poor will start transacting in a cashless manner once transactions are made simple and free of cost
Changing the traditional habit of people borrowing from money lenders is a serious challenge
Bringing the rural people to banks is a major challenge

Despite several challenges, RBI has made Rupay ATM cum Debit card to reach millions through financial inclusion. This will enable BPL people to have 24*7 access to money.

Current Implication

RBI’s earlier measures of financial inclusion have made all people come in the purview of the banks in the current currency exchange scenario
This is one of the great measure of RBI to extract liquidity from the society and streamline the currency flow in a transparent manner through banks
Tax collections will rise rapidly for the government
Monitoring of bank accounts by RBI did in alliance with Income Tax department
RBI has extracted all currency from the public and liquidity infusion is done in phases
The success of these liquidity reforms by RBI for the overall economic growth of the nation will be revealed in figures before the February budget session, 2017.