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Financial Inclusion and Currency Exchange Scenario

Published on Thursday, November 17, 2016
Financial Inclusion and Currency Exchange Scenario: Role of RBI


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 


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.
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