232
of ‘financial inclusion’ embedded in the post-nationalisation banking policy
goals, but it did not happen and the incidence of financial exclusion became a
conspicuous feature. The contraction in rural branch network, weakening of
such innovative institutions as the lead bank scheme, neglect of rural credit
delivery, distortions in priority sector advances, and above all, steep declines in
the share of small loans, say with credit limits of
`
25,000 or less both in terms
of amount and the number of accounts served, have all arisen out of poor policy
focus on the issues of access to financial services for the vast informal and
vulnerable sections of society, resulting in a growing gap. Despite the apparent
neglect for over a decade and a half, admittedly ‘the term “financial inclusion”
was explicitly used for the first time in the Reserve Bank’s annual policy
statement for 2005-06 (RBI, 2009: 56 and RBI 2008:36). This was in response
to distinct signs of social revulsion like farmers’ suicides preceding this period.
In a direct response, the government introduced the policy of ‘doubling’ of
bank credit for agriculture and allied activities. In a broader sense, since then,
the Central government and the RBI have taken a number of steps to achieve
financial inclusion with the avowed objective of delivering financial services ‘at
affordable cost to the vast sections of disadvantaged/low-income groups who
tend to be excluded from the financial system’ (RBI, 2008a:36).
Resurrection of the Rural Financial Architecture
24
First, the RBI recognised the acute institutional vacuum existing in rural
and semi-urban areas, and therefore, proposed a comprehensive framework
to revive the cooperative credit system, revitalise the RRBs and reorient
commercial banking towards the credit-disadvantaged sections of society.
As for the opening of commercial bank branches to fill the vacuum
created during the past decade and a half, the RBI’s initial emphasis was
on opening bank branches by RRBs. During 2008-09, the RBI had granted
licences to RRBs to open 785 branches, of which 474 had already been opened
taking the cumulative number of RRB branches to 15,181 as on March 31,
2009. Further, the GoI had fixed a target of 2,000 additional branches of RRBs
in the next two years, of which 263 branches had been opened during 2009-10
(NABARD, 2010: 87).
Insofar as the scheduled commercial banks were concerned, the RBI
was reluctant to push them to opening more brick and mortar branches.
Instead, the emphasis was on using intermediaries under the agency system
consisting of business correspondents (BCs) and business facilitators (BFs). As
24
This section has copiously used the ideas and even contents of the publication S.L. Shetty
(2012):
Microfinance in India - Issues, Problems and Prospec
ts:
A Critical Review of Literature,
Academic Foundation 2012, pp.596-618).
