India has surpassed China in financial inclusion metrics, according to a research note published by the State Bank of India’s economic research department.
According to the report, sound financial inclusion policies have a multiplier effect on economic growth, reducing poverty and income inequality, while also being conducive for financial stability. India has gone ahead with the initiation of PMJDY accounts since 2014 enabled by digital infrastructure and careful recalibration of bank branches using BC model.
The report said such financial inclusion has also been enabled by use of digital payments as between 2015 and 2020, mobile and internet banking transactions per 1,000 adults have increased to 13,615 in 2019 from 183 in 2015. The number of bank branches per 100,000 adults rose to 14.7 in 2020 from 13.6 in 2015, which is higher than Germany, China and South Africa, it added.
The research also shows that states with higher PMJDY accounts balances have seen a perceptible decline in crime and observed that there is both statistically significant and economically meaningful drop in consumption of intoxicants such as alcohol and tobacco products in states where more PMJDY accounts are opened.
According to the report, the banking correspondent model in India is enabled to provide a defined range of banking services at low cost and is instrumental in promoting financial inclusion. Further, the new branch authorisation of 4-hours per day and for at least 5 days a week as banking outlets has progressively obviated the need to set up brick and mortar branches.
It adds, the number of ‘Banking Outlets in Villages – BCs’ has risen from 34,174 in Mar’10 to 12.4 lakh in Dec’20. Such progress shows an impressive outreach of banking services through branchless banking.
The research further argues that the success of financial inclusion depends upon BCs who are micro-level entrepreneurs. As per RBI guidelines, under the BC Model, while a BC can work for more than one bank, at the point of customer interface, a retail outlet or a sub-agent of a BC shall represent and provide banking services of only one bank, it added.
Interoperability of transactions is permitted by RBI at the retail outlets or sub-agents of BCs (i.e. at the point of customer interface), subject to certain conditions. Herein lies the problem, the report highlighted.
Further there is no uniformity among the BCs across banks regarding adherence to the above guidelines. PSBs mostly follow ‘branch led BC Model’, while other banks follow ‘branch less/corporate less model’. The BCs of other banks operate through micro ATMs/Kiosk application on mobile and primarily provide fee-based financial services withdrawals and remittance services using hand-held devices.
This also adds to the bottom-line by way of interchange fee from the PSBs or remittance fee from PSB customers, it added.
As a typical example, BCs convert AePS ON-US transactions of one set of bank customers, to AePS OFF-US issuer transactions and carry out multiple AePS ON-US and AePS OFF-US transactions on the primary bank application/software.
It adds, data indicates that the share of OFF-US transactions in AePS increased from 4 percent in September – 16 to 51 percent in September 21. By going these facts, PSU Banks which nearly opened around 77 percent of the PMJDY accounts are now net players of interchange fee and the research estimate that the PSU Banks could be paying around Rs 600-700 crore per annum as interchange fee.