NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, September 22, 2015

Over the past decade, the Indian banking sector has witnessed a sustained push in the form of a number of initiatives and reforms from the government as well as the Reserve Bank of India (RBI). The sector has grown significantly in terms of customer base, coverage and business.

According to a report by Deloitte India and Confederation of Indian Industries (CII), Building customer centric business: The future of financial services, these initiatives and reforms have facilitated both deepening and broadening of the sector. Key among initiatives launched is the Pradhan Mantri Jan Dhan Yojana (PMJDY). Between 2011 and 2014, due to the sustained efforts from the government as well as the regulator, bank account penetration increased from 35% to 53%. In absolute terms, 175 million new bank account holders were added during this period.

Though progress has been made, a significant gap still remains. There is still a dearth of banking infrastructure in rural and semi-urban centres. India is significantly behind other developing economies in terms of physical banking infrastructure, with just 12 bank branches and 13 ATMs per 1,000 adults, compared to, say, Brazil, which has four times as many branches and 10 times as many ATMs per 1,000 adults.

Banking, payments platform and digitisation

Over the years, the RBI has played a supportive role in increasing banking outreach and financial inclusion, encouraging banks and other financial services providers to adopt various branchless channels. This has been instrumental in exploring innovative ways to acquire new customers and also serve their existing customer base.

In 2006, the RBI issued business correspondent (BC) guidelines, which paved the way for branchless banking through agents. Banks have significantly ramped up their BC network over the years. From over 80,000 BC touch points in financial year (FY) 2010-11, it increased to nearly 400,000 in FY14.