Financial Inclusion: A Saga of Indian Financial System

Abstract

Financial inclusion means improving access to financial services for poor people through the safe and sound spread of new approaches based on principles. The present article attempts to explore the diffusion of financial inclusion in the Indian financial system. Financial access with market size and depth in India is compared with select Asian peer group and Organisation for Economic Co-operation and Development (OECD) countries. The article also explores competition scenarios among scheduled commercial banks operating in India. The results of entropy, exponential index, Herfindahl index, Gini coefficient and concentration coefficient of 76 scheduled commercial banks operating in India indicate a fair degree of competition and concentration among themselves. Improved regulations, innovation, growth and value creation in the sector make it a highly competitive sector. But this sector is dominated by public sector banks, followed by private sector banks. This study identifies lessons learnt from nine principles of innovative financial inclusion (namely, leadership, diversity, knowledge, empowerment, protection, proportionality, innovation, cooperation and framework) that were applied in providing financial services to vulnerable groups in India. The results show that commercial banks, cooperative banks, regional rural banks and microfinance programmes have been playing a vital role in removing financial exclusion in India. Financial inclusion in the Indian financial system is through the larger number of banks, competition and good governance, with diversified ownership.