Financial Regulation and Financial Inclusion – Working Together or at Cross-purposes
(Extracted from speech of Smt. Usha Thorat, Deputy Governor, RBI)

The case for financial inclusion is not based on the principle of equity alone – access to affordable banking services is required for inclusive growth with stability. Achieving financial inclusion in a country like India with a large and diverse population with significant segments in rural and unorganised sectors requires a high level of penetration by the formal financial system.

Even in areas that are well covered by banks, there are sections of society excluded from the banking system. Political and social stability also drive financial inclusion. In the recent period, in countries like India, government has been encouraging opening of bank accounts by providing government benefits through such accounts. ICT solutions have made such initiatives possible at relatively low cost.



Financial inclusion is not merely providing reliable access to an efficient payments system. Many discussions- especially in the context of mobile phone-led retail payments system- seem to focus on this aspect of financial inclusion. Financial inclusion is also not just micro finance. Financial inclusion represents reliable access to affordable savings, loans, remittances and insurance services.

In India, Financial inclusion primarily represents access to a bank account backed by deposit insurance, access to affordable credit and the payments system. The Indian experience demonstrates that financial inclusion can work within the framework of mainstream banking within a sound regulatory framework.

Regulations have been used to facilitate financial inclusion without subventions or compromising on prudential and financial integrity norms. Regulations have been proportional to the risks. Innovative solutions like SHG bank linkage, branchless banking have been adopted after careful assessment of risks to the banks as also to customers.



The preference has been to restrict deposit taking to banks and non-bank financial companies are encouraged to focus on innovative approaches to lending under a lighter regulatory framework, with additional regulations for systemically important NBFCs entities.

Non-banking non-financial players are encouraged to be partners and agents of banks rather than principal providers of financial services. Fair and transparent code of conduct enforced through an effective grievance redressal system and facilitated by financial literacy and education are the cornerstones for ensuring consumer protection which is an overarching objective of financial regulation in the context of financial inclusion

(Extracted from speech of Smt. Usha Thorat, Deputy Governor, Reserve Bank of India at the Tenth Annual International Seminar on Policy Challenges for the Financial Sector at Washington, June 2-4, 2010)

"Strategy Session on Mobile Payments & Financial Inclusion" at Banknet's "6th Annual CTO-CXO Summit" on 22nd June 2010 at Mumbai will identify the ways to harness the power of mobile and Reaching the Unbanked... Read More

CLICK FOR Master Class on Cloud Computing
CLICK FOR Sixth Annual CTO-CXO Summit
CLICK FOR MORE FEATURES & STORIES