December 01, 2005 15:58 IST

Given the abysmal spread of formal credit facilities in the country, and more so in village India, it's hardly surprising that both the government as well as the Reserve Bank of India are both talking of universal financial access or "financial inclusion" nowadays.

That's perhaps why, a south India-based PSU bank is planning to adopt the union territory of Pondicherry for "financial inclusion".

The problem, however, is that unless this goes hand-in-hand with the overall development of village India, it's akin to growing grass without roots.

Since financial inclusion means access to financial services, the best indicator is the proportion of families with a bank account.

In the United Kingdom, about 5 per cent of the population do not have bank accounts. In Australia, about 7-8 per cent of the population do not do banking.

In India, there are a total of 31 crore (Rs 310 million) savings bank accounts, but given the number of multiple accounts, the number of people having savings bank accounts cannot be more than 20 crore (Rs 200 million).

This means around 85 per cent of India's population does not have access to financial services in a cost-effective, transparent and fair manner.

Pondicherry, by the way, is better off than many other places in India. It has an adult population of about 10 lakh and there are 6.67 lakh bank accounts even though the actual account holders are about three lakh, once you remove the multiple accounts. The literacy rate in this Union Territory is 87 per cent.

There are 85 bank branches spread across 264 villages. The PSU bank plans to use technology to spread the message of banking. It wants to rope in BSNL in its endeavour to achieve the mission of including the entire adult population of Pondicherry for financial services.

"If mobile telephony can reach remote villages, why can't banks go there?" asks the CEO of the bank.

A relevant question. Of the 6,34,321 villages in India, only 9,000 villages have more than one bank branch. This is despite the fact that there are 32,227 rural branches and they account of about 45 per cent of the total branch network.

Close to 60 per cent of rural households do not have a bank account and only 21 per cent have access to credit from a formal source.

Over 70 per cent of marginal farmers have no deposit account and 87 per cent have no formal credit. Less than 2 per cent of rural households can access loans from a financial intermediary to meet unforeseen financial expenses and the approval for such loans takes between three and six months, and that too after bribing officials.

ICICI Bank has been trying to reach out to the rural masses in Tamil Nadu, Andhra Pradesh, Orissa and Uttar Pradesh by setting up Internet kiosks and automated teller machines.

Developed jointly by n-Logue Communications, promoted by IIT Madras professor Ashok Jhunjhunwala, thousands of ICICI's low-cost ATMs dot rural Tamil Nadu. ICICI has plans for mobile banking, of a different sort - in this case, vans will go around to villages collecting deposits.

Now, PSU banks will join the mission as both the RBI and the finance ministry are keen that banking services must be available to the entire population. However, technology alone cannot solve the problem as financial inclusion cannot happen in isolation while vast stretches of rural India are suffering from social and infrastructural exclusion.

The latest report of the National Sample Survey Organisation on village facilities -- conducted in July-December 2002 - revealed that there were no post offices in over 78 per cent of India's villages and only one-third of all villages were within two km of a telegraph office/ PCO/ e-mail facility. The situation has not dramatically changed since then.

Look at some other parameters of social infrastructure. One-fourth of the villages do not have access to electricity; non-conventional forms of energy are available in less than 12 per cent of villages; tap water is used for drinking in about 18 per cent of villages and 55 per cent of them get their drinking water mainly from tube-wells or hand-pumps.

What's more, 54 per cent of the villages are more than five km away from the nearest primary health centre and 27 per cent are more than 10 km away from it. Only 10 per cent of the villages have a medicine shop and 20 per cent a private clinic or doctor.

One-third of the villages do not have pre-primary schools and 28 per cent do not have primary schools. Finally, co-operative societies exist only in 30 per cent of Indian villages.

Financial inclusion alone cannot do the trick for the rural masses until social exclusion is taken care of. Access to health, education and pucca roads is as important as access to a bank account and credit.

However, urban India presents a different picture. Even in Mumbai, millions of people are financially excluded, although they have access to social infrastructure.