A financial survey of four poor states of India—Odisha, Bihar, Madhya Pradesh and Uttar Pradesh—has revealed that access to formal banking outlets is not as difficult as had been in the past and an increasing number of people are being financially included.

FinMark Trust of South Africa conducted this survey, the first of its kind, titled ‘FinScope Consumer Survey India’. It is part of the Poorest State Inclusive Growth or PSIG programme, implemented by the Small Industries Development Bank of India with the support of the UK’s department for international development. It will be made public on 8 November.

The survey has covered 16,000 households in these four states and drawn a larger picture by extrapolating the findings. One adult from each household was interviewed in the second half of 2015, beginning in July. The data used in this survey is one-year old, but that does not dent its basic findings as the Pradhan Mantri Jan Dhan Yojana, a national mission on financial inclusion, was firmly in place by that time.

The average time taken to access formal financial services such as a bank branch, an ATM or a post office branch is not more than half an hour in these four states. The level of connectivity is also high, reflected by the number of adults using mobile phones. Finally, documentation, a key to access formal financial services, is not an issue anymore; 98% of the adults have some kind of identity proof.

As a result of this, 93% of the households in the four states are formally financially served. While 86% of the households are served directly by the banks, the rest depend on the so-called business correspondents, who provide last-mile connectivity with the consumers on behalf of banks. Around 35% of the households have access to other formal channels such as non-banking financial companies, including microfinance institutions, and only 2% depend solely on informal sources such as money lenders.

The financial status of a family does not seem to be playing a critical role in determining access to formal banking services. While 90% of the households above the so-called poverty line have access to formal banking services, for the BPL (below poverty line) families, there is no dramatic drop in the figure—83%. Families living on under $2.50 a day are mostly banked; those living on under $1.88 a day and $1.25 a day have relatively less access to formal banking services.

This is about savings. When it comes to credit, only 7% claim to borrow from banks, 3% from non-banking financial companies and 13% from informal sources; the rest—77%—do not borrow at all.

Probing the use of other financial products, the survey has found that 28% of all households are insured formally. The drivers for insurance are life insurance (85%), health insurance (24%) and general insurance (15%). There are families with access to more than one insurance product. Finally, 7% of the households are using banking channels to remit funds.

Neither the age nor the level of education influences the choice of financial products, but gender does. Around 70% of males are banking with the formal channel in contrast with 58% of females.

Of the four states, Odisha has the highest banked population (78%) and the least exclusion (12%). Including non-banks, about 88% of Odisha’s adult population has access to financial services. Bihar is at the other end of the spectrum—27% of its adult population is excluded. The banked adult population in Uttar Pradesh is 78%—the level of Odisha—but its excluded population is higher than that of Odisha, 19%.

Indeed, the bank account penetration in these four states is far higher than the popular perception, but the not-so-good news is that many such accounts are inactive. About one in 10 adults (25.5 million) in these states has an inactive bank account. A current or a savings account becomes inactive in the absence of at least one transaction in a year. Only 66% (129 million) adults use their account at least once a month for withdrawing cash from a branch or an ATM, issue a cheque, or transfer funds through mobile or Internet banking. The use of accounts for payments or receiving income is pretty low. A few adults have also claimed to be using others accounts (that of a neighbour, friend, spouse or a family member) for transactions.

Going by the 2011 census data, the estimated adult population of the four states is more than 266 million with Uttar Pradesh having a 46% share, almost double that of Bihar (24%) and four times that of Odisha (12%). There are more males than females, making for a ratio of 52:48. Around 79% of the adults are married and there has not been a single case of divorce among the respondents. Among the other demographic details, the bulk of the population resides in rural pockets and about seven out of 10 adults in these four states have some form of education. The largest population of adults with no formal education is in Bihar (39%) and the least is in Odisha (19%).

The biggest proportion of the households’ main income source is salary and wages (47%) with Odisha being an exception where 65% of the households depend on farming for a livelihood and only 14% on wages. In contrast, 25% of the households in Bihar depend on agriculture and 54% on salary and wages. Close to 80% of the households use wood, coal or dung as the fuel for cooking and only 20% have access to liquefied petroleum gas or piped natural gas.

Finally, 82% of the households own a mobile handset, 43% a TV set, 16% a motorcycle/scooter/moped, 4% a DVD player, and 1% each a car/jeep and a landline telephone. All these explain their social-economic status.

Two small finance banks have already started operations. Eight more will do so in the next few months. Also, there could be eight payments banks opening shop by April 2017. The findings of this survey will help them approach banking in India’s hinterland in a new light—savings, credit and remittances.

Tamal Bandyopadhyay, consulting editor at Mint, is adviser to Bandhan Bank. He is also the author of A Bank for the Buck, Sahara: The Untold Story and Bandhan: The Making of a Bank.

His Twitter handle is @tamalbandyo

Comments are welcome at bankerstrust@livemint.com

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