A REPORT ON

KEY REFORMS & TRENDS IN INDIA’S FINANCIAL MARKET;

FINANCIAL INCLUSION IN INDIA, UBI (UNIVERSAL BASIC INCOME)

SUBMITTED BY: SUMBITTED TO:

SAAD ULLAH KHAN 18MBAA-61 PROF. SUBOOHI NASIM
AREEB JAVED 18MBAA-67
SHOAIB MAZID KHAN 18MBAA-26
HASSAN AHMAD 18MBAA-14
JAI KUMAR SINGH 18MBAA-42

DEPARTMENT OF BUSINESS ADMINISTRATION

ALIGARH MUSLIM UNIVERSITY
 1. KEY FINANCIAL SECTOR REFORMS IN INDIA

Introduction:
Financial sector reforms have long been regarded as an important part of the agenda for policy
reform in developing countries. Traditionally, this was because they were expected to increase the
efficiency of resource mobilization and allocation in the real economy which in turn was expected
to generate higher rates of growth. More recently, they are also seen to be critical for
macroeconomic stability. Developing countries can expect increasing scrutiny on this front by
international financial institutions, and rating agencies and countries which fail to come up to the
new standards are likely to suffer through lower credit ratings and poorer investor perceptions. In
this background it is both relevant and timely to examine how far India's financial sector measures
up to what is now expected.

REFORMS IN THE BANKING SECTOR

First Phase of Banking Sector Reforms

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank.
The East India Company established Bank of Bengal(1809), Bank of Bombay (1840) and Bank of Madras
(1843) as independent units and called it Presidency Banks. These three banks were amalgamated in
1920 and Imperial Bank of India was established which started as private shareholders banks, mostly
Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians,Punjab National Bank
Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India,
Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up.
Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks
also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks,
mostly small. To streamline the functioning and activities of commercial banks, the Government
of India came up with The Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was
vested with extensive powers for the supervision of banking in India as the Central Banking
Authority. During those day’s public has lesser confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the savings bank facility
provided by the Postal department was comparatively safer. Moreover, funds were largely given
to traders.

Second Phase of Banking Sector Reforms

Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it
nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and
semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking
transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of
State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried
out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in
the country were nationalized. Second phase of nationalization Indian Banking Sector Reform was carried
out in 1980 with seven more banks. This step brought 80% of the banking segment in India under
Government ownership. The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
• 1949 : Enactment of Banking Regulation Act.
• 1955 : Nationalization of State Bank of India.
• 1959 : Nationalization of SBI subsidiaries.
• 1961 : Insurance cover extended to deposits.
• 1969 : Nationalization of 14 major banks.
• 1971 : Creation of credit guarantee corporation.
• 1975 : Creation of regional rural banks.
• 1980 : Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the
sunshine of Government ownership gave the public implicit faith and immense confidence about
the sustainability of these institutions.

Third Phase of banking sector reforms

This phase has introduced many more products and facilities in the banking sector in its reforms
measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name
which worked for the liberalization of banking practices. The country is flooded with foreign banks
and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone
banking and net banking is introduced. The entire system became more convenient and swifter.
Time is given more importance than money. The financial system of India has shown a great deal
of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as
other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign
reserves are high, the capital account is not yet fully convertible, and banks and their customers
have limited foreign exchange exposure.

Some Recent Reforms in Banking Sector

10 Public Sector Banks Merged into 4

i. Earlier, the government had merged Dena Bank and Vijaya Bank with Bank of Baroda (BoB). Even
before this, the government merged five associate banks of State Bank and Mahila Bank of India
into State Bank of India (SBI).
ii. PNB will get Rs 16,000 crore capital from the government to complete the merging exercise.
iii. Canara Bank, with lower gross NPA (Non Performing Assets) ratio of 8.77 %, will get about Rs
6,500 crore capital from the centre.
iv. Union Bank has a high Net NPA ratio of 6.85 %. It will get Rs 11,700 crore from the government
for the merger process.
v. Indian Bank had a net NPA ratio of 3.75 % & it will get Rs 2,500 crore worth capital from the
government to complete the merger.

Here is the list of 10 public sector banks(PSB) which merged into four:

Anchor bank Amalgamating bank (s) Business size (Rs lakh cr) PSB rank by size
PNB(Punjab National bank) Oriental Bank of Commerce(OBC) 17.94 2nd largest
United Bank of India
Canara Bank Syndicate Bank 15.20 4th largest
Union Bank of India Andhra Bank 14.59 5th largest
Corporation Bank
Indian Bank Allahabad Bank 8.08 7th largest

Govt announces upfront capital infusion of Rs 55250 crore in PSBs

In order to boost the economy, the centre also announced capital infusion of amounting of Rs
55250 crore into PSBs: It includes,
S.No Bank Name Capital infusion
1 PNB (Punjab National Bank ) ₹16,000 crore
2 Union Bank of India ₹11,700 crore
3 Bank of Baroda ₹7000 crore
4 Indian Bank ₹2500 crore
5 Indian Overseas Bank ₹3800 crore
6 Central Bank of India ₹3300 crore
7 UCO Bank ₹2100 crore
8 United Bank ₹1,600 crore
9 Punjab and Sind Bank ₹750 crore

REFORMS IN THE PRIMARY CAPITAL MARKET

1. ESTABLISHMENT OF SEBI

• To regulate the business of the stock market and other securities market.
• To promote and regulate the self regulatory organisations.
• To prohibit fraud and unfair trade practices in securities market.
• To promote awareness among investors and training of intermediaries about safety
of market.
• To prohibit insider trading in securities market.
• To regulate huge acquisition of shares takeovers of companies.

2. Freedom to determine a Fixed Value Per Share by companies.

3. Reduction in cost of the issue.
4. Permission given to Foreign Institutional Investors to invest in the Indian Capital Market.
5. Indian companies allowed to raise capital from the international capital market. Through
issue of GDR, ADR, FCCBs and ECBs.
6. IT, Telecom, Media and Entertainment sector companies allowed a minimum offering of
10% of their equity.
7. Public offer of shares in the demat form only.
 SECONDARY CAPITAL MARKET REFORMS

1.The open outcry trading system, prevalent till 1995 was replaced by on-line screen based
electronic trading.

Three new stock exchanges at the national level were set up in the 1990s-

a. Over the counter exchange of India(1992),

b. National stock Exchange of India(1994)
c. Inter connected Stock Exchange of India (1999)

2.Trading and settlement cycles were uniformly trimmed from 14 days to 7 days in all stock
exchanges in Aug 96. settlement cycle for all securities was shortened from T+5 to T+3 wef apr 1
2002. It was further contracted to T+2 wef Apr 1 2003.

3. Companies are allowed to buy back their own shares for capital restructuring subject to the
condition that the it doesn’t exceed 25% of paid up capital and free reserves of the concerned
company.

4.The insider trading regulations have been formulated prohibiting insider trading and making it a
criminal offence, punishable in accordance with the provisions under the SEBI Act, 1992.
 2. FINANCIAL MARKET IN INDIA

Money Market Instruments

Money market instruments allow governments, financial organizations and businesses to finance
their short-term cash requirements.
Commercial Paper, Treasury Bills, Certificate of Deposit, Primary Dealers in Government
Securities, Repurchase Agreements
But I have discussed about Treasury bills as the other are covered mostly in financial
Inclusion part.
Capital Market Instruments

The capital market is where stocks and bonds are traded. Its movements from hour to hour are
constantly monitored and analyzed for clues to the health of the economy at large, the status of
every industry in it, and the consensus for the short-term future.
Bonds, Debentures, Stock etc.
India Treasury Bills: Yield: 364 Days
Treasury bills or T-bills, which are money market instruments, are short term debt instruments
issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182
day and 364 day. Treasury bills are zero coupon securities and pay no interest. Instead, they are
issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury
bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say, ₹1.80 and would
be redeemed at the face value of ₹100/-. The return to the investors is the difference between the
maturity value or the face value (that is ₹100) and the issue price

Graph 1 : Indicating the Yield on India Treasury Bills: Yield: 364 Days
India’s Treasury Bills: Yield: 364 Days data was reported at 7.224 % pa in Nov 2018. This records a
decrease from the previous number of 7.478 % pa for Oct 2018. India’s Treasury Bills: Yield: 364
Days data is updated monthly, averaging 7.803 % pa from Apr 1992 to Nov 2018, with 319
observations. The data reached an all-time high of 10.451 % pa in 2018 between the period of 2000
to 2018 and a record low of 3.680 % pa in May 2009.
The yield on India Treasury Bills: Yield: 364 Days as of 15th April, 2020 is about 4.475%
Corporate Bond
An analysis of the debt portfolios of non-financial firms in India provides insights into sources of
debt and its composition as it has evolved over time. Over the last decade, there has been a
gradual increase in the proportion of debt raised through market-based sources like bonds,
debentures and commercial paper (CPs), though banks accounted for close to 45 per cent of total
debt of these firms (Chart 1). Further, almost 75 per cent of the total bank borrowings in the recent
years was secured. The share of other non-bank non-market based sources of debt, such as loans
from promoters and inter-corporate loans moved in the range of 2-4 per cent, while foreign
currency borrowings accounted for 14 per cent of total debt.

Graph 2: Indicating the Composition of Debt of India’s Non-Financial Firms

In the case of financial companies, the proportion of debt raised through debentures and bonds
stood at around 28-30 per cent of their total debt. However, like non-financial companies, the
higher proportion of debentures and bonds in total debt financing is confined to larger-sized
financial companies (Chart 2).
Graph 3: Indicating the Composition of Debt of India’s Financial Firm
Government Securities
The graph below showing the monthly yield on government 10 year bond I have collected the
data from year 2007 January to 2020 April, the monthly yield on 10 year bond as of April 13, 2020
is 6.48% and largest fall in yield on government 10 year bond is in between 2008-2009 about 5.5%.
The bond issued by the government in most of the country is count risk free investment as the
government usually do not default but exception are always there. Before the largest financial
crisis 2008-2009 the yield on the government bond was all time high to about 9.45% but as the
bubbles burst the economy collapsed and the default on mortgage was the primary reason and
that is the reason the yield on government bond start declining reached to all time low to 5.5% in
2009.

Graph 4: Indicating the Yield on 10 year Government Bond

Whereas the second graph indicate the change in yield on a government 10 year bond the change
in yield on government bond in the time of financial crisis 2008- 2009 was negative and about -
20%, as the market start rising after the crises the change in yield on a government bond jump to
all time since 2007 to almost 12%.
Graph 5: Indicating the Change Yield on 10 year Government Bond
STOCKS
The two major stock index in India are NIFTY 50 and SENSEX, I have collected data for both the
index from 2007 to April 2020 the reason to the data since 2007 is to identify the maximum fall in
prices. I have chosen index for identifying the stock trend because index of a particular country
composed of the largest stock of that particular country and there is huge decline in price in time
of Financial Crises, largest index all over the world say NASDAQ, S&P 500 fall about - 30%
SENSEX
The graph below show the change in price for SENSEX index from 2007 to April 2020, the maximum
level or price to which Sensex fall is to Rs 8891.68 in February 2009 whereas the maximum rise in
the price for Sensex index is to Rs 41253.74 in December 2019.

Graph 6: Indicating Change in Price for Sensex Index

MINIMUM POINT TO WHICH SENSEX FALL since 2007: Rs.8891.68

MAXIMUM POINT TO WHICH SENSEX RISE SINCE 2007: Rs.41253.74
The next graph shows the variation return for the Sensex index or say the variation in monthly
return for Sensex. The maximum fall in return for Sensex is about - 23.89% in year October 2009.
The maximum gain in return for Sensex is about 28.25% in year May 2009.

Graph 7: Indicating Return Variation in Price for Sensex Index

MINIMUM POINT TO WHICH SENSEX FALL since 2007: Adj Close -0.238901
MAXIMUM POINT TO WHICH SENSEX RISE SINCE 2007: Adj Close 0.282551
NIFTY
The graph below show the change in price for NIFTY index from 2007 to April 2020, the price for
the Nifty index had fallen all-time low since 2007 to Rs 2755.1 in November 2008 whereas the
maximum rise in the price for Nifty index is to Rs 12169.84 in January 2020.

Graph 8: Indicating Change in Price for Nifty Index

MINIMUM POINT TO WHICH SENSEX FALL since 2007: Rs.2755.1

MAXIMUM POINT TO WHICH SENSEX RISE SINCE 2007: Rs.12169.84

The next graph shows the variation return for the Sensex index or say the variation in monthly
return for Nifty. The maximum fall in return for Nifty is about - 26.41% in year October 2009. The
maximum gain in return for Sensex is about 28.06% in year May 2009
Graph 9 Indicating Return Variation in Price for Nifty Index

MINIMUM POINT TO WHICH NIFTY FALL since 2007: Adj Close-0.264103

MAXIMUM POINT TO WHICH NIFTY RISE SINCE 2007: Adj Close 0.28066
FOREX
Forex (FX) is the marketplace where various national currencies are traded. The forex market is
the largest, most liquid market in the world, with trillions of dollars changing hands every day.
There is no centralized location, rather the forex market is an electronic network of banks, brokers,
institutions, and individual traders (mostly trading through brokers or banks)
The foreign exchange rate for India had been very volatile since 2007 (Post Financial Crisis) and
recently due this Corana virus pandemic there is huge depreciation in our nation currency in terms
of dollars. The graph below show the value of INR in terms of US DOLLAR AND EURO.
The maximum rise or say the maximum appreciation in our nation currency in terms of dollar
INR/USA is about Rs 39.174/$ in May 2007 whereas the maximum is fall or say the maximum
depreciation of our nation currency in terms dollar INR/USA is about Rs 76.91/$ in April 2020.
The maximum rise or say the maximum appreciation of our nation currency in terms of dollar
INR/EURO is about Rs 54.549/EURO in May 2007 whereas the maximum is fall or we can the
maximum depreciation of our nation currency in terms dollar INR/EURO is about Rs 86.80/EURO
in March 2013.

Graph 10 Indicating Exchange Rate between INR/EURO and INR/DOLLAR ($)

Maximum Appreciation of INR in terms of Dollar INR/USA since 2007: Rs.39.174/$

Maximum Depreciation of INR in terms of Dollar INR/USA since 2007: Rs.76.91/$
Maximum Appreciation of INR in terms of EURO INR/EURO since 2007: Rs.54.549/Euro
 Maximum Depreciation of INR in terms of EURO INR/EURO since 2007: Rs.86.80/Euro

Graph 11 Indicating Percentage change Exchange Rate between INR/EURO and INR/DOLLAR ($)
 3. FINANCIAL INCLUSION IN INDIA

Financial inclusion may be defined as the process of ensuring access to financial services timely
and adequate credit where needed by vulnerable groups such as weaker sections and low-income
groups at an affordable cost. Financial Inclusion, broadly defined, refers to universal access to a
wide range of financial services at a reasonable cost. These include not only banking products but
also other financial services such as insurance and equity products.

Household access to financial services is depicted in Figure I below.

The essence of financial inclusion is to ensure delivery of financial services which include - bank
accounts for savings and transactional purposes, low cost credit for productive, personal and other
purposes, financial advisory services, insurance facilities (life and non-life) etc.

Why Financial Inclusion?

Financial inclusion broadens the resource base of the financial system by developing a culture of
savings among large segment of rural population and plays its own role in the process of economic
development. Further, by bringing low income groups within the perimeter of formal banking
sector; financial inclusion protects their financial wealth and other resources in exigent
circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the
usurious money lenders by facilitating easy access to formal credit.In rural areas, the Gini’s
coefficient rose to 0.28 in 2011-12 from 0.26 in 2004-05 and during the same period to an all-time
high of 0.37 from 0.35 in urban areas

Extent of Financial Services:

The extent of financial exclusion from different perspectives / angularities is presented based on
different data sources viz.:

1. Government of India Population Census 2011: As per census 2011, only 58.7% of
households are availing banking services in the country. However, as compared with
previous census 2001, availing of banking services increased significantly largely on
account of increase in banking services in rural areas.
2. NSSO 70th Round Survey Results: At the all-India level, institutional and non-institutional
sources of credit have almost identical shares (viz. 49 per cent and 51 per cent).
3. CRISIL –Inclusix: The CRISIL Inclusix indicate that there is an overall improvement in the
financial inclusion in India.CRISIL –Inclusix (on a scale of 100) increased from 35.4 in March
2009 to 37.6 in March 2010 and to 40.1 in March 2011. It stood at 58.0 at the end of fiscal
2016.
4. RBI reports: RBI published an Index on financial inclusion (IFI) based on three variables
namely penetration (number of adults having bank account), availability of banking
services (number of bank branches per 1000 population) and usage (measured as
outstanding credit and deposit). The results indicate that Kerala, Maharashtra and
Karnataka has achieved high financial inclusion (IFI >0.5), while Tamil Nadu, Punjab, H.P,
Sikkim, and Haryana identified as a group of medium financial inclusion (0.3)
5. IMF ‘Financial Access Survey’ Results: According to IMF, in 2016 there are 21.24 ATMs and
14.06 Bank branches in India per 100,000 adult population. It also pointed out there are
only 170.77 loan accounts per 1000 adult Indians and Only 635.22 Mobile banking
transactions per 1000 adults.
6. NABARD All India Rural Financial Inclusion Survey 2016-17: Distribution of Households who
took loan - 59 % only Institutional, 32 % - Only Non-Institutional and the rest were from
both sources. Among Agricultural Households owning more than 0.4 ha land and those
who took any loan for agricultural purposes from a cooperative/ commercial/ rural bank,
32% reported to be having Kisan Credit Cards. These households utilized 83% of the
sanctioned limit in the last one year. On the whole, 23% households reported that any of
its members were associated with a microfinance group at the time of survey. When asked
about the type of group, 20% reported to be associated with Self Help Groups.
RBI Policy Initiatives and Progress in Financial Inclusion

RBI has adopted a bank-led model for achieving financial inclusion and removed all regulatory
bottle necks in achieving greater financial inclusion in the country. Further, for achieving the
targeted goals, RBI has created conducive regulatory environment and provided institutional
support for banks in accelerating their financial inclusion efforts.

Financial Inclusion Initiatives

• Advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with minimum
common facilities such as no minimum balance, deposit and withdrawal of cash at bank
branch and ATMs, receipt/ credit of money through electronic payment channels, facility
of providing ATM card.
• Relaxed and simplified KYC norms to facilitate easy opening of bank accounts, especially
for small accounts with balances not exceeding Rs. 50,000 and aggregate credits in the
accounts not exceeding Rs. one lakh a year. Further, banks are advised not to insist on
introduction for opening bank accounts of customers. In addition, banks are allowed to use
Aadhar Card as a proof of both identity and address.
• Simplified Branch Authorization Policy, to address the issue of uneven spread bank
branches, domestic SCBs are permitted to freely open branches in Tier 2 to Tier 6 centres
with population of less than 1 lakh under general permission, subject to reporting. In
North-Eastern States and Sikkim domestic SCBs can open branches without having any
permission from RBI. With the objective of further liberalizing, general permission to
domestic scheduled commercial banks (other than RRBs) for opening branches in Tier 1
centres, subject to certain conditions.
• Compulsory Requirement of Opening Branches in Un-banked Villages, banks are directed
to allocate at least 25% of the total number of branches to be opened during the year in
un-banked (Tier 5 and Tier 6) rural centres.
• Banks were advised to open intermediate structures between the present base branch and
BC locations. This branch could be in the form of a low cost simple brick and mortar
structure consisting of minimum infrastructure such as core banking solution terminal
linked to a pass book printer and a safe for cash retention for operating larger customer
transactions.
• Public and private sector banks had been advised to submit board approved three year
Financial Inclusion Plan (FIP) starting from April 2010. These policies aimed at keeping self-
set targets in respect of rural brick and mortar branches opened, BCs employed, coverage
of un-banked villages with population above 2000 and as well as below 2000, BSBD
accounts opened, KCCs, GCCs issued and others. RBI has been monitoring these plans on
a monthly basis.
• Banks have been advised that their FIPs should be disaggregated and percolated down up
to the branch level. This would ensure the involvement of all stakeholders in the financial
inclusion efforts.
• In June 2012, revised guidelines on Financial Literacy Centres (FLCs). Accordingly, it was
advised that FLCs and all the rural branches of scheduled commercial banks should scale
 up financial literacy efforts through conduct of outdoor Financial Literacy Camps at least
once a month, to facilitate financial inclusion through provision of two essentials i.e.
‘Financial Literacy’ and easy ‘Financial Access’.

Recent Measures

• Licensing of New Banks: The present round of licensing new banks is essentially aimed at
giving further fillip to financial inclusion efforts in our country. Innovative business models
aimed at furthering financial inclusion efforts would be looked into closely in processing
applications for banking license. Financial inclusion plan would be an important criterion
for procuring new bank licenses.
• Discussion Paper on Banking Structure in India – The Way Forward: The RBI has put out a
discussion paper in August 2013 on Banking Structure for public comments. One of the
main issues relates to “Differentiated Banking Licenses”. The subject of licensing ‘small
banks and financial inclusion’ has been discussed therein. A view will be taken by RBI after
factoring in the comments/suggestions received from the general public.
• In this context, it needs to be mentioned that Urban Co-operative Banks (UCBs), Regional
Rural Banks (RRBs) and Local Area Banks (LABs) numbering 1606, 64, and 4 respectively
are, in fact, Small Finance Banks operating in this country. These apart, there is a 3- Tier
rural co-operative structure with State Co-operative Central Banks (SCCBs) at the apex,
District Central Co-operative Banks(DCCBs) at the intermediary level and Primary
Agricultural Credit Societies (PACs) at the grass root level, which number 31, 371 and
92,432 respectively. Furthermore, we have around 12,225 NBFCs as on March 2013, which
could be conceptually construed as semi-banks undertaking predominantly
credit/investment activities.

Progress in Financial Inclusion

• Progress of financial inclusion since the launch of financial inclusion plans clearly indicates
that banks are progressing in areas like opening of banking outlets, deploying BCs, opening
of BSBD accounts, grant of credit through KCCs and GCCs. Detailed trends are furnished in
the following charts.

Number of Branches Opened (including RRBs)

• Due to RBI’s concerted efforts since 2005, the number of branches of Scheduled
Commercial Banks increased manifold from 68,681 in March 2006 to 1,02,343 in March
2013, spread across length and breadth of the country.
• In rural areas, the number of branches increased from 30,572 to 37,953 during March 2006
to March 2013. As compared with rural areas, number of branches in semi-urban areas
increased more rapidly.
Villages Covered:

• The number of banking outlets in villages with population more than 2000 as well as less
than 2000 increased consistently since March 2010 (Chart 5).

Total Bank Outlets (including RRBs):

• Total number of banking outlets in villages increased from 67,694 in March 2010 to
2,68,454 in March 2013 (increased around 4 times during the period of three years). Of
total branches, banking outlets through BCs increased from 34,174 to 2,21,341 during the
same period (increased around 6.5 times). BSBD Accounts Opened
• The number of BSBD accounts opened increased from 73.45 million in March 2010 to
182.06 million in March 2013.
• RBI advised banks to provide small overdrafts in BSBD accounts. Accordingly up to March
2013, 3.95 million BSBD accounts availed OD facility of Rs. 1.55 billion (These figures
respectively, were 0.18 million and 0.10 billion in March 2010).

Kisan Credit Cards (KCC) Issued:

• Banks have been advised to issue KCCs to small farmers for meeting their credit
requirements. Up to March 2013, the total number of KCCs issued to farmers remained at
33.79 million with a total outstanding credit of Rs.2622.98 billion.

General Credit Cards (GCC) Issued:

• Banks have been advised to introduce General Credit Card facility up to Rs. 25,000/- at
their rural and semi-urban branches. Up to March 2013, banks had provided credit
aggregating to Rs.76.34 billion in 3.63 million GCC accounts.

ICT Based Accounts - through BCs

• In order to provide efficient and cost-effective banking services in the un-banked and
remote corners of the country, RBI directed commercial banks to provide ICT based
banking services – through BCs. These ICT enabled banking services have CBS connectivity
to provide all banking services including deposit and withdrawal of money in the financially
excluded regions.
• The number of ICT-based transactions through BCs increased from 26.52 million in March
2010 to 250.46 million in March 2013, while transactions amount increased steadily from
Rs.6.92 billion to Rs.233.88billion during the same period.
Expansion of ATM Network:

• The total number of ATMs in rural India witnessed a CAGR of 30.6% during March 2010 to
March 2013. The number of rural ATMs increased from 5,196 in March 2010 to 11,564 in
March 2013.

Financial Literacy Initiatives:

Financial education, financial inclusion and financial stability are three elements of an integral
strategy, as shown in the diagram below. While financial inclusion works from supply side of
providing access to various financial services, financial education feeds the demand side by
promoting awareness among the people regarding the needs and benefits of financial services
offered by banks and other institutions. Going forward, these two strategies promote greater
financial stability.Financial Stability Development Council (FSDC) has explicit mandate to focus on
financial inclusion and financial literacy simultaneously.

Growth in SHG-Bank Linkage:

• This model helps in bringing more people under sustainable development in a cost
effective manner within a short span of time. As on March 2011, there are around 7.46
million saving linked SHGs with aggregate savings of Rs.70.16 billion and 1.19 million credit
linked SHGs with credit of Rs. 145.57 billion

Growth of MFIs:

• Though RBI has adopted the bank-led model for achieving financial inclusion, certain NBFCs
which were supplementing financial inclusion efforts at the ground level, specializing in
micro credit have been recognized as a separate category of NBFCs as NBFC-MFIs.
• At present, around 30 MFIs have been approved by RBI. Their asset size has progressively
increased to reach Rs. 19,000 crore as at end Sept 2013.
Bank Credit to MSME

• MSME sector which has large employment potential of 59.7 million persons over 26.1
million enterprises, is considered as an engine for economic growth and promoting
financial inclusion in rural areas. MSMEs primarily depend on bank credit for their
operations.
• Bank credit to MSME sector witnessed a CAGR of 31.4% during the period March 2006 to
March 2012. Of total credit to MSME, public sector banks contributed the major share of
76%, while private sector banks accounted for 20.2% and foreign banks accounted for only
3.8% as on March 31, 2012.

Insurance Penetration in the Country

• The total insurance (life and non-life) penetration, in terms of the ratio of insurance
premium as a percentage of GDP increased from 2.32 in 2000-01 to 5.10 in 2010-11. The
life insurance penetration as a percentage of GDP stood at 4.40 in 2010-11 while the non-
life insurance penetration remained at 0.71 during the same period12. In other words,
there is vast untapped potential as regards insurance penetration.

Equity Penetration in the Country

• The number of investor accounts accounted for a meagre 1.71% of total population of the
country13.

Financial Inclusion Initiatives – Private Corporates:

• A few large private corporate have undertaken projects such as E-Choupal/ E- Sagar(ITC),
HaryaliKisan Bazaar (DCM), Project Shakti (HUL), etc. Reportedly, these pioneering projects
have brought about vast improvement in the lives of the participants and set the tone for
economic development in their command areas; which is a pre-requisite for Financial
Inclusion efforts to be undertaken by the banking system.
 4. UNIVERSAL BASIC INCOME
“In 1967, Martin Luther King Jr. said a guaranteed income would abolish poverty. That means
reducing income inequality as well”.

History Overview
The idea of a state-run basic Income dates back to the early 16th century, when Sir Thomas More's
Utopia depicted a society in which every person receives a guaranteed income. In the late 18th
century, English radical Thomas Spence and American revolutionary Thomas Paine both declared
their support for a welfare system that guaranteed all citizens a certain income. Nineteenth-
century debate on basic income was limited, but during the early part of the 20th century a basic
income called a "state bonus" was widely discussed, and in 1946 the United Kingdom implemented
unconditional family allowances for the second and subsequent children of every family. In the
1960s and 1970s, the United States and Canada conducted several experiments with negative
income taxation, a related welfare system. From the 1980s and onward, the debate in Europe took
off more broadly and since then it has expanded to many countries around the world. A few
countries have implemented large-scale welfare systems that have some similarities to basic
income, such as Bolsa Família in Brazil. From 2008 onward, several experiments with basic income
and related systems have taken place.

What is UBI?
Universal Basic Income (UBI) also known as basic income, citizen's income, citizen's basic income,
basic income guarantees, basic living stipend, guaranteed annual income, or universal demo grant.
Basically it is a government initiative public program which aims in providing a periodic payment
to each and every individual irrespective of their means test or work requirement.
The incomes would be:
Unconditional: A basic income would vary with age, but with no other conditions. Every one of the
same age would receive the same basic income, whatever their gender, employment status, family
structure, contribution to society, housing costs, or anything else.
Automatic: Someone's basic income would be automatically paid weekly or monthly into a bank
account or similar.
Non-withdrawable: Basic incomes would not be means-tested. Whether someone's earnings
increase, decrease, or stay the same, their basic income will not change.
Individual: Basic incomes would be paid on an individual basis and not on the basis of a couple or
household.
As a right: Every legal resident would receive a basic income, subject to a minimum period of legal
residency and continuing residency for most of the year.
Basic income can be implemented nationally, regionally or locally. An unconditional income that
is sufficient to meet a person's basic needs (at or above the poverty line) is sometimes called a full
basic income while if it is less than that amount, it is sometimes called partial. A welfare system
with some characteristics similar to those of a basic income is a negative income tax in which the
government stipend is gradually reduced with higher labour income. Some welfare systems are
sometimes regarded as steps on the way to a basic income, but because they have conditionalities
attached they are not basic incomes. If they raise household incomes to specified minima they are
called guaranteed minimum income systems. For example, Bolsa Família in Brazil is restricted to
poor families and the children are obligated to attend school.
Pilot Projects
Since the 1960s and in particular after 2010, there has been a number of so-called basic income
pilots. Among them the following:

• Experiments with negative income tax in United States and Canada in the 1960s and 1970s.
• The province of Manitoba, Canada, experimented with Mincome, a basic guaranteed
income in the 1970s.
• The basic income grants in Namibia, launched in 2008 and ended in 2009.
• An independent pilot implemented in São Paulo, Brazil.
• Basic income trials in several villages in India, whose government has proposed a
guaranteed basic income for all citizens.
• The GiveDirectly experiment in Nairobi, Kenya—the biggest and longest basic income pilot
as of 2017.
• An experiment in the city of Utrecht in the Netherlands, launched in early 2017, that is
testing different rates of aid.
• A three-year basic income pilot that the Ontario provincial government, Canada, launched
in the cities of Hamilton, Thunder Bay and Lindsay in July 2017. Although called basic
income, it was only made available to those with a low income and funding would be
removed if they obtained employment, making it more related to the current welfare
system than actual basic income. The pilot project was cancelled on 31 July 2018 by the
newly elected Progressive Conservative government under Ontario Premier Doug Ford.
• A two-year pilot the Finnish government began in January 2017 which involves 2,000
subjects in April 2018, the Finnish government rejected a request for funds to extend and
expand the program from Kela (Finland's social security agency).
• A project called Eight in a village in Fort Portal, Uganda, that a nonprofit organization
launched in January 2017 which provides income for 56 adults and 88 children through
mobile money.
UBI in India
Basic income in India refers to the debate and practical experiments with universal basic income
(UBI) in India. The greatest impetus has come from the 40-page chapter on UBI that the Economic
Survey of India published in January 2017. It outlined the 3 themes of a proposed UBI programme:
Universality - intent of providing every citizen "a basic income to cover their needs
Unconditionality - accessibility of all to basic income, without any means tests
Agency - citizen's independent ability to choose how they spend their income
The survey mentions that UBI "liberates citizens from paternalistic and clientelistic relationships
with the state.

UBI PILOT PROJECTS IN INDIA

• Government experiments
Indian policymakers conducted two important studies testing the impact of unconditional cash
transfers in Madhya Pradesh and Delhi. The first study conducted from January to December 2011
in New Delhi tested the impact of cash transfers when offered in conjunction with existing public
welfare. The Indian government in partnership with SEWA and the Madhya Pradesh state
government, carried out a controlled trial. This experiment gave 100 randomly selected
households 1,000 rupees per month. The money was deposited under the name of the female
head of participating households in a bank. A more ambitious version of this study took place in
Madhya Pradesh as a two pilot program.

• The Madhya Pradesh, UBI Pilot Project, 2010

The project involved 20 villages. According to the first communication of the pilot projects, positive
results were found. Villages spent more on food and healthcare, children’s school performance
improved in 68% of families. Time spent in school, personal savings etc. also increased. The study
also found an increase in economic activity as well as an increase in savings, an improvement in
housing and sanitation, improved nutrition, less food poverty, improved health and schooling,
greater inclusion of the disabled in society and a lack of frivolous spending.
Also, a scheme that comes any close to a UBI already functioning in India would be the National
Rural Employment Guarantee Scheme. It benefits close to 185 million people with a budget of Rs
38,500 crore by guaranteeing them employment for a specific number of days.
Advantages and Disadvantages of UBI
Advantages of UBI

• Fighting technological unemployment

With advanced technology taking over more and more blue and white collar jobs, UBI
would act as a sort of security net for the millions of people who will be left jobless by the
tech revolution.

• Ending abuse
Those who suffer domestic abuse, mainly women, become trapped in violent situations
because they don’t have the means to leave them. UBI would make leaving an abusive
partner easier from a financial point of view.

• Supporting unpaid care workers

Those with ill or differently abled relatives are often forced to quit their jobs to care for
them full-time.

• Expanding the middle class

The economic growth of high-income countries is making the rich richer, but having very
little effect on the working classes.

• Ending poverty
Advocates for UBI believe that in some of the richest countries in the world, no one should
be too poor to live.

• Eliminating the need for social security

There exist countless governmental organisations responsible for helping those in poverty,
handing out unemployment benefits, food stamps, subsidised housing, etc. UBI would cut
a country’s spending by eliminating these organisations.

• Discouraging low wages

UBI would give employees enough security to have bargaining power.
Disadvantages of UBI

• Motivation to work
The biggest concern is that UBI would incite millions of workers to stop working.

• Cost

The cost of implementing UBI in the United States is estimated to be about 3.9 trillion per
year.

• Inequality

Some wonder if it is really fair to give the same amount of money to billionaires as those
born into poverty.

• Philosophical counterarguments

Is money a birthright? Capitalist countries are built on the ideological foundation that
money is something we earn – UBI would completely change this.

ISSUES REGARDING UBI IN INDIA

• In countries like India, where more than 30% of the population lives below the poverty line
and where basic services of health and education remain inefficient it is difficult to
ascertain how a UBI scheme would work on a nation-wide basis.
• But attempting to implement this scheme brings up a crucial question: Where would the
money come from? The government would have only two ways to sustain the scheme:
Either cut down on other subsidies to reduce expenditure and divert money to basic
income, or increase taxes.
• It is a known fact that India has an abysmal position when it comes to Human Development
Index. Thus, a large budget for basic income would mean money taken away from crucial
policies such as those on health, education etc.
• Various economists have pointed out that servicing the basic income scheme through
higher taxes would lead to inflation. Thus, the value of the money paid as basic income
would erode (due to inflation, people would be able to buy less with the given money).
• Thus, in countries like India, a basic income scheme in addition to the subsidies is
recommended.