Since Prime Minister Narendra Modi November 8 announced the demonetisation of Rs 500 and Rs 1,000 currency notes, which account for arounded 86% of the total cash in circulation, the entire country has been facing an acute shortage of liquid cash. This has led to the debate over the country's currency circulation, and whether its banking penetration and ATM reach are enough for its huge population.
To get an idea of the state of India's financial inclusion and how the country fares vis-a-vis other nations globally, Business Standard takes a look at some of these factors.
To get an idea of the state of India's financial inclusion and how the country fares vis-a-vis other nations globally, Business Standard takes a look at some of these factors.
As reported earlier, India is more dependent on cash than many other countries. As data show, the "reserve money to broad money ratio" — an indicator of the scale of cash in circulation — is around 0.18 for India. That is very high. When compared with developing country peers, India's ratio is three-and-a-half times that of China's, triple than of Brazil and double that of Mexico. Compared with developed countries, India's ratio is 2.25 times that of Japan, 2.5 times that of the Netherlands, 4 times that of Canada, 4.5 times that of the UK and 6.5 times that of Sweden and South Korea.
This shows that across the spectrum — among both emerging and developed economies — the use of cash in India is very high. But the chart also shows that the cash use is coming down. It shows that 90.6% of total transactions were in cash in the financial year (FY) 2006-07, and it came down to 86.6% in FY12. The same chart also informs that the number of card payments is increasing consistently. It says that card transactions in India in FY07 were at 2.8% (excluding commercial transactions) and in FY12 they were at 4.1%. The number of electronic card/automated clearing house (ACH) transactions also increased from 2.6% in FY07 to 6.8% in FY12. But transactions through other modes — cheques, demand drafts, etc — decreased from 4.1% in FY07 to 2.5% in FY12.
According to a 2013 study by The Fletcher School of the Tufts University — 'India Cash Outlook' — the total value of ATM transactions has increased more than five times in the 2007-2012 period, from about Rs 3 lakh crore to about Rs 18 lakh crore, while the value of card transactions barely doubled in the same period from Rs 1 lakh crore to Rs 2 lakh crore. This indicates the increasing use of transactions digitally.
The replacement of cash by the government till December 31, 2016, requires a substantial number of bank branches and better 'ATM to user ratio'. The data indicate that the Indian banking penetration is far from good and needs a lot of improvement.
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Bank branch networks
The latest government report on financial inclusion — 'Overview and Progress on Financial Inclusion' — says that according to the 2011 census among 246,692,667 households, the penetration of banking services is 58.7%, at 144,814,788 households. In 2015, the report says that out of a total number of 21.22 crore surveyed households, bank accounts had been opened for only 99.99 % households under the Pradhan Mantri Jan Dhan Yojana. On bank branch networks, it informs that as on March 31, 2015, the number of scheduled commercial bank branches across the country stood at 125,857, with public sector banks (PSBs) having 85,895 branches, and other banks — private sector ones, foreign banks and regional rural banks — having 39,962 branches. In rural areas, the number of branches stood at 48,557, and in the rest of the areas — semi-urban, urban and metropolitan — the number was 77,300. According to World Bank data, the number of bank branches per 100,000 adults in India was 9 and 13 in 2004 and 2014, respectively. This is broadly in line with the global average of 9.1 and 13.4 branches in 2004 and 2014, respectively. But India has got a long way to go to catch up with many developed countries.
ATM penetration:
On ATMs, the Reserve Bank of India (RBI) data say that as of August 2016, there were 202,801 ATMs in the country — 99,150 off-site ATMs and 103,651 on-site ones. The World Bank data show that the number of ATMs per 100,000 adults in India was 18.07 in 2014. This is way fewer than the the global average of 43.9 ATMs. The global average was 18 ATMs in 2004. The RBI data say that the total number debit cards issued stood at 712,465,787 and credit cards were at 26,378,940.
The RBI data also inform that the total number of point of sale (POS) machines stood at 1,461,972 — 1,461,672 online machines and 300 offline.