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ACKNOWLEDGEMENT

I express my special and profound gratitude to my mentor Dr. Neeraj Kumar Sehrawat without
whose guidance, observation and keen interest, this project would not have seen the daylight. I am
sincerely grateful to him for the help and inspiration he extended to enable me to proceed in right
direction. I would also like to thank the staff members of Department of Business Studies for their
support and motivation. I am also thankful to Dr. Poonam Verma , Principal SSCBS, New Delhi,for
her encouragement, and to other teaching and non- teaching staff of SSCBS for providing the
facility of Library and other infrastructure needed.



















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CERTIFICATE OF ORIGIN



This is to certify that Mr. Ashok Devarwal , a student of Bachelor of Business Studies (BBS) ,
Shaheed Sukhdev College of Business Studies , UNIVERSITY OF DELHI
has worked on this project for the partial fulfillment of Degree of Bachelor of Business Studies
under the guidance and supervision of Mr. Neeraj Kumar Sehrawat . To the best of our
knowledge no part of this report has been reproduced from any other report and the contents
are based on original research.







Signature Signature
(Faculty Guide) (Student)

















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Abstract




Financial Inclusion is the process of ensuring access to appropriate financial products and services
needed by all sections of the society in general and vulnerable groups such as weaker sections and
low income groups in particular at an affordable cost in a fair and transparent manner by
mainstream institutional players.


Sustainable development of a country is closely related to the level of inclusion of the population
into the financial net. Financial Inclusion is the issue at global level. Various authors have
developed the Financial Inclusion Index based on different dimensions.The present study tries
to assess the correlation between the CRI SI L inclusix score and Literacy level in India.
Correlation has been statistically tested by using Karl Pearson coefficient of correlation. The
results depicts that literacy level among State and UTs have significant role to play in financial
inclusion. Thus, the Government should promote the use of Information Communication
Technology models like biometric ATM, telecentres to achieve Financial Inclusion in India as
these models does not compulsorily requires high literacy levels.











Keywords: Financial literacy, financial inclusion, financial inequality, CRISIL inclusix, Per
capita state domestic product.







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TABLE OF CONTENTS


Chapter No. Particulars Page No

1. Introduction 5
2. Review Of Literature 13
3. Objective Of The Study 14
4. Hypothesis Of Research 14
5. Research Methodology 14
6. Data Analysis And Discussion 15
7. Conclusion 23
8. References 24




































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Financial Inclusion is the process of ensuring access to appropriate financial products and
services needed by all sections of the society in general and vulnerable groups such as weaker
sections and low income groups in particular at an affordable cost in a fair and transparent
manner by mainstream institutional players.






The positive impact of financial inclusion is widely spread and pervades across the globe. In an era,
where human development indicators such as life expectancy, literacy rate etc., have been
continuously and steadily improving, there are also countries which, despite domestic and
international efforts, fail to show a significant improvement in financial inclusion. There appear to be
important complementarities between financial literacy and access to mainstream services or financial
inclusion. Financial inclusion is emerging as a way of increasing household well-being. Meanwhile,
the recent economic crisis has demonstrated that the skills related to personal financial management
are more important than ever before. Existing evidence also suggests that peoples financial behavior
contributes to their economic and general well-being. A financially literate person has the skills,
attitude, knowledge, and behaviors sufficient to be aware of financial opportunities and making
choices to suit the circumstances, and taking effective action to improve their wellbeing . Financial
inequality is inherent to social exclusion. Understanding the barriers to financial inclusion and the
policy implications can be effective inputs in the point of view of the development of a more socially
justifiable and enabling society.

Therefore, this study focuses on illuminating the existing pattern and disparities of the financial
literacy and literacy at general level in different states in India, with the expectation of examining
whether there is a relationship between Literacy rate and Financial Inclusion of states.

















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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 Ginis 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. And this inequality is result of financial
exclusion.











Extent of Financial Exclusion

Vital financial exclusion statistics as per NSSO survey as reported in IDBI Gilts Report 2007 are
discussed here. In general 51.4 percent of farmer households are financially excluded from both the
formal and informal sources of credit. Of the total farmer households, only 27 per cent access formal
sources of credit; one third of this group also borrows from non-formal sources. Overall, 73 percent of
farmer households have no access to formal sources of credit. Region wise exclusion is most acute in
Central, Eastern, North Eastern regions, having concentration of 64 percent of all financially excluded
farmer households in the country. Overall indebtedness to formal sources of finance alone is only
19.66 percent in these three regions. From occupational groups perspective, marginal farmer
households constitute 66 percent of total farm households. Only 45 percent of these households are
indebted to either formal or non-formal sources of finance. About 20 percent of indebted marginal
farmer households have access to formal sources of credit. Among non-cultivator households nearly
80 percent do not access credit from any source. Social groups perspective shows that, only 36
percent of Scheduled Tribes (ST) farmer households are indebted, with Scheduled Castes (SC) and
Other Backward Classes (OBC) comprising 51 percent. Most of them borrow from informal sources.

In India financial inclusion is not evenly distributed, some states are much more financially excluded
than the others.





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Reasons for Financial Exclusion

Major reasons for Financial Exclusion in India are:

1) High cost : Providing and utilizing financial services is not available free of cost for both the
service provider and service utilizer. (i) Cost for service provider: Setting up of branches in rural areas
are generally not advantageous due to high cost and low business (ii) Cost for service utilizer: It has
been observed that poor living in rural area are reluctant to utilize these services due to high cost
example, minimum balance requirements in saving account, fixed charges in credit cards and debit
cards, loan processing charges etc.

2) Non price barriers: Access to formal financial sources requires documents of proof regarding
persons identity, postal address, income etc. poor people generally do not have these documents and
thus are excluded from financial services.

3) Behavioral aspects: As per IDBI Gilts Report 2007 research in behavioral economics has shown
that many people are not comfortable using formal financial services due to difficulty in
understanding the language and reading the document . Poor people also think that financial services
and financial products are meant only for the upper strata of the society.











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




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 address9.



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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 centers
with population of less than 1 lakh under general permission, subject to reporting. In
North-Eastern Sates 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 centers.

Opening of intermediate brick and mortar structure, for effective cash management,
documentation, redressal of customer grievances and close supervision of BC operations,
banks have been 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 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 aim 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 FI Ps 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. Accordingly, 718 FLCs have been set
up as at end of March 2013. A total of 2.2 million people have been educated through
awareness camps / choupals, seminars and lectures during April 2012 to March 2013.





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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.


Number of Branches Opened (including RRBs)

Due to RBIs 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.











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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







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






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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.








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






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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.
RBI has issued revised guidelines on the Financial literacy Centres (FLC) on June 6, 2012, for
setting up FLCs




















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Many researchers have conducted the study on Financial Inclusion from different
perspectives. To conduct the research, I have gone through the following past studies:



Mandira Sarma and Jesim Paise (2008) suggest that the issue of financial inclusion is a
development policy priority in many countries. Using the index of financial inclusion
developed in levels of human development and financial inclusion in a country move closely
with each other, although a few exceptions exist. Among socio-economic factors, as
expected,income is positively associated with the level of financial inclusion. Further physical
and electronic connectivity and information availability, indicated by road network, telephone
and internet usage, also play positive role in enhancing financial inclusion


Rama Pal and Rupayan Pal (June 2012) analyzed in their article Income Related
Inequality in Financial Inclusion and Role of Banks : Evidence on Financial Exclusion in
India, income related inequality in financial inclusion in India using a representative
household level survey data, linked to State-level factors. This paper also provides estimates
of the effects of various socio, economic and demographic characteristics of households on
propensity of a household to use formal financial services, and compare that for rural and
urban sectors. A notable result is that greater availability of banking services fosters financial
inclusion, particularly among the poor.


Mark Taylor (2010). Identify the key determinants of Financial Literacy. Using panel data
models, He fined the key determinants to financial literacy are age, health, household size
and structure, housing tenure, and the employment status of the individual and other
household members. Older men and women in full-time work with an employed spouse have
the most financial capability although many of these characteristics have significant impacts
on financial capability, but results suggest that age, and employment status has the largest
impacts.

Vijay Kelkar (2010) analysed in his article Financial Inclusion for Inclusive Growth that
enhanced financial inclusion will drastically reduce the farmers indebtedness, which is one
of the main causes of farmers suicides. The second important benefit is that it will lead to
more rapid modernization of Indian agriculture.







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1. To study the concepts of financial inclusion
2. To ascertain various factors affecting access to financial services, importance of FI ,
consequences of financial exclusion.
3. To analyze various important regulatory initiatives taken by the Reserve Bank of India to
strengthened financial inclusion in India.
4. To study the relationship between the Financial Inclusion Index and literacy rate.





Null hypothesis : There exist significant correlation between literacy level and financial inclusion
score of state and UTs.

Alternate hypothesis : There exist no significant correlation between literacy level and financial
inclusion score of state and UTs.







To study the relationship between the Financial Inclusion Index and literacy rate, the Karl
Pearson Coefficient of Correlation has been used.

Karl Pearson Coefficient of Correlation is defined as:







The coefficient of correlation (r) lies in between -1 and +1. When r is negative it means that
there is a negative correlation between two variables while if r is positive it means that there is
positive correlation between the two variables. For conducting the present study the SPSS
software has been used.

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In research CRISIL INCLUSIX INDEX is used. The index measures the progress of financial inclusion
across the country, covering all the State and UTs














CRISIL INCLUSIX

CRISIL defines financial inclusion as

The extent of access by all sections of society to formal financial services, such as credit, deposit,
insurance, and pension services.





WHAT IS CRISIL INCLUSIX?


CRISIL Inclusix is Indias first comprehensive measure of financial inclusion in the form of an index. It
is a relative index that has a scale of 0 to 100, and combines three very critical parameters of basic
banking services branch penetration (BP), deposit penetration (DP), and credit penetration (CP)
together into one single metric. For each of these parameters, CRISIL evaluates financial inclusion at
the national/ regional/ state/ district level vis--vis a defined ideal. A CRISIL Inclusix score of 100
indicates the ideal state for each of the three parameters.










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State wise Inclusix score






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CRISIL Inclusix index is based on data provided by the Reserve Bank of India (RBI) till March 31,
2012, which is the latest available.


CRISIL Inclusix shows clear signs of financial inclusion gaining momentum





CRISIL Inclusix score rises the most in three years:

At the end of fiscal 2012, the all-India CRISIL Inclusix score stood at 42.8 on a scale of 100, which is
an increase of 2.7 over 2011. This is the biggest annual jump since CRISIL began computing the
index three years back. The index has been showing continuous improvement from 35.4 in 2009 to
37.6 in 2010 (up 2.2) and 40.1 in 2011 (up 2.5).

Broad-based improvement at the state levels:


At the state level,there are 21 states in the High(>55) and Above average(40-55) categories now
from 15 earlier. Also, just one is now categorised as Low (Inclusix score below 25) against three in
2011.

Encouraging rise in savings bank accounts:

New savings bank accounts stood at nearly 7.9 crore, or 12.6% more than in 2011. Whats heartening
is that the increase was widespread, with all the five regions showing a growth of over 9%.

Strong performance in agricultural credit accounts growth:

Agricultural credit accounts have grown at 11.1% in 2012, which is a 3-year record. Growth in
agricultural credit accounts contributed nearly 60% to the total incremental credit accounts opened
between 2009 and 2012.


The least-scoring districts also show progress in branch penetration:

For the first time since the computation of CRISIL Inclusix began, the number of bank branches in the
bottom 100 districts hasincreased by 6% faster than the all-India growth of 5.6%.




Yet, there is a long way to go

The overall Inclusix score remains relatively low:

At 42.8 on a scale of 100, the score reflects under-penetration of formal banking in the country. Just
one in two Indians has a bank savings account and one in seven access to bank credit. To boot, the
bottom 50 districts have less than 2% of the bank branches.

Deposit penetration is the main contributor to financial inclusion:
At 70.3 crore, bank savings accounts are nearly four times loan accounts of 18.3 crore.

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Some key findings are:

Smaller states (population < 3 crore) and Union Territories such as Puducherry (rank 1), Chandigarh
(rank 2), and Goa (rank 5) perform better than larger states, perhaps due to higher Urbanisation

Puducherry continues to remain No. 1
The top 5 states are Puducherry, Chandigarh, Kerala, Delhi and Goa
Six out of the top 10 are small states
Among the large states (population > 3 crore), Kerala has the highest score at 80.4 followed
by Andhra Pradesh and Tamil Nadu, both of which score 64.8.




Top scoring states on CRISIL Inclusix



Bottom scoring states on CRISIL Inclusix



























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Data has been analyzed for the CRISIL inclusix and the literacy rate by applying the statistical test of
Karl Pearson Coefficient of correlation. Analysis is based on the data compiled in Table.










This data has been subjected to SPSS and the statistical resuts are shown in Table A & B







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Given the emphasis on education in India, it should be possible to enhance the financial
literacy among individuals. Therefor literacy rate of state and UTs may have some relation
with the present strta of Financial inclusion in states and UTs. To check the correlation
pearson correltion is applied .The Literacy rate of State and UTs is taken from census 2011.





Correlations



Table A

Correlations

CRISIL_FSCOR
E12 L_RATE
CRISIL_FSCORE12 Pearson Correlation 1 .583
**

Sig. (2-tailed)

.000
N 35 35
L_RATE Pearson Correlation .583
**
1
Sig. (2-tailed) .000

N 35 35
**. Correlation is significant at the 0.01 level (2-tailed).


Table A reveals that on an overall basis literacy rate does have a positive relationship
with financial inclusion.


Significant Correlation exist between CRISIL INCLUSIX (CRISIL_FSCOR) score 2012
and Literacy rate(L_RATE).

Pearson Correlation between CRISIL INCLUSIX and Literacy rate is .583

Correlation .583 also reveals that other factors also play important role in financial inclusion.

Literacy is an one of instrument to achieve financial inclusion.

An alternative to achieve financial inclusion with current Literacy rate of state is :

The Government should promote the use of Information Communication Technology models
like biometric ATM, telecentres to achieve Financial Inclusion in India as these models does
not compulsorily requires high literacy levels.

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Financial Inclusion of state and UTs may have some relation with the present strta of per
capita state domestic product in states and UTs. To check the correlation pearson correltion
is applied .The per capita state domestic product data is of 2012.



Correlations

Table B

Correlations

CRISIL_FSCOR
E12 PC_GDP12
CRISIL_FSCORE12 Pearson Correlation 1 .744
**

Sig. (2-tailed)

.000
N 35 25
PC_GDP12 Pearson Correlation .744
**
1
Sig. (2-tailed) .000

N 25 25
**. Correlation is significant at the 0.01 level (2-tailed).


Table B reveals that on an overall basis financial inclsion does have a positive relationship
with per capita state domestic product.


Significant Correlation exist between CRISIL INCLUSIX score 2012 and Per capita state
domestic product..

Pearson Correlation between CRISIL INCLUSIX and Per capita state domestic product is
.744

Correlation .744 reveals that financially included state and UTs have high per capita state
domestic product.

Therefore we can conclude that for economic growth and financial stability there is need of
financial inclusion at national level.


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The correlation between Literacy rate and Financial Inclusion was positive and significant. This bears
out the belief that adequate Literacy would lead to responsible financial behaviour and inturn financial
inclusion and higher CRISIL Inclusix score.

The significant positive correlation between CRISIL inclusix score and Per capita state domestic
product shows that financial inclusion at state level will lead to high Per capita state domestic product.

Literacy, Financial inclusion and Per capita state domestic product are interlinked. Literacy will effect
Financial inlusion , and Financial inclusion in turn will effect State domestic product.






















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Large variations in the Financial Inclusion CRISIL inclusix score among different states indicates that
financial exclusion in India.So there is need of improvement in Literacy level for Financial Inclusion
and an alternative to achieve financial inclusion is, the Government should promote the use of
Information Communication Technology models like biometric ATM, telecentres to achieve
Financial Inclusion in India as these models does not compulsorily requires high literacy levels.


Given the emphasis on education in India, it should be possible to enhance the financial literacy
among individuals. The financial literacy can be easily improved through inclusion of relevant
material on financial literacy in the general education program of schools and colleges. The influences
of sociological factors are important in financial decision making process any intervention strategy
must take into account these sociological and behavioral aspects.

Branch density in a state measures the opportunity for financial inclusion in India.
Literacy is a prerequisite for creating investment awareness, and hence intuitively it seems to
be a key tool for financial inclusion. But the above observations imply that literacy alone
cannot guarantee high level financial inclusion in a state. Branch density has significant impact
on financial inclusion. It is not possible to achieve financial inclusion only by creating
investment awareness, without significantly improving the investment opportunities in an
India.
And recent intiative by RBI to issue new banking licences likely to widen financial inclusion
process.

So to achieve high economic growth , high level HDIthere is need of Financially included
India.








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1.CENSUS 2011
2. CRISIL inclusix report 2012
3. SDP data 2012
http://www.hindustantimes.com/business-news/financial-literacy-in-india-very-low- says-
survey/article1-1102468.aspx

4. X. Lisa, Z. Bilal.(2012). Financial Literacy around The World An Overview Of The Evidence With
Practical Suggestions For TheWay Forward
5. J.Tullio,Financial Litreacy(2009) Discussion Paper 09/2
6. IDBI Gilts Report, 2007.
7.B. Fillip and D. Foote, Making the Connection: Scaling Telecentres for Development, Academy
for Educational Development, with Telecentre.org and Microsoft, Washington,