The financial landscape in India has seen significant strides in recent years. However, the top 15 cities of India account for more than 60% of the total Assets Under Management (AUM), indicating a substantial urban-rural divide in financial product adoption.
Progress in Financial Inclusion
Bank Accounts and Credit Access: Over the past decade, India has witnessed a considerable increase in household access to bank accounts and UPI payments, with banks lending more to households than ever before.
Measuring Financial Inclusion
Financial inclusion is measured by the ability to:
1. Increase Savings: Investing in savings instruments grows the money available for future use. 2. Manage Risks: Life insurance policies ensure financial security for families in case of unforeseen events. 3. Smooth Consumption: Borrowing facilitates large expenditures when current cash flows are insufficient.
True financial inclusion involves a balanced mix of financial instruments in household portfolios, coupled with sufficient financial literacy for informed decision-making.
Broader Metrics of Financial Inclusion
Account Usage: While India has increased bank account ownership, 35% of these accounts are inactive, the highest among middle-income countries.
Household Portfolios: Although mutual funds and insurance policies have grown significantly, financial assets are still concentrated in bank deposits (45%), life insurance (21%), and mutual funds (8%).
Geographical Spread: The spread of financial products is uneven, with the top 15 cities accounting for over 60% of the total AUM, indicating limited reach in smaller towns and rural areas.
Gender Gaps: Despite an increase in bank accounts held by women, many remain dormant. Women’s participation in investment decisions is also low, influenced by societal structures and low labor force participation.
The Challenge
Enhancing financial inclusion requires a multi-faceted approach:
1. Product Design: Financial products must be tailored to meet diverse needs. 2. Easy Access: Products should be easily accessible to all demographics. 3. Financial Literacy: Education is crucial for individuals to make informed financial decisions. 4. Grievance Redressal: Robust systems must be in place to address and resolve consumer grievances effectively.
By addressing these areas, India can move closer to achieving comprehensive financial inclusion for all its citizens.
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