There is a commonplace view that, as far as finance is concerned, Gujarat is at the very top. Believing this to be a factor not to be ignored, in 2007, Gujarat’s policy makers decided on an international finance city in the state — the Gujarat International Finance Tec-city (GIFT). However, a recent study by India’s foremost corporate rating agency, Crisil, suggests that penetration of finance among Gujarat’s population is below average. Called “Crisil Inclusix: An index to measure India’s progress on Financial Inclusion”, the study indicates that financial inclusion, a “key enabler of economic and social development”, is still relatively poor in Gujarat, which ranks No 18th among Indian states, with a rating of 38.6 on a scale of 100 as against the national average of 40.1.
The Crisil study says, “In India, where a large section of the population still lives outside the ambit of formal financial services, the need to focus on inclusion is of paramount importance.” Working out a new index called “Crisil Inclusix” in order to rate financial inclusion among all Indian districts, Crisil says, “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.” It adds, “A CRISIL Inclusix score of 100 indicates the ideal state for each of the three parameters.”
Pointing out that the methodology adopted is “similar to other global indices, such as UNDP’s Human Development Index”, the study says, “An important design element of Crisil Inclusix is the use of non-monetary parameters. This implies that the index uses parameters that focus only on the ‘number of people’ whose lives have been touched by various financial services, rather than on the ‘amounts’ deposited or loaned. This helps negate the disproportionate impact of a few high-value figures on the overall picture.”
The study further says, “Crisil Inclusix provides a bird’s eye view of the state of financial inclusion in the country.” It also gives “ground-level information on the progress made on the inclusion front even in the remote districts of rural India.” Suggesting that this “two-pronged approach holds immense potential for policy-makers, regulators, and bankers as it helps to identify priorities, design focused programmes to push the inclusion agenda”, it hopes, it will assist them in deciding whether there is a case for according ‘priority sector’ status to lending” in backward areas.
No doubt, several smaller states — Pudicherry, Chandigarh, Delhi and Goa — for obvious reasons have a better Inclusix rating as they have very little rural population. However, what should worry Gujarat is that larger states, with huge rural populace, do better than Gujarat on this score. While Podicherry tops in the financial inclusion rating with a score of 79.8, double that of Gujarat, even among the big 20 states, Gujarat’s ranking is 11th – below that of Kerala (76.1), Andhra Pradesh (61.3), Tamil Nadu (60.5), Himachal Pradesh (58.5), Karnataka (57.7), Punjab (55.7), Uttarakhand (50.5), Haryana (48.4) and even the “poor” Odisha (40.6).
What should be equally worrying for the state’s policy makers is, in the financial inclusion index, none of Gujarat’s districts, including the most urbanized ones (Ahmedabad, Surat and Vadodara) are amongst the top 50. Most interestingly, the highest score in Gujarat is that of tiny Porbandar, with an Inclusix index of 54.2, six points below the last of the 50 best scorers – Assam’s Kamrup Metropolitan district, which scores 66.0. Jamnagar comes next with 51.5, followed by Vadodara 51.1, Navsari 49.1, Ahmedabad 47.1, Kutch 45.8, Amreli 44.0, Rajkot 44.0, Anand 43.9, Bharuch 42.2, Junagarh 40.8, Mehsana 40.5, and Gandhinagar 40.3.
The worst ranking is that of tribal district of Dahod with an index of 21.7. While other districts with a huge tribal population are also found to be on a weak wicket – Banaskantha 22.2, Tapi 23.4, and Narmada 29.7 – what is worrisome is that even rich districts like Kheda perform with a poor score of 33.0. Similarly, Surat, the second most urbanized district, scores 32.5. There is so far no explanation either among academics or policy makers as to why financial inclusion is so poor in Gujarat, both among backward districts and “rich” districts.
* The all-India Crisil Inclusix score of 40.1 (on a scale of 100) is relatively low. It is a reflection of under-penetration of formal banking facilities in most parts of the country. Just one in two Indians has a savings account, and only one in seven Indians has access to banking credit. In fact, the bottom 50 scoring districts have just 2 per cent of the country’s bank branches.
* Deposit penetration (DP) is the key driver of financial inclusion in India. The number of savings bank accounts, at 624 million, is close to four times the number of loan accounts at 160 million.
* Focused efforts to enhance branch presence and availability of credit are extremely critical. The bottom 50 scoring districts in India have only 4,068 loan accounts per lakh of population, which is nearly one-third of the all India average of 11,680 . Similarly, these districts have just 3 branches per lakh of population, as compared to 7.6 branches per lakh of population at an all-India level.
* There are clear signs of improvement in the Crisil Inclusix score over the past three years. The Crisil Inclusix score at an all-India level has improved to 40.1 in 2011, from 37.6 in 2010 and 35.4 in 2009. Improvement in deposit penetration score is the key driver of this improvement.
* Wide disparities exist across India and within states in terms of access to financial services. India’s six largest cities have 11 per cent of the country’s bank branches. At the other end of the scale, there are four districts in the North-Eastern region with only one bank branch each.
* The key driver for the continued high performance of the top 50 districts is the significant increase in deposit and branch penetration (BP). The DP score for these districts increased by a significant 9.3 in 2011, over 2009. Also, these districts saw an addition of 2,824 branches in this period, nearly one-fourth of the total branches added in the country.
The study concludes, “The detailed analysis of the data thrown up by Crisil Inclusix sheds light on some interesting trends. The Southern region leads the financial inclusion drive in the country. Six out of the top 10 states with the highest Crisil Inclusix score are from the Southern region. This region also has better credit penetration — the number of loan accounts per lakh of population at 17,142 in the Southern region is nearly twice of the all-India average.”
On the other hand, “The western region is at a distant second, followed by Northern, Eastern, and North-Eastern regions respectively.” Further, “The top five scoring states are Puducherry, Chandigarh, Kerala, Goa, and Delhi. The bottom five states are Arunachal Pradesh, Chhattisgarh, Bihar, Nagaland, and Manipur. West Bengal and Maharashtra demonstrate the highest disparity among districts.” The study adds, “Lack of awareness, low incomes, poverty, and illiteracy are among factors that lead to low demand for financial services and, consequently, to exclusion”.
— Rajiv Shah