Financial inclusion and insurance penetration key for banking sector in NDA 3.0, say experts

A stability in the government at center can lead to a more focused and continuous approach towards policy making, industry experts said.

The banking industry expects the Prime Minister Narendra Modi-led National Democratic Alliance’s (NDA) third tenure to focus on financial inclusion and insurance penetration, among other reforms.

A stable central government can lead to a more focused and continuous approach towards policy making, they said.

Also, more focus on financial inclusion through bank accounts for all and insurance penetration under the Insurance Regulatory and Development Authority of India’s (IRDAI) insurance for all by 2047 could be the focal points for the new government, experts said.

“The government has launched several initiatives for bank accounts for all. It will be pivotal to boost this and look at reaching the hinterlands,” said a former executive director of the Reserve Bank of India (RBI). Small and local industry players play a key role in awareness and bringing about this change, the executive director said.

Naresh Malhotra, a former banker with the State Bank of India, said that credit expansion will also be a key factor. “In view of the ambitious growth projections, credit expansion will also be a necessity. So, a delicate balance will have to be maintained between easy money and inflationary tendencies. Buoyant tax and non-tax revenue collections are likely to provide headroom to the finance ministry to loosen purse strings a bit towards welfare expenditure,” Malhotra said.

He added that higher anticipated FII/FDI inflows would ease capital outlay by the big industry, leaving the finance minister with surpluses for non-plan spending.

Also read: RBI top official calls for bridging digital divide to push financial inclusion

Push for financial inclusion

Financial inclusion has been a key focus area for the Indian central bank and the government, as a significant portion of India's population in rural areas is yet to get access to formal banking services. The government in August 2014 launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) to provide universal banking services by opening a zero-balance bank account for every unbanked household. The scheme provides one basic savings bank deposit account for every unbanked adult, an overdraft (OD) limit facility of Rs 10,000 and a free RuPay debit card with inbuilt accident insurance cover of up to Rs 2,00,000.

The latest data of the PMJDY showed that in FY24, around 33 million new PMJDY accounts were opened, taking the total such accounts to 519.5 million. In these accounts, the total balance stood at Rs 2,34,997 crore in FY24-end compared with Rs 1,98,844 crore a year ago.

Alongside the government, the Reserve Bank of India (RBI) is also aiming at bridging the digital divide to ensure financial inclusion in Asia's third largest economy.

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"As financial services increasingly are moving online, there is a risk of excluding those who lack access to digital technology or who are not familiar with how to use it," said RBI Deputy Governor Swaminathan J while speaking at the Conclave on Financial Literacy, Madurai on April 8. "Bridging the digital divide is crucial for ensuring everyone can participate in the modern financial system."

Swaminathan said by optimally using technology the banking system can unlock its transformative potential to advance financial inclusion. He added that to bridge the digital divide, banks need tailored digital literacy programs that cater to the specific needs and capabilities of different demographic groups.

Insurance for all

As part of its Mission 2047 'Insurance for All', IRDAI plans to launch Bima Trinity – Bima Sugam, Bima Vistaar, Bima Vaahaks – in collaboration with general and life insurance firms.

IRDAI chairperson Debasish Panda, in September 2023, had said that the next 10 years are of utmost importance for the insurance sector. “We'll see a radical change in the nature of insurance buyers. As the level of awareness is on the rise, we will see more and more customised products. This means we need more players, more distributors and more capital needs to be infused in the sector," Panda had said at the Global Fintech Festival in Mumbai.

Emphasising that technology will be the binding factor for Insurance 2.0, Panda said that a slew of reforms and initiatives in the insurance sector are creating an environment that fosters innovation, promotes necessary ease of doing business, reduces compliance and facilitates avenues for growth.

"Today an insurance company can launch almost all types of insurance products without waiting for regulatory approval. It can even tie up with multiple distribution partners," Panda said.