Page 34 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 2: Role of Banks in the Development of Economy

2.4 Summary Notes

The Banking sector, as the most important financial intermediary for mobilization of
savings leading to investments towards growth, would thus, play the most crucial role in
attaining the economic objectives of the country.
Economic growth can be attained only by making banking more inclusive through
expanding the coverage of banking services by reaching the vast unbanked and
under-banked population of the country.

Inclusive banking is not an end in itself but also a means to achieve balanced, sustainable
and inclusive growth.

The Reserve Bank of India (RBI), which became an official member institution of the
Alliance for Financial Inclusion in 2012, set up the Khan Commission in 2004 to look into
financial inclusion and the recommendations of the commission were incorporated into
the mid-term review of the policy (2005–06).
In India, financial inclusion first featured in 2005, when it was introduced by K C
Chakraborthy, the chairman of Indian Bank.
Basic banking no-frills account is with nil or very low minimum balance as well as charges
that make such accounts accessible to vast sections of the population. Banks have been
advised to provide small overdrafts in such accounts.
The BC model allows banks to provide doorstep delivery of services, especially cash
in-cash out transactions, thus addressing the last-mile problem.

Economic growth in India has to be inclusive in order to make it sustainable. Inclusiveness
is an essential element in a democracy. If policies that bring about economic growth do
not benefit the people in a wide and inclusive manner, they will not be sustainable.
In India, the Government and the RBI have been promoting the necessity of inclusive
banking, and the banking sector, as a collective body, has been taking several initiatives
in this regard. In regard to rural sector the available data depicts the exclusion obtaining
in this sector.

Banks have to put in place a Grievance Redressal Machinery for redressing complaints
about services rendered by business correspondents and facilitators.

2.5 Keywords

Business Correspondents: Business correspondence is the exchange of information in written
form for the process of business activities.
Cheap Money Policy: A monetary policy in which a central bank sets low interest rates so that
credit is easily attainable.
Development Finance Institutions: A financial agencies that provide medium and long-term
financial assistance and engaged in promotion and development of industry, agriculture and
other key sectors.
Financial Inclusion: Financial inclusion or inclusive financing is the delivery of financial services,
at affordable costs, to sections of disadvantaged and low income segments of society.
Monetization: Monetization is the process of converting or establishing something into legal
tender.

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