(GIST OF YOJANA) Strengthening the Financial System [MARCH-2019]


(GIST OF YOJANA) Strengthening the Financial System

[MARCH-2019]


Strengthening the Financial System

Introduction

● Financial Inclusion is globally considered to be a critical indicator of development and well-being of society. Inclusive Financial Development is the need of the hour. For Financial Inclusion to be more effective there is a need for digital infrastructure and digital literacy in small towns and rural India.

● Financial Inclusion facilitates access to the
financial system allowing them to build financial and physical assets, seek credit for their education, healthcare and businesses and also save for the unexpected exigencies and old age. It helps in reducing poverty and inequality. It also offers an array of financial services that provide protection in case of untimely death or accident of the bread earner and also provides a safety net in the old age.

Key highlights of the data

● It is estimated that globally there are 1.7 billion adults worldwide i.e. 31 per cent of adults who don't have a basic transaction account and are deprived of the benefits that financial services offer. Steps have been taken towards financial inclusion such as No-Frill accounts, overdraft in savings accounts, BC/BF Model, KCC/GCC guidelines, liberalized Branch expansion, introducing technology products and services, prepaid cards, mobile banking etc, allowing RRBs/ cooperative banks to sell insurance and financial products, financial literacy programs, SHC, core banking system (CBS), National Electronic Funds Transfer (NEFT), National Electronic Clearing Service (NECS) immediate Payments Service (IMPS) and Aadhar Enabled Payment Systems (AIPS) etc.

● The financial inclusion program known as the Pradhan Mantri Jan Dhan Yojana (PMJDY) with zero balance is helping people to become part and parcel of the mainstream of economic development. As on 23 January, 2019 as many as 34.03 crore bank accounts were opened entitling these people to the benefits of various Government schemes.

● It is also found that about 20.14 crore people belong to the rural and semi-urban regions. The PMJDY provides access to different financial services like availability of basic savings bank account, access to need based credit, remittances facility, insurance and pension to the excluded sections i.e. weaker sections and low income groups. It provides interest on deposit, accidental insurance cover of Rs. one lakh, no minimum balance requirement, a life insurance cover of Rs.30,000, overdraft facility after 6 months, access to pension, insurance product, RuPay Debit Card and Overdraft facility up to Rs.5000/- to only one account per household.

● As part of financial inclusion, the Mudra Yojana aims to generate employment and promote start ups to strengthen the availability of credit up to 10 lakhs to poor and small entrepreneurs. Besides, several other schemes have been initiated to ensure access to the social security system through the Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana etc.

● Demonetization, GST and digitalization, internet banking and mobile banking converting 1.5 lakh post offices spread through the length and breadth of the country into payment banks to reach in the most remote areas and giving permission to 11 payment banks to operate etc. is
helping in making the process of financial development inclusive.

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Features relating to financial inclusion

● Features relating to financial inclusion in the Interim Union Budget 2019 are, direct income support of Rs. 6,000 per annum lo
12 crore farmers to be transferred directly to their bank accounts, under Pradhan Mantri Kisan Samman Nidhi Yojana, pension plan under Pradhan Mantri Shram
-Yogi Maindhan for 10 crore shramiks or workers; extension of Kisan Credit card scheme to Animal Husbandry, Interest subvention, private sector lending to provide an access to credit for those who are vulnerable and marginalized.

● To encourage savings and investment, exemption will be available for another Rs. 1.5 lakh. The RBI has been supportive of the financial inclusion drive where the priority sector lending (PSL) mechanism by banks seeks to provide an access to credit for those vulnerable sections of the society, who are often deprived of it due to their perceived lack of credit worthiness.

Way forward

● There is a need to encourage FINTECH (financial technology) use of software and modem technology i.e. use of smartphones, for mobile banking, investing services and crypto currency; (to be issued by Reserve Bank) blockchain to help make financial services more accessible to the general public. Financial literacy drives need to be more aggressive and driven at the school level where student develop a culture of understanding and transacting through the account and continue to do so for their lifetime. It would be possible if people better understand the financial products and services and their role in their dad) lives

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