India has made significant strides in connecting more adults to the banking system over the last five years and the next step is to get more people to actually use it, analysts said.
Much of this effort at fostering financial inclusion began in August 2014 when Prime Minister Narendra Modi unveiled the Pradhan Mantri Jan Dhan Yojana blueprint, or PMJDY, which roughly translates into "people's wealth scheme." It introduced universal banking access to the country, aiming particularly at the unbanked demographic of a 1.3 billion population.
PMJDY provides basic savings bank deposit accounts, with an overdraft facility of 5,000 rupees, debit cards, and accident and life insurance plans.
The government aimed to open 150 million accounts under PMJDY by January 2015. As of Aug. 21, official data showed 367.2 million accounts under the scheme, totaling a balance of 1.02 trillion rupees. This compares against a total of 1.91 billion bank accounts in India, often with one holder possessing multiple accounts. This effort was also reflected in the World Bank's latest Global Findex Database in 2017, which showed that the number of adults with accounts in India jumped to 79.9% in 2017, from 53.1% in 2014.

Still as industry veteran K. Srinivasa Rao pointed out, just 150 million people in India have borrowed from licensed banks, out of 900 million who are eligible to borrow for business. Rao heads India's National Institute of Banking Studies and Corporate Management.
Another analyst Rajat Kathuria told S&P Market Intelligence that while PMJDY has done a lot for financial inclusion, many more Indians need to be part of the formal system that offers multifaceted options such as insurance and peace of mind, rather than turn to informal sources like sahukars, or moneylenders.
"One part of the problem is solved, the second part is creating the right ecosystem for people to use these accounts," said the CEO of the Indian Council for Research on International Economic Relations. "[This] will happen over time as incomes go up and people find it profitable to borrow and use the bank accounts more. It's the income levels that must rise."
Inactive bank accounts, moneylenders
The fact is, not many Indian adults are using their bank accounts. According to the World Bank database, almost 48% of accounts were inactive in 2017 - the highest such share globally and about twice the average of 25% in developing countries. The institution noted too that just 20% of Indian adults reported saving formally.

PMJDY was also slammed at the start for having a swathe of zero balance accounts, though India"s Finance Ministry said in July that the proportion of these has declined to 14.37% of all accounts under the scheme, from 76.81% in September 2014 and 16.22% in March 2018.

This however, said Kathuria, was due mainly to the government's decision to transfer subsidies directly through bank accounts, rather than people using them for bona fide banking purposes.
Both Kathuria and Rao also agreed that the lack of general financial literacy - leading to an aversion to dealing with banks and formal documents - means that a large demographic is keeping habitual ties to sahukars, the Indian term for informal, unlicensed moneylenders. According to a 2017 Reserve Bank of India report, 56% of Indian households incurred unsecured debt, reflecting an unusually high reliance on non-institutional sources such as moneylenders. For example, it said, 69% of households used informal funding sources for medical reasons, 26% of which are sahukar loans.
The central bank also said that banks are less likely to deal with smallish loan requests. These include those from farms with cultivatable areas of less than one hectare, which describes more than half the farms in India.
Plus, Kathuria noted, moneylenders often eschew the need for formal lending requirements like collateral.
Rao suggested that India could form a central authority to educate vulnerable groups on financial literacy such as borrowing from licensed sources and repaying loans on time. The government should also incentivize banks in this area by, for instance, reimbursing them for providing rural credit counseling services.
Financial inclusion, Kathuria said, means more than just borrowing: "It means having insurance, it means not going into a debt trap if you have a lot of health expenditures … there are still a lot of people that need to be part of that mainstream."
As of Sept. 13, US$1 was equivalent to 70.97 Indian rupees.
