Financial inclusion has improved significantly in India, driven by strong growth in deposits and credit accounts, latest scores of the CRISIL Inclusix index show.

The index, which measures progress in financial inclusion across the country – up to the level of each of the 666 districts – is based on data provided by the Reserve Bank of India (RBI), the MicroFinance Institution Network, and the Insurance Information Bureau of India.

For the first time, the index includes contribution from life insurance following availability of data, which has made it a more comprehensive barometer.

The all-India CRISIL Inclusix score stood at 58.0 in fiscal 2016, compared with 50.1 in fiscal 2013.

Says Ashu Suyash, Managing Director & CEO, CRISIL Ltd: “Policy measures such as the Pradhan Mantri Jan-Dhan Yojana, and steadfast focus on the unbanked regions have driven India’s financial inclusion agenda over the past 3 years. As many has 336 out of 666 districts have scored ‘Above-average’ on the CRISIL Inclusix index this time.”

Jan-Dhan is making a seminal difference to the financial inclusion agenda by steering strong growth in deposit penetration. Since launch in August 2014, it accounted for 31 crore new deposit accounts.

This year, the index has been rebased. Had we not done so, and also excluded the life insurance dimension, the all-India CRISIL Inclusix score would have shot up to 62.2.

Among regions, south India continues to lead in financial inclusion by a significant margin. Among states, Kerala was well ahead with a CRISIL Inclusix score of 90.9. But others are catching up.

The total number of life insurance policies issued in India was 34 crore, which is barely a fifth of the 165 crore deposit accounts. Over 90% of these are savings-linked insurance products.

All regions gained from microfinance, particularly the east. However, the inclusion of insurance as an additional dimension has moderated the Inclusix scores for most regions except the west and the east, which have maintained their overall scores.

For the first time, Rajasthan moved up from ‘below average’ to ‘above average’, while Haryana climbed to a ‘high’ from ‘above average’.

There was also a sharp 3.17 crore increase in new credit or loan (banks and microfinance) accounts, in the two years up to to fiscal 2016, which is the most since fiscal 2013.

Interestingly, coverage score under the National Pension Scheme rocketed threefold to 18.7 in fiscal 2016 from 6.3 in fiscal 2013, driven by two things: continuous increase in the number of government employees covered under NPS, and strong emphasis on including the economically weaker sections through the Atal Pension Yojana, which replaced NPS Lite in June 2015. A total of 1 crore new NPS accounts were opened during this period.

Regardless, India continues to see under-penetration of basic financial services. For example, less than 20 crore borrowers had a loan from a bank or a microfinance institution, and only 34 crore out of a population of over 120 crore had an insurance policy. That’s also significantly lower than the number of deposit accounts.

Says Pawan Agrawal, CRISIL Ltd, “There is still a long way to go before India reaches adequate levels of financial inclusion. However, favourable policy interventions such as microfinance institutions being converted into small finance banks, licensing of payment banks, the inclusion of insurance, the rapid progress in Jan-Dhan accounts, and advances in use of technology are good augury.”

The improvement in financial inclusion can be faster if there is sharper focus on enhancing branch and credit penetration beyond south India. Policy makers need to continue incentivising expansion of branch and credit penetration in districts with low CRISIL Inclusix scores. Coverage through protection-linked insurance and pension schemes also need to be ratcheted up significantly. Availability of data through a central repository can also ensure that Inclusix becomes more representative and comprehensive leading to better policy planning.

About CRISIL Inclusix

CRISIL Inclusix is a unique index to measure the extent of financial inclusion in India across its 666 districts. It uses a statistically robust, transparent, and easy-to understand methodology, and is based on a modular, scalable architecture.

It is a relative index on a scale of 0 to 100, and combines four critical parameters of basic financial services — branch penetration, deposit penetration, credit penetration, and insurance penetration —into one metric.

In the latest edition of CRISIL Inclusix, life insurance data has been incorporated for the first time. While we have not included pension to compute Inclusix, this edition carries details of the progress on the National Pension Scheme. Similarly, in the 2013 edition, we had incorporated microfinance data for the first time.

Over time, additional financial services and financial service providers could also be included as consistent and comprehensive data becomes available.