Report on

State of Financial Inclusion

in Kerala

With generous support from

www.themix.org
i
 Author:
Tara Nair
Professor, Gujarat Institute of Development Research
Editors:
Amar Samarapally
Financial Inclusion Lead, Asia and the Pacific
Devanshi Patani
Financial Inclusion Analyst, Asia and the Pacific
Lara Storm
Director, Financial Inclusion
Nikhil Gehani
Marketing and Communications Manager
Sachin Hirani
Regional Manager, Asia and the Pacific
Designer:
M V Rajeevan
Graphic Designer

MIX provides data, analytics, and insights that empower decision makers to build
an inclusive financial services ecosystem. As basic infrastructure for responsible and
inclusive markets, our MIX Market and FINclusion Lab platforms enable and inspire
coordinated investment, effective policy, and positive social outcomes for the financially
underserved. Each year 750,000 website visitors access MIX’s data, analysis, and market
insights.

Disclaimer: This publication is available for use in research and analysis. Data and content may only be used for non-commercial purposes. If the material is published or distributed,
it should be attributed to MIX with the appropriate citation.

MIX has taken due care and caution in preparing this report, it has obtained the information from the institutions. Thus MIX relies on the information submitted and does not guarantee
the accuracy, adequacy or completeness of any information and is not responsible for any errors in transmission.

ii
 Acknowledgement

MIX would like to thank National Bank for Agriculture and Rural Development (NABARD),
Kerala for conducting two stakeholder workshops in Kerala which helped different entities
involved in financial inclusion assemble at one platform and exchange their thoughts.
It helped MIX in gaining cognizance of the unique way in which Kerala tries
to achieve financial inclusion.

iii
 Executive Summary
In India, just over half of all adults have access to a bank account. However, the rate of access to finance varies – sometimes
greatly – between states. Kerala has often been cited for its progress in this regard, with the government declaring in 2014
that this southern state had reached full financial inclusion. However, just as there is great variation in financial access
between states, there are also differences within states.

Beyond the unique achievements made by Kerala at the macro level, there are underlying spatial patterns and trends
that need to be uncovered carefully. Some of these patterns may be unique to the state’s social and economic milieu. But
there could be others that can act as useful guidance to other states in their efforts to build inclusive financial services.
This report digs deep into the MIX Workbook to identify these patterns by analyzing coverage by institution type, the
market share of different types of banks, the spread of ATMs and bank branches, the coverage ratio of all financial service
providers, and several other indicators of supply and demand.

Through the Model State Data Platform initiative, MIX has highlighted the factors that lead to financial inclusion of states
at the district, taluka and village levels. By building a platform with geographic granularity that brings together a range of
financial service providers and their products and services – not restricted to traditional bank accounts – this report hopes
to assist stakeholders to realistically assess the coverage of financial services and to devise evidence-based strategies to
accelerate financial inclusion.

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 Contents
1.Introduction 1

1.1. Measuring Financial Inclusion: Initiatives by MIX 2

1.2. MIX’s Model State Data Platform 2

2. Model Data Platform for Kerala 3

2.1. Kerala: A Strong Foundation in Financial Services 3

3. Patterns of Financial Inclusion in Kerala: Working through the Workbook 4

3.1. Supply of Financial Services – Public Sector Banks Dominate 4

3.2. From Understanding Spread of Access Points to Assessing Coverage 8

3.2.1. Coverage of Financial Services: View across Districts 9

4. Lopsided Banking Business 11

4.1. Public Sector Banks have Larger Credit and Deposit Share 12

4.2. Predominance of Deposit Accounts 13

4.2.1. The Downside of High CDRs 14

5. Important Correlates of Financial Inclusion 15

5.1. Digging Deeper: Going beyond Districts 18

5.2. Choosing between Measures 19

Conclusion 20

Notes and References 21

Appendices 22

Appendix I: Supply-Demand Relationships Table 22

Appendix II: District-wise Information 23

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 List of Exhibits
Exhibit 1 Financial Inclusion Indicators

Exhibit 2 State Profile of Kerala

Exhibit 3 Overview on Access points and related indicators

Exhibit 4 Access Points by Institution Type

Exhibit 5 Outreach of Various Financial Institutions

Exhibit 6 Top 10 Commercial Banks in Kerala

Exhibit 7 % Share of Different Types of Banks in Credit and Deposits

Exhibit 8 Spread of MFIs

Exhibit 9 District-wise Branch and ATM Network of all Institutions

Exhibit 10 Coverage Ratio of All FSPs

Exhibit 11 District-wise population coverage ratio

Exhibit 12 District-wise Coverage Ratio – All FSPs and Banks

Exhibit 13 District-wise Coverage Ratio – Post Offices

Exhibit 14 Share of Districts in Credit, Deposits and Population

Exhibit 15 District-wise Share in Credit Accounts by Banks and MFIs

Exhibit 16 District-wise Share in Desposit Accounts by Banks

Exhibit 17 Number of Accounts per Household

Exhibit 18 Credit Deposit Ratio by District

Exhibit 19 Bank group wise Financial Intermediation in Idukki and Wayanad

Exhibit 20 Association between Population and Spread of Access Points

Exhibit 21 Classification of Districts according to Population Share and Access Points

Exhibit 22 Association between Population Density and Coverage Ratio of Access Points

Exhibit 23 Association between Urbanisation and Coverage Ratio of Access Points

Exhibit 24 Association between % Share of District Net Value Added (NVA) and Access Points

Exhibit 25 Taluka-wise Population Coverage Ratio of all Access Points: Thiruvananthapuram

Exhibit 26 Taluka-wise Population Coverage Ratio of all Access Points: Southern Region

Exhibit 27 Demograpic and Geographic Coverage of Financial Services - Comparison

vi
1. Introduction
As the Global Findex 2014 observed,only 52.8% of the adult population in India has access to bank accounts.
Additionally, only 43% of adults with a bank account made deposits in the previous year. Unsurprisingly,
the level of financial inclusion (FI) within India varies from state to state, with southern states being more
financially inclusive than many of the central, eastern and northeastern states. As per CRISIL Inclusix 20141,
an index which measures the level of financial inclusion, 45 of the 50 most inclusive districts were from the
southern states of Kerala and Tamil Nadu, whereas the majority of the 50 least inclusive districts were from
the northeastern and central states.

Kerala and Goa, as well as the union territories of Chandigarh, Puducherry and Lakshadweep, have recently
been declared 100% financially included in terms of coverage of all households with at least one bank account.
As the Annual Report 2014-15 of the Reserve Bank of India (RBI) shows, there are 398 million basic savings bank
deposit accounts (BSBDA) as on 31st March2015 (including 147 million accounts under the Jan Dhan Yojana).
According to the 2011 Census records,there are 247 million households in India.This should mean that every
household in the country has at least one bank account.

This, however, is not the case. A large chunk of the BSBDAs are dormant or inoperative. A recent estimate
shows that the percentage of active debit cards attached to BSDBAs vary from 5-8% in the case of private banks
and 27% in the case of large public sector banks2. Further, many individuals hold multiple bank accounts. The
publication by MIX, Mapping Financial Access: Deposit-taking in India suggests that on a median level there are
5.16 bank accounts per household in India. What is important to note is that half of the states have values
lower than the average.

A more critical question is whether bank account per household is the best metric to measure financial
inclusion considering the diversity of institutional options available for individuals to link to the financial
market. Measuring financial inclusion only as a bank-led phenomenon limits the understanding of the role
played by other financial service operators like microfinance institutions (MFIs that have 39 million loan
State of Financial Inclusion in Kerala

accounts on their books spread across 503 of the 642 districts), self-help groups (SHGs) and India Post (that
serves over 28 million households and holds 349 million accounts). Also, MFIs are a major channel through
which banks meet their priority sector norms, whereas India Post is a major conduit for G2P transfers through
its 155,000 access points. To uncover the dynamics of financial inclusion it is important to map the entire
landscape covering all the relevant financial service providers (FSPs).

While mapping the financial inclusion landscape it needs to be acknowledged that regions differ in terms
of physical and social infrastructure, supply of financial access points as also availability of and demand for
products and services. Such differences are most likely to affect the pace and pattern of financial inclusion
in specific states. It is important, hence, to comprehensively capture data relating to a variety of contextual
factors to be able to understand the differential experiences of states in financial inclusion. This would help
different institutions to efficiently navigate the existing landscape of financial services and to assess the

1
 feasibility and viability of their growth plans. Such an exercise would also help policymakers to evaluate the
real gaps and excesses at sub-regional levels and design appropriate policies to accelerate financial inclusion
to reach out to unserved and underserved populations.

1.1. Measuring Financial Inclusion: Initiatives by MIX

MIX has been collecting and publishing financial and social performance data on MFIs in India through the
Indian Microfinance Platform - https://www.themix.org/mixmarket/countries-regions/india for over a decade.
But the 2010 microfinance crisis in Andhra Pradesh ushered in an era of reforms that forever altered the
microfinance sector in India and around the world. While the quick policy and regulatory actions could restore
normalcy in the microfinance sector, the crisis highlighted the importance of gathering and monitoring
granular geographical data on outreach of MFIs across the country. In June of 2013, through its partnership
with the Small Industry Development Bank of India (SIDBI), MIX started collecting district level operational data
of MFIs.

More recently, MIX partnered with SIDBI to develop the Microfinance Geographical Index3, an interactive
platform that evaluates the level of microfinance service at the district level across India. It assigns each
district a score from ‘highly served’ to ‘not served’ based on MFI presence and service levels relative to local
market opportunities, creating a simple reference for analyzing market concentration and gaps.

MIX’s work in India has grown beyond microfinance through the financial inclusion platform, FINclusion Lab.4
Through interactive dashboards and data visualization tools, MIX has mapped over 280,000 access points at
the district level in India, which include public sector banks, private sector banks, regional rural banks (RRBs),
foreign banks, MFIs and India Post. By including the geo-spatial components of both supply and demand for
financial services, the platform provides a nuanced picture of how market characteristics may influence the
types or relative performance of FSPs present in any given geographical area. The platform not only allows
FSPs to more accurately assess demand for services, new products or delivery channels, but italso helps
stakeholders such as policy makers, regulators, and other development professionals to identify problems
and devise solutions, which is vital for balanced development of financial markets in such a diverse and
expansive country.

1.2. MIX’s Model State Data Platform

Through the Model State Data Platform initiative, MIX intends to highlight the factors that lead to financial
inclusion of states at the district, taluka and village levels. This exercise is expected to help identify the
disparities that exist within districts that are otherwise considered to be financially inclusive and reduce
barriers to comprehensive financial inclusion. By building a model state platform with geographic granularity
that brings together a range of financial serviceproviders and their products and services, MIX would create
a new benchmark in measuring financial inclusion. The comprehensive platform thus created would assist
financial institutions to realistically assess ground situation with respect to the spread and coverage of
financial services and to strategize their interventions across geographies. It would also allow policymakers
State of Financial Inclusion in Kerala

and regulators to devise informed,evidence-based strategies to accelerate the financial inclusion.

The platform would organize statistical information relating to a range of actors and products/services
relevant for measuring financial inclusion under three broad categories – financial service providers, supply
side factors and demand side factors (Exhibit 1).

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Exhibit 1. Financial Inclusion Indicators
Financial Service Providers Supply Side Indicators Demand Side Indicators
l Commercial Banks (Public, Private l Number of Access Points l Number of Households
and Regional Rural Banks) l Number of Accounts l Total Poulation
l Cooperative Banks l Credit l Population Desity

l Inda Post l Deposit l Urban Population

l MFI l Number of Self Help Groups l Poor Population

l Business Corresponents

l Self Help Groups

2. Model Data Platform for Kerala

As the first step towards building the platform, MIX has chosen to map the financial service architecture of the
southern Indian state of Kerala with a view to delineate the factors that have led to the state achieving near-
exhaustive financial inclusion right down to the sub-district (Taluka) level. Kerala has been recognised the
world over for its unique model of development that has combined low levels of income with high degree of
human and social development, manifesting itself in low rates of poverty and the achievements in education
and health sectors. The state records the highest literacy rate – 94% – in the country

Exhibit 2. State Profile of Kerala The platform has been built by collating data from official
sources like Census of India, the Reserve Bank of India (RBI),
Geographical area (sq km) 38,863 Department of Economics and Statistics of the Government
No. of districts 14 of Kerala, and State Level Bankers’ Committee (SLBC). Data
No. of talukas 75 relating to 14 districts, 63 talukas and 810 towns/villages are
No. of villages 1664 mapped in the platform. Demographic and geographical
Population (‘000) 33,406 coverage of different types of financial service providers (FSP)
Rural 17,471 is mapped on the supply side, while the intake of financial
Urban 15,935 services – mainly credit and deposit – by individuals and
% of urban 47.7 households is considered on the demand side.
Males 16,027
Females 17,379 2.1. Kerala: A Strong Foundation in
Sex ratio 1084 Financial Services
Literacy (%) 94.0 It is worth noting that Kerala has a long history of indigenous
Males (%) 96.1 banking. While private moneylenders, hundi merchants
Females (%) 92.1 and chit funds were the earliest form of informal financial
Population density (people / sq. km.) 860 institutions in the state, organized banking had emerged by
Per capita income (`) 127,166 the late 19th century. The first such bank – the Travancore
% share of services in GSDP 57.3 Bank – was established in 18935. Several banks, most of them
Source: Government of Kerala (2016), Economic Review 201: incorporated as joint stock companies, started operations
State of Financial Inclusion in Kerala

Volume 1, State Planning Board, Thiruvananthapuram, February.

subsequently between 1900 and 1947, mostly in the southern
and central regions of the state. These banks helped spread the culture of banking widely in these regions
early on.

The banking sector in the state grew substantially in the post-independence period. Number of branches
increased from just about 600 in 1969 to more than 6700 in 2015. The flow of remittance from overseas
Keralites, which drives the growth of economic output of the state, has impacted the state’s banking system
since the 1980s. A recent estimate shows that Kerala receives the largest share – about 40% – of all remittances
that come to India6. It is also estimated that more than a third (36.3%) of the net state domestic product in
2014 was accounted for by remittances. A fifth of the households in the state are directly impacted by the
flow of remittance. NRI deposits constitute about 31.4% of all deposits with the banking system7.

3
 Exhibit 3. Overview on Access Points and Related Indicators

Kerala’s historical focus on the social welfare and security of working and vulnerable people has led to the
emergence of a mammoth social transfer programme, mainly in the form of welfare pensions (35.2 million
pensioners in total8), and wage transfer under MGNREGA (20.4 billion bank accounts and 128,389 post office
accounts9). The recipients of these benefits and payments are also linked to post offices and banks.

Endowed with an entrenched culture of banking, high literacy rate, significant inflow of remittances from
overseas, and a widespread welfare transfer programme, Kerala has emerged as a front runner in the drive
towards achieving financial inclusion since the mid-2000s. The state was one of the first to fulfil the targets
set as part of the Swabhiman scheme in 2011. In the new financial inclusion drive of Jan Dhan Yojana (JDY)
Kerala too emerged one of the two states (Goa being the other) to have achieved complete saturation in bank
accounts ahead of others in November 2014)10.

Beyond the above unique achievements made by the state at the macro level, there are underlying spatial
patterns and trends that need to be uncovered carefully. Some of these patterns may be unique to the state’s
State of Financial Inclusion in Kerala

social and economic milieu. But there could be others that can act as useful guidance to other states in their
efforts to build inclusive financial services. This report digs deep into the workbook created by MIX to identify
these patterns.

3. Patterns of Financial Inclusion in Kerala:

Working through the Workbook
3.1. Supply of Financial Services – Public Sector Banks Dominate
There are a total of 22, 943 financial service access points in Kerala. Public sector banks account for almost
half of these (47.5%) followed by the India Post (22%) and private sector banks (20%).

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Exhibit 4. Access Points by Institution Type

Of the 6721 bank branches in the state as on 31 March 2016, public sector banks account for 54% and private
sector, 31%. The regional rural bank accounts for about 9% of all bank branches, while cooperative banks
have a share of close to 6%. Foreign banks have very few branches – only 16 - in the state.

Of the 9968 ATMs, 73% are operated by public sector banks. ATMs owned by private sector banks form 25%
of the network.

Exhibit 5. Outreach of Various Financial Institutions

Kerala Branches

Kerala ATMs

The workbook shows that there are close to 30 financial access points per 10,000 households, 14 of which
are outlets of public sector branches, and 6 each are of India Post and private sector banks. For every 10,000
people in the state, there are 7 access points, of which 3 are public sector bank outlets and two each, post
office and private sector bank outlets. In the macro scheme, the rest of the institutions have only marginal
State of Financial Inclusion in Kerala

presence.

A look at the distribution by individual banks shows that the State Bank Group accounts for 28% of all the
access points. The share of other nationalised banks is 30% and of the RRB 4.5%, making the overall share
of access points belonging to public sector banks stand at 63%. Private sector banks have a share of 37%.

Among the top 10 banks with the highest number of access points, there are three private sector banks – the
Federal Bank, the South Indian Bank and Catholic Syrian Bank - that were established in the state before
independence. Their combined share in access points is 15%.

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 Exhibit 6. Top 10 Commercial Banks in Kerala

As far as banking business goes, in both deposit and credit, the public sector banks account for about two
thirds. Their share in credit is higher (63%) compared to deposits (60%). Private sector banks, on the other
hand, have higher share (36%) in deposits compared to credit (32%).

An important point that emerges from the above analysis is the predominance of public sector banks in
Kerala’s financial sector.

Exhibit 7. % Share of Different Types of Banks in Credit and Deposits

Credit Amount

Deposit Amount

Business Correspondents – Playing a Marginal Role

State of Financial Inclusion in Kerala

There are 968 business correspondents attached to various bank branches accounting for about 4% of
all financial inclusion channels. These include 431 individual correspondents and 537 kiosks managed by
Akshaya Kendras, the citizen service centres. The kiosks are equipped to open bank accounts, make cash
deposits/withdrawals and transfer money between bank accounts.

Post Office Network – Effective Retail Outlets for Saving Services

The post office network in the state consists of 5058 branches. This is the second largest retail banking system
in the state offering finanacial services including savings and life insurance. As on 31 March 2015, there are
12.38 million accounts of various savings schemes in the Kerala circle11. About half of these accounts are savings
bank accounts.

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Microfinance: Pervasive Presence of SHGs
Microfinance movement in the state has attracted wide attention globally, mainly because of the state-led
rural poverty alleviation programme, Kudumbashree12, that follows the self help approach. As on 5 March
2016, there are 258,061 Kudumbashree-promoted groups in the state13.

SHGs have also been formed in the state under the bank linkage programme of NABARD. As per the data
published by NABARD14 as on 31 March 2015 there are 585,471 SHGs in the state that have savings accounts
with banks.

Further, there are twelve MFIs operating in Kerala with 350 branches. The two local MFI-NBFCs among
them – ESAF and Muthoot Microfin Limited –jointly account for 50% of the MFI branch network. Asirvad,
the fourth largest in terms of branch strength, is head quartered in Chennai, but is a subsidiary of non-
banking finance company – Manappuram Finance –based in Thrissur, Kerala. A few MFIs from other states
also manage their branch operations in certain pockets of the state.

Exhibit 8. Spread of MFIs

Top Companies # Access Points %Share
ESAF* 102 29%
Muthoot Microfin Ltd 74 21%
Bharat Financial (SKS) 53 15%
Asirvad 44 13%
L & T Finance 30 9%
Spandana 13 4%
Ujjivan* 12 3%
Grama Vidiyal 11 3%
Share 5 1%
Madura 4 1%
IMPACT 1 0%
SKDRP 1 0%
Total 350 100%

* Data for ESAF and Ujjivan is as of December 2015 and September 2015, respectively
State of Financial Inclusion in Kerala

Public Sector Leads the Way in all, but One, District: But Bank Channels are
Crowded in Two Districts
The workbook makes it easy to disaggregate the overall picture to capture the differences in the spread and
coverage of financial services by variey of institutions at the regional (north, central, south), district, and sub-
district (taluka)levels.

The district-wise break up of the spread of bank branches shows that there is a concentration of branches in
just two districts - Ernakulam and Thiruvananthapuram –which together account for 42% of all branches in
the state.

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 Districtwise comparison of bank branches and ATMs suggests that in all districts, except Thrissur, public sector
banks have a better spread. Thrissur is a unique case where the share of private sector exceeds that of public

Exhibit 9. District-wise Branch and ATM Network of all Institutions

sector. The district has the lowest public sector presence. This does not come as a surprise given the fact that
two major local banks in the private sector– the Federal Bank and the South Indian Bank – were originated and
are currently headquartered in this district. The public sector presence is the largest in Thiruvananthapuram.

3.2. From Understanding Spread of Access Points to Assessing

Coverage
The interactive financial inclusion workbook allows the user to derive several indicators to understand the
coverage of financial institutions. The MIX workbook includes a variety of variables that could be used to
derive coverage measures. For instance, one could work out coverage ratios for all types of access points by
relating the absolute number of such points to the population size to see the extent of demographic coverage
of financial and banking institutions. The ratio can be further refined to examine coverage of adult population
or women by choosing those as the reference variables. Similarly, if the analysis requires an estimate of
household coverage, the number of access points per 10,000 households can be derived from the workbook.
In situations where there is very high correation between population size and number of households
State of Financial Inclusion in Kerala

across districts, as in Kerala, one could use either population or households as per convenience. A measure
of geographic coverage can be worked out by relating the number of access points to geographical area.
We have illustrated the use of the available data to work out all these different coverage ratios.

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In Exhibit 10 are presented the various coverage ratios by taking into account all access points of all types of
institutions.

Exhibit 10. Coverage Ratio of All FSPs

Financial service provider coverage Ratio
per 10,000 sq. km 6,066
per 10,000 population 6.96
per 10,000 households 29.59

3.2.1. Coverage of Financial Services: View across Districts

Exhibit 11. District-wise population Among districts, the population coverage ratio (of
coverage ratio all access points) to population is the highest for
(# of Access points / Population per 10,000) Pathanamthitta, followed by Thiruvananthapuram,
Ernakulam, and Kottayam in that order. Malappuram
has lowest ratio.

If one excusively considers banks, which are the only full

financial service institutions, the picture remains largely
the same. Malappuram improves its ratio and Kasargod
becomes the district with the least bank coverage.

Bringing together various channels of financial services

delivery (Exhibit 12), it becomes clear that financial
inclusion has been an uneven process within the
state. There is wide variation in population coverage of
financial services. Malappuram ranks the last among
all the districts with the least coverage ratios for all
FSP and only banks. Kasargod in the north along with
Kollam and Idukki in the south and Palakkad in the
central region also have relatively lower population
coverage by banks. Idukki does much better if one
takes all the FSP access points, indicating better spread
of non-bank institutions, especially, post offices, in the
district (Exhibit 13).
State of Financial Inclusion in Kerala

Three districts - Ernakulam, Thiruvananthapuram and Pathanamthitta – come out as far better served by
banks and other channels compared to other districts. What are the possible drivers of higher penetration
of financial services in the districts? Thiruvananthapuram being the administrative headquarters of the state,
has a larger proportion of government and public sector employees. Ernakulam is the commercial capital of
the state and historically a centre of banking.

Pathanamthitta district is a unique example of a region that could achieve high growth in financial services
without commensurate development in the real sector. Its per capita district income is comparable to
Palakkad and Malappuram . The main driver here appears to be significant overseas remittances. In 2014 the
district accounted for the second highest ratio of emigrants per 100 households – 42.8 – and the highest ratio
of inter-state migrants per 100 households – 38.9. About 23% households in the district received remittances
during the year.

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 Exhibit 12. District-wise Coverage Ratio (# access points per 10,000
population) - All FSPs and Banks

Exhibit 13. District - wise Coverage Ratio (# access points per 10,000
population) - Post Offices
State of Financial Inclusion in Kerala

10
4. Lopsided Banking Business
Exhibit 14. Share of Districts in Earlier analysis indicated that distribution of banking
Credit, Deposits and Population outlets in Kerala is concentrated in just two districts –
Ernakulam and Thiruvananthapuram. The imbalance
is also reflected in the volume of banking business.
The two districts account for 45% of all advances and
37% of all deposits, though their combined share in
population is only 19%. At the other extreme there is
Malappuram, the district with the highest population
share – 12% – but only 5% of total bank credit.
Wayanad, Idukki and Kasargod have the lowest shares
in both credit and deposits, but they also have the
lowest population shares.

The best served districts of Pathanamthitta, Ernakulam

and Thiruvananthapuram record the highest deposit
and credit account density (defined as number of
accounts per 10,000 population). The lowest ranking
districts in terms of deposit account density are
Malappuram, Idukki and Palakkad. Malappuram,
Kannur and Kasargod ranks the lowest in credit
account density.

Overall the districts in the northern region have lower ranks in deposit account density, reinforcing the earlier
observation about the relative backwardness of the region with respect to financial sector development and
inclusion.

State of Financial Inclusion in Kerala

11
 4.1. Public Sector Banks have Larger Credit and Deposit Share
The dominant role of the public sector in the banking sector of Kerala is clear from the institution-wise shares
of credit and deposit accounts. The share of public sector banks is particularly high in Thiruvananthapuram.
RRB is a major player in the northern region, especially, in Kannur and Kasargod and Wayanad.

MFIs in Kerala seem to have focused their business in central and southern districts. Their share is relatively
larger in Palakkad and Thrissur, followed by Alappuzha and Kollam.

Exhibit 15. District-wise Share in Credit Accounts by Banks and MFIs

Exhibit 16. District-wise Share in Desposit Accounts by Banks

# Deposit Accounts (thousands) by District & Institution type
State of Financial Inclusion in Kerala

12
4.2. Predominance of Deposit Accounts
The unevenness in financial services provision is reflected in another indicator. There is a sizeable gap
between the average number of deposit and credit accounts per household. The number of deposit accounts
per household is about six times that of number of credit accounts per household in the state. Ernakulam
and Pathanamthitta have the highest average number of deposit accounts and Idukki, the lowest. In the case
of credit accounts, Malappuram’s household average is the least while Thiruvananthapuram has the highest
average.

Exhibit 17. Number of Accounts per Household

State of Financial Inclusion in Kerala

We have mentioned earlier that credit deposit ratio (CD ratio), a critical indicator of banks commitment to
its core activity of lending, is low for Kerala – 65%. Why do banks find it difficult to deploy the savings they
mobilise from Kerala within the state? Is there a lack of credit demand? Or are the banks cautious about
risks and comfortable using the state as a source of mobilising loan capital to be safely deployed elsewhere?
These are questions that need to be systematically explored as the state progresses on the path of financial
inclusion.

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 Exhibit 18. Credit Deposit Ratio by District
4.2.1. The Downside of High CDRs
As per the data available with SLBC, the highest CD ratios are
recorded for three districts – Wayanad, Idukki, and Kasargod
– which figure at the bottom in the case of almost all the
indicators discussed in this report. The lowest CD ratio is
seen in Pathanamthitta, followed by Alappuzha. In Idukki,
Wayanad and Kasargod banks have lent more than what they
have mobilised as savings, whereas in Pathanamthitta they
deployed less than a third of the deposits.

Exhibit 19. Bank group wise Financial Intermediation in Idukki and Wayanad
Credit Deposit
District Bank Group CD Ratio (%)
(` Million) (` Million)
State Bank Group 6589.9 6273.1 105
Nationalized Banks 8869.6 6021.7 147
Wayanad
RRB 6128.8 3539.8 173
Private sector banks 5540.4 6293.9 88
State Bank Group 13142.2 13690.1 96
Nationalized Banks 14404.7 7076.7 203
Idukki
RRB 1475.1 590.7 250
Private sector banks 17897.7 14874.4 120

The Lagging Districts: Need for a New Strategy

On the whole, district level break up of the data mapped in the workbook clearly points to the existence of greater gaps
in banking and financial services in the northern districts, especially, Malappuram and Kasargod as also the southern
districts of Idukki, Kollam and Alappuzha. In other words, there is greater scope for banks to expand their presence in
these districts. The question is how. Opening of more brick and mortar branches or kiosks may be unviable at least in
the short term. But banks could think of alternative channels to link banks with households. In other states (Maharashtra,
for instance) good SHGs and efficient SHG leaders have been used effectively as business correspondents.
State of Financial Inclusion in Kerala

Further disaggregation of credit and deposits in Idukki and Wayanad by type of institution (based on SLBC
data) reveals that in both the districts the RRB has the highest CD ratio. However, it has lent almost six
times more amount in Wayanad, the district where it is the largest bank in terms of branches and business.
However, there is a flip side to this story. Wayanad district is a major contributor (13.2% as per SLBC)15 to the
non-performing assets of the RRB.

14
5. Important Correlates of Financial Inclusion
How is institutional coverage related to other social economic indicators? The workbook provides the scope
to explore this in several ways. For instance, inter-district differences in availability and coverage of financial
institutions can be explained with the help of size/spread of population or urbanisation or the overall income
of the district (20 through 24).

Urbanisation or percentage of urban population does not indicate any perceptible association with coverage
of financial services in the case of Kerala. Same is the case with population density and coverage. One can
identify pairs of districts with comparable population densities, but significantly varying coverage ratios.

The lack of any association observed in Kerala between percentage of urban population and FSP coverage has
more to do with the peculiar settlement pattern of population in the state, which is described usually by the
term ‘rurban’, i.e., a seamless stretch of urban and rural settlements organically interacting with each other.
This pattern has meant a more even spread of social and physical infrastructural facilities in the state. This
has also led to faster urbanisation.

It is clear from the spread of the scatter plots presented that the distribution of access points has some
association with population and net value added (NVA). Even the net value added from tertiary sector can
be analyzed with the distribution of access points considering sector’s overwhelming contribution to Kerala’s
domestic product.

Exhibit 20. Association between Population and Spread of Access Points

State of Financial Inclusion in Kerala

15
 Exhibit 21. Classification of Districts according to Population Share and
Number of Access Points
Population share
No. of access points Low Average High

Low
Wayanad - Malappuram
Idukki, Kasargod
Pathanamthitta Palakkad, Kollam.
Average Kannur, Alappuzha Kozhikode, Thrissur
Kottayam

High
- - Ernakulam
Thiruvananthapuram

Exhibit 22. Association between Population Density and Population

Coverage Ratio
State of Financial Inclusion in Kerala

16
Exhibit 23. Association between Urbanisation and Population Coverage
Ratio

Kozhikode Eranakulam

Kannur Thrissur

Alappuzha Thiruvananthapuram
Malappuram
Kollam
Kasargod

Kottayam
Palakkad

Pathanamthitta
Wayanad Idukki

Exhibit 24. Association between % Share of District Net Value Added (NVA)
and Access Points

State of Financial Inclusion in Kerala

17
 5.1. Digging Deeper: Going beyond Districts
It may be important at times to go beyond the district level to assess intra-district variations in the coverage of
financial services. The MIX workbook helps one to see how the chosen indicators perform at the sub-district
level. By way of illustration, we could consider the number of access points by 10,000 population or population
coverage ratios of the four mapped talukas in Thiruvananthapuram district. While Thiruvananthapuram
taluka has more than 10 access points per 10,000 population, Neyyattinkara has less than four.

Exhibit 25. Taluka-wise Population Coverage Ratio of all Access Points:

Thiruvananthapuram

The disparity within districts becomes more glaring if one considers the southern region as a whole. There
are several talukas in the region with ratios of access points to population below the district median value.
Some of them (for instance, Cherthala in Alappuzha district, Peerumade in Idukki district) have very low ratios,
comparable to the least financially developed districts in the state.

Exhibit 26. Taluka-wise Population Coverage Ratio of all Access Points:

Southern Region
State of Financial Inclusion in Kerala

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5.2. Choosing between Measures
How does one choose between indicators of coverage of financial services? In Exhibit 27 we have presented
coverage by all access points taken together from a comparative perspective of demographic and geographical
angles using a demographic indicator, i.e., population coverage ratio (number of access points per 10000
population) and a spatial indicator, i.e., area coverage ratio (number of access points per 10 sq.km). While for
some districts, both the indicators more or less converge, for some others they diverge significantly.

The district that shows the highest degree of divergence is Pathanamthitta, for which the access density of
population far exceeds that of area. Wayanad and Idukki also have larger access densities by population
compared to those by area and the lowest access densities by area. These three districts also have the lowest
population density (452, 384 and 255 respectively) according to Census 2011. The other important physical
attribute common to the three districts is the significant forest coverage– 83% in Wayanad, 78% in Idukki and
66% in Pathanamthitta. It is, hence, plausible that the access densities by area would dramatically improve if
adjusted for forest coverage. The point to note here is that blanket measures may not always help in making
decisions. Differences among regions need to be appropriately considered while deciding on measure of
financial inclusion.

Exhibit 27. Demograpic and Geographic Coverage of Financial Services -

Comparison

State of Financial Inclusion in Kerala

Source: Census of India (2011), District Census Handbooks for district-wise geograpfical area.

19
 Conclusion
The MIX workbook on Kerala serves a comprehensive platform that helps users generate snap shots of a
range of useful indicators of financial inclusion based on authentic data. It maps the entire stretch of formal
financial system in the state. As the workbook evolves, it could expand the geographical coverage as also the
scope of indicators.

The analysis in this report clearly brings forth certain important features of the financial inclusion experience
of Kerala, which is hailed as a model for other states. For one, the state historically has inherited a strong
banking culture. Being a state with near total literacy, the importance of banks has been widely understood.
Public sector banks appear to enjoy better trust among the people overall. The RRB has been very active in
the northern region.

The districts of Wayanad, Kasargod, Idukki and Malappuram lag behind others in many of the financial
inclusion indicators. They require innovative solutions given their physical bottlenecks and overall social and
economic backwardness.

Further analysis of the mapped data shows that much of banking in the state has been limited to savings. Also
credit deployment is highly concentrated in two or three districts.

District level estimates seem to hide the disparities at the taluka and village levels. Even in highly included
regions there are talukas that appear poorly served by financial institutions.
State of Financial Inclusion in Kerala

20
 Notes and References
1. https://www.crisil.com/pdf/corporate/CRISIL-Inclusix-Volume-III.pdf
2. Saurabh Tripathy et al. (2015), Productivity in Indian Banking 2015: Inclusive Growth with Disruptive Innovation,
August, Boston Consulting Group.
3. http://finclusionlab.org/country/India/analytics?title=MFI-Details
4. http://finclusionlab.org/country/India/analytics
5. Oommen, M.A. (1976), ‘Rise and Growth of Banking in Kerala’, Social Scientist, Vol. 5, No. 3, pp. 24-46.
6. Zachariah, K. C. and S. Irudaya Rajan (2015), ‘Dynamics of Emigration and Remittances in Kerala:
Results from the Kerala Migration Survey 2014’, Working Paper 463, Centre for Development Studies,
Thiruvananthapuram.
7. http://www.slbckerala.com/pdf2015/117SLBC/8.9.%20NUMBER%20OF%20BANK%20BRANCHES,%20
DEPOSITS,%20NR%20DEPOSITS,%20ADVANCES%20&%20CASA%20AS%20AT%20SEPTEMBER%202015.
pdf
8. https://welfarepension.lsgkerala.gov.in/HomeEng.aspx
9. http://rdd.kerala.gov.in/index.php/schemes/78-rdd/110-mahatma-gandhi-national-rural-employment-
guarantee-act-mgnrega
10. ‘Financial inclusion: All households in Kerala, Goa get bank accounts’, Times of India, November 14, 2014;
‘Kerala has been declared as the first ‘total banking state’, Economic Times, October 1, 2011.
11. Department of Posts, Annual Report 2015-16, Ministry of Information and Communications Technology,
Government of India.
12. The Kudumbashree community network is built as a three-tier structure. At the base are Neighbourhood
Groups (NHG) that work on the principles of mutual affinity and benefit. The NHG are federated at the
level of a Ward into an Area Development Society (ADS), and further into a Community Development
Society (CDS) at the level of the Local Government.
13. Data obtained from Kudumbashree Mission.
14. NABARD, Status of Microfinance in India 2014-15,Micro Credit Innovations Department, Mumbai.
15. Agenda and Background Notes, 117th Meeting of State Level Bankers’ Committee, Kerala, http://www.
slbckerala.com/pdf2015/117SLBC/Agenda%20117%20SLBC.pdf

The MIX Kerala Workbook link - http://finclusionlab.org/country/India-Kerala/analytics

State of Financial Inclusion in Kerala

21
 Appendices
Appendix I: Supply-Demand Relationships Table

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Appendix II: District-wise Information

North Kerala

23
 Central Kerala

24
South Kerala

25
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