Feb'22
The IUP Journal of Bank Management
Focus
The report "Financial Literacy Around the World" by the Global Financial Literacy Excellence Center (https://gflec.org/) states that globally only 33% of the adult population is financially literate. In terms of gender, globally 35% of the adult male population and 30% of the adult women population are financially literate. The country-level financial literacy is found to be in the range of 13% to 71% (Yemen - 13% and Denmark - 71%).
There are huge variations in the levels of financial literacy; while the advanced economies like the US, Canada, and Australia show comparatively high levels of financial literacy in the range of 55-75%, South Asia and MENA countries show the lowest levels in the range of
0-24%. Huge disparities exist among the BRICS, with an average financial literacy rate of 28%- ranging from 24% in India to 42% in South Africa.
Even though financial literacy challenges confront developing economies and advanced economies alike, developing economies are faced with several inadequacies in increasing their financial literacy rates. User-friendly financial technologies can go a long way in aiding the financial literacy rates in developing countries. For instance, the use of credit cards has grown phenomenally in China (almost doubled since 2011) to 16%. On the other hand, in the US, 60% of adults use credit cards.
India has seen a remarkable improvement in the number of transactions for digital payments, which grew five times from 1,004 crore (10.04 billion) in 2016-17 to 5,554 crore (55.54 billion) in 2020-21, according to the Financial Literacy and Inclusion in India Survey Report, 2019.
Financial literacy has several real outcomes like (i) facilitating rural populations in their economic development endeavors; (ii) ease of borrowing by helping small borrowers make informed financial decisions; (iii) helping in improving the ease of doing business; (iv) supporting financial transactions to move towards a cashless economy; (iv) supporting small businesses to grow; and (v) attracting new businesses into the markets.
The first paper of this issue, "The Influence of Financial Literacy and Peer Effect on Financial Outcomes in Self-Help Groups in India: A Study Using the PLS-SEM Approach", investigates the impact of financial literacy and financial knowledge on financial behavior. The authors, Nishi Malhotra and Pankaj Kumar Baag, observe that the financial knowledge of the self-help group members has a positive impact on financial behavior as the financial attitude mediates the relationship between financial knowledge and financial behavior of the individuals. They also find that the peer group members exert a positive influence on financial behavior. However, they do not notice peer influence on the financial attitude of the individuals.
In the second paper, "Efficiency in Indian Banking Sector: A Data Envelopment Analysis", the authors, Preeti and Supriyo Roy, measure the banking efficiency of the Indian Public Sector Banks (PSBs) from 2015 to 2019 using the Variable Returns to Scale (VRS) approach under the data envelopment model. The study observes that only 20% of PSBs were efficient during the study period. One of the key implications of the study is that on the one hand, these banks must significantly reduce their interest expenses, and on the other hand, they should aim to increase their 'other income' to enhance their efficiencies.
The final paper, "Credit-Deposit Ratio of Scheduled Commercial Banks in Odisha: Issues and Challenges", presents an interesting assessment of banking penetration during a decade-and-a-half in Odisha. The author, Rasmi Ranjan Behera, finds answers to the question of why Odisha still lags in banking development, particularly in terms of the credit-deposit ratio and credit to GSDP ratio. The study finds that a higher level of nonperforming assets in the banks is a major factor hindering banking development. In addition, low per capita income, lack of physical infrastructure, a significant level of unorganized sector, skewed banking network, and lack of industrial credit demand pose severe challenges to the expansion of the credit by the banking sector in Odisha. The findings imply that state economic growth warrants greater credit expansion by the banking sector.
Consulting Editor
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| Article | Price (₹) | ||
| The Influence of Financial Literacy and Peer Effect on Financial Outcomes in Self-Help Groups in India: A Study Using the PLS-SEM Approach |
100
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| Efficiency in Indian Banking Sector: A Data Envelopment Analysis |
100
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| Credit-Deposit Ratio of Scheduled Commercial Banks in Odisha: Issues and Challenges |
100
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The Influence of Financial Literacy and Peer Effect on Financial Outcomes in Self-Help Groups in India: A Study Using the PLS-SEM Approach
Financial literacy is gaining importance in ensuring the sustainability of the collectives and self-help groups. Rather than simply measuring the impact of financial literacy on the financial savings and credit behavior of the poor members of self-help groups, this paper seeks to measure the impact of financial literacy on financial attitude and its impact on financial behavior. The partial least square method has been used for the purpose of analysis, and the results establish that financial knowledge and attitude have a positive impact on behavior. In the case of collectives, peer influence and the mutual relationship among members become important in ensuring positive financial behavior. However, peer influence does not have any significant impact on financial attitude.
Efficiency in Indian Banking Sector: A Data Envelopment Analysis
This study aims to measure banking efficiency by developing a non-traditional data envelopment approach model and proposes a non-parametric approach to measuring bank efficiency. It develops a non-oriented and non-radial model to calculate the productive efficiency scores of Indian public sector banks. Just about 20% of public sector banks in India were found efficient during the observed period of 2015-2019. The findings highlight the areas needing improvement and how average banks need to reduce their interest expenses and increase their other income to improve efficiencies.
Credit-Deposit Ratio of Scheduled Commercial Banks in Odisha: Issues and Challenges
Banking penetration has increased considerably in the last 15 years in Odisha, which is reflected in increasing bank branch density, per capita deposits/credit and double-digit growth in credit. However, Odisha still lags behind the national average in many banking development indicators such as Credit-Deposit (CD) ratio and credit/GSDP ratio. The lower and downward movement in CD ratio over the years has been raising questions on the role of banks in meeting the potential credit needs of the state economy. The present paper makes an attempt to explain the possible causes for the persistent low CD ratio of Scheduled Commercial Banks (SCBs) in the state. The CD ratio, being a product of the ratio of credit disbursement to deposit mobilization, has remained lower primarily due to much higher growth in deposits than the credit. The paper found that higher gross non-performing assets in banks, coupled with lower per capita income, physical infrastructure deficits and higher proportion of unorganized sector, pose challenges to the banking sector for higher credit flow. Further, comparatively less and skewed banking network and lack of big private investment by industry hinders higher credit demand prospects. An uptick in the CD ratio has been observed in recent years. The empirical evidence of a positive effect of credit on the state economy growth warrants higher credit flow from banks to achieve full potential output of the state. The paper focuses on the regional aspect of bank credit growth in India.