Financial inclusion and its determinants: evidence from India

Purpose The objective of paper is to examine status of financial inclusion in India and study its determinants. Design/methodology/approach Panel fixed effects and dynamic panel generalized methods of moments (GMM) methodologies have been applied to study determinants of financial inclusion. Additionally, Kendall's index of rank concordance has been derived to test for convergence of states in achieving financial inclusion. Findings Branch network has unambiguous beneficial impact on financial inclusion. Both proportion of factories and employee base turn out to be significant determinants of penetration indicators. The findings reveal the importance of a region's socio‐economic and environmental setup in shaping banking habit of masses. Using test for convergence it is found that regions tend to maintain their respective level of banking activity, with no support for closing gap. Originality/value To the best of the author's knowledge, no panel data study has been performed for India based on data for large number of states and a reasonable time span. This study utilizes 29 major states and union territories encompassing 1995 to 2008, which helps to increase degree of freedom and provide reliable results. The study helps us to ascertain direction and strength of various causal factors in process offer policy makers' strategies, for improving financial inclusion.