A joint study by PwC India and Dvara Research suggests India's focus must move from basic account access to improving household financial health. The report highlights that dormant accounts and microfinance stress indicate access alone is not enough to build resilience.
India’s significant efforts to bring millions into the formal financial system have achieved success in account ownership, but a new report from PwC India and Dvara Research suggests the next phase requires a fundamental shift. While the focus over the last decade has been on expanding the reach of banking services, the research argues that access to a bank account is not the same as financial well-being. Investors and policymakers are now being urged to look beyond account opening numbers and evaluate the actual financial resilience of households.
The Gap Between Access and Usage
A primary concern raised in the study is the presence of high numbers of dormant accounts. Despite the massive growth in the number of bank accounts held by the population, these accounts often remain inactive. The researchers point to this dormancy, alongside ongoing repayment pressures within the microfinance sector, as clear evidence that simply providing access to formal products does not necessarily lead to improved financial outcomes for individuals.
Challenges in Microfinance and Income Stability
The report identifies income volatility as a critical barrier that prevents households from maintaining steady savings or consistent loan repayments. Because formal financial products often feature rigid structures, they may not align well with the irregular cash-flow patterns of many households. The research highlights that in some cases, informal channels like community lenders and self-help groups have demonstrated an ability to provide more flexible support, suggesting these should be viewed as complementary rather than competitors to formal banking institutions.
Reframing Financial Success Metrics
The study recommends that financial institutions and policymakers should change how they measure success. Instead of tracking only the number of new accounts opened, the focus should move toward outcomes such as the ability of households to handle unexpected financial shocks. For financial institutions, this may require developing more flexible product designs that allow for irregular repayment schedules and better-tailored savings options that match the actual income patterns of their customers.
For the financial sector, this shift toward measuring financial health could influence future product development and service delivery. Investors may monitor whether banks and financial institutions begin to prioritize customer engagement metrics, such as active usage rates and the quality of their loan portfolios, over pure growth in the number of accounts. The ultimate goal proposed by the researchers is to create a system where formal finance actively contributes to the long-term economic stability of Indian households.