The effect of literacy and bank penetration on Financial Inclusion in India: A
by Santanu Dutta and Pinky Dutta
In this paper quantile regression model is used to test the significance of the impact of literacy
percentage and number of bank offices (per 105 people) on the conditional percentiles of the number of accounts
per hundred adults, in 35 states and union territories in India. The latter is a measure of financial inclusion in a
We find that bank penetration, measured by number of bank offices (per 105 people), has more significant
impact on the level of financial inclusion, than literacy percentage. However literacy has significant positive impact
on the higher (80 or above) percentiles of the conditional distribution of the number of accounts per hundred
adults in a region, with a given level of literacy. If a state/ union territory is among the top 20 percent states/union
territories in terms of financial inclusion (with a given literacy percentage), then increase in literacy percentage
can further improve the financial inclusion in that region. However literacy alone cannot improve the level of
financial inclusion significantly, especially if the state/union territory is not among the top 30 percent states/
union territories in terms of financial inclusion with similar literacy percentage. In those regions, increase in
bank penetration is likely to improve the level of financial inclusion significantly rather than improving literacy
Financial inclusion in India, literacy, bank penetration, quantile regression
Santanu Dutta, firstname.lastname@example.org
Pinky Dutta,, email@example.com
Chakraborty, Subrata, firstname.lastname@example.org
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