Financial inclusion must go with financial protection, literacy: Raghuram Rajan

New Delhi: Programmes like the government's financial inclusion initiative need to be complemented with those of financial protection as well as financial literacy so as to be fully effective, Reserve Bank of India Governor Raghuram Rajan said on Friday.

"Financial inclusion means reaching out to the unsophisticated, who are easier to be preyed upon. So such programmes have to work on both their financial protection and financial literacy," Rajan said in response to a query after delivering the India Habitat Centre lecture.

"Along with financial inclusion there is need also to strengthen consumer protection and the grievance redressal mechanism across the country," he added.

Citing US' "sub-prime" housing loan crisis that provoked the 2009 financial crisis, as an example of lending to people low on the economic ladder, Rajan said credit should come last in the sequencing of financial inclusion.

"Other protection like insurance should come before, to be followed last by bank credit. Otherwise there is the risk of consequences, as is being seen in the type over-indebtedness in Andhra Pradesh," he said.

Rajan, noted for having predicted the US financial crisis seven years ago, had earlier in the day attended the finance ministry's Delhi Economic Conclave here which had the theme of "Realising India's JAM (Jan-Dhan Aadhar Mobile) Vision."

The day-long discussions through various sessions focused on topics like the Indian and international experience in cash transfers, benefits and risks of biometric authentication, beneficiaries' experiences with technology-based targeting, financial inclusion, perspective of the states and the vision for JAM's future.

Over 190 million accounts have been opened under the Jan Dhan financial inclusion scheme, with around 38 percent of these being zero-balance accounts, and the government is looking to extend the cash transfers scheme to other subsidy programmes too.