Access to institutional credit is one of the important inputs for the development of an economy. It capitalizes entrepreneurs to undertake new investment, and/or adopt new technology. Pal, Rajesh (2013) finds that if access is a problem, then simplified procedures and thresholds may be sufficient to achieve the objective of financial inclusion and this is exactly what is being done by no-frills account. In his study author finds that there is inverse relationship between income and loan taken from money lenders, i.e., as income increases loan taken from money lenders decreases. This shows that increase in income encourage people to take loan and other financial services from institutional sources. Clearly, mere opening of more and more accounts in bank is not the objective of financial inclusion if these accounts are not used as platform to access a range of financial services that meet the various requirements that the household is trying to satisfy. Financial inclusion is the use of financial services by individuals and firms. Financial inclusion allows individuals and firms to take advantage of business opportunities save for retirement, invest in education, and insure against risks (Demirguc-Kunt, Beck, Honohan. 2008). Access to appropriate credit reduces poverty and increases the income of agricultural households (Binswanger and Khandker 1995; Carter 1989; Carter and Wiebe 1990; Feder et al 1990; Pitt and Khandker 1996, 1998; Khandker and Faruqee 2003; Guirkinger 2008; Awotide et al 2015; Narayanan 2016; Luan and Bauer 2016; Kumar et al 2017). Kumar, Anjani; et al. (2010) find that the promotion of loan waiver schemes by political parties motivated farming households to take credit from formal sources. Similarly, awareness of the direct benefit transfer scheme also had a significantly positive effect on taking credit from both formal and informal sources. On the other hand, agricultural households which were dependent on remittances preferred to get credit from informal sources. Households that had opened Jan Dhan Yojana (JDY) bank accounts after the Prime Minister Jan Dhan Yojana (PMJDY) was launched in 2014 were more likely to borrow from informal sources. Households that had sought information from any source had a higher propensity to use both formal and informal sources of credit. Agricultural households that had more livestock preferred to take credit from formal sources. The results show that credit access is strongly associated with the socio-economic and demographic characteristics of agricultural households. Access to credit has increased their household income substantially and has significantly raised yields of major staple crops (Kumar, Anjani; et al. (2010).

Eswaran and Kotwal (1990) argue that access to credit increases the ability of household to bear impact of negative shocks of income, and that availability of credit also allows households to undertake riskier investments as it will enable them to better deal with the consequences of poorly performing investments. Ghosh, Mookherjee & Ray (1999) argue that access and availability of credit encourage risk taking with the adoption of new technology, hence contributing to increase in production and income. Galor & Zeira (1993) find that access to household credit plays a vital role in development of human capital. He finds a positive impact on growth through development of human capital; and that this is affected by the initial distribution of wealth; richer families are better able to invest in human capital accumulation leading to increased growth. De Gregorio (1996) also argues that access to credit promotes human capital accumulation, as credit constraints will force students to work, which will reduce the time available for study. Dehejia & Gatti (2002), Beegle, Dehejia & Gatti (2003), and Jacoby (1994) also find that access to risk-reducing financial services increases investment in schooling (Ellis, Karen; Lemma, Alberto, et al. 2010).

Ajefu, Josheph B (2020) found that financial inclusion has a strong impact on mental health. Further, this study identified the potential channel through which financial inclusion can influence mental health, including food expenditure, remittances, and risk-coping mechanisms. Abraham, Tarfa W (2018) finds in his study that access to financial services by using formal financial institutions and farmer saving clubs benefits vulnerable farmers mostly women (Ellis, Karen; Lemma, Alberto, et al. 2010).

The data for this research paper is based on secondary data. The Table 1 and 2 shows the deposit-credit ratio of the Eastern and Western regions of Uttar Pradesh.

Table 1: District wise Credit-Deposit of Scheduled Commercial Banks in Eastern Region of Uttar Pradesh as on March 2019

Source: Statistical Diary Uttar Pradesh. 2019. Economic and Statistics Division, State Planning Institute, Planning Department, Uttar Pradesh.

httpupdes.up.nic.inesdreportsdbank_may2020Diary_English_2019.pdf

Table 2: District wise Credit-Deposit of Scheduled Commercial Banks in Western Region of Uttar Pradesh as on March 2019

Source: Statistical Diary Uttar Pradesh. 2019. Economic and Statistics Division, State Planning Institute, Planning Department, Uttar Pradesh.

httpupdes.up.nic.inesdreportsdbank_may2020Diary_English_2019.pdf

Uttar Pradesh credit-deposit ratio is 42.25, which is lower than that of India, which accounted for 78.18, while credit-deposit ratio of Andhra Pradesh, Maharashtra, Tamil Nadu, Delhi, and Telanga is 121.84, 106.47, 109.72, 108.15, and 104.95 respectively, which is higher than the credit-deposit ratio of India. The population per scheduled commercial banks in Andhra Pradesh, Maharashtra, Tamil Nadu and Uttar Pradesh is 7,144; 8,989; 6635; and 11732 respectively. As compared to other states low deposit-ratio and high population per scheduled commercial bank office in Uttar Pradesh reflects that lending by commercial banks in Uttar Pradesh is very low, however, population per scheduled commercial bank office is high. This may be due to lack of access to formal financial institution, lack of education, loan recovery problems, poverty, and unemployment.

For those who depend on agriculture for their livelihood, agricultural credit at the most reasonable rates plays a vital role in agricultural development and facilitates adoption of new technologies, yet it cannot guarantee higher productivity or adequate income for them, as well-being also depends upon many other supporting factors including the availability of agricultural inputs, services and remunerative markets for their products (RBI Report. 2019). 

The relationship between access to financial services and well-being of people are not directly related to each other. There are several mechanisms through which they may be related and the impact of access to financial services on the well-being of people also varies depending on which financial services we are talking about (Ellis, Karen; et al. 2010: 04-05). For individuals, access to financial services encourages them to adopt new technologies for economic activities; help them to increase income. The increase in income may be invested. It may be invested in the form of saving in financial instruments (eg. equity investment), or saving in the form of physical capital (eg. a new tool or piece of equipment that improves productivity such as agricultural machinery), saving in the form of human capital (i.e., investment in education, skill and training development).

According to growth theory (e.g. Solow (1956), and Romer (1990)), “growth depends on the stock of human and physical capital in the economy, as well as technological progress. Investment at the level of the firm or the individual can contribute to all of these things, and thus plays an important role in facilitating long-run economic growth.” This economic growth ultimately leads to increase in well-being of people.

Access to credit, saving, investment, and insurance can also minimize the negative impact of income shocks that can affect the longer term income prospects, if income generating assets are sold at very low prices out of necessity during a household crisis. Access to financial services helps individuals/firms/ households to diversify their resources in different financial assets, and hence ensure regular income, which increases the ability of household to bear the impact of negative shocks during difficult times.