Exploring the Causes of Inactive Bank Accounts in India: Evidence from the Global Findex Survey

Abstract: While India has made significant advancements in financial inclusion, many citizens still hold inactive bank accounts. The study investigates the barriers to financial inclusion, focusing on difficulties in maintaining active bank accounts using insights from the 2021 Global Findex database. Latent Class Analysis (LCA) was applied to classify individuals into three distinct groups based on the barriers to active banking. Results show that some face structural challenges like limited access, low income, and digital illiteracy while others consider banking unnecessary. A third group emerged showing distrust towards banks leading to disengagement. The findings highlight the need for targeted policy interventions tailored to each group’s challenges. This is crucial as we envision a Digital India, with broader use of formal banking, digital payments, promoting financial literacy and inclusion for the underserved. Reviving inactive bank accounts and addressing the root causes of inactivity are keys to reducing gaps in financial inclusion. Keywords: Financial Inclusion, Inactive Bank Accounts, Latent Class Analysis, Global Findex JEL Classification Numbers: G21, D14, C38