CHAPTER 1

INTRODUCTION

Introduction

1
The growing problem of poverty in our country has promoted economic
planners to come up with various programs that can help in combating it. While
most of these programs have failed to deliver the expected results, certain
innovative efforts hold out fresh hopes. One such effort is the formation of self
help groups (SHGs) for enabling the poor to participate in the process of
development. In India this approach has been extensively used by voluntary
agencies for a long time, but has been incorporated in the conventional
development programs only in the present decade.

The credit delivery to rural people has been target oriented and imposed on
banks through government schemes. Hence it has many inherent defects and the
recovery level is very low. However credit delivery through Self help Groups is
a credit innovation program initiated by NABARD through the pilot study in
1992 and offers cost effective approaches to banks for expanding outreach to
the poor .Since groups are catered to and banks do not have to deal with
individuals, transaction cost is substantially reduced and the customer outreach
is highly expanded.

The year 2005 was declared as the international year of micro credit by the
United Nations for giving special impetus to microcredit programs throughout
the world. Micro credit can be defined as the provision of thrift, credit and other
financial services and products of very small amount to the poor in rural, semi
urban and urban areas for enabling them to raise their income levels and to
improve their standards.

In most of the developing countries, the policies concerning microcredit,

especially in rural areas, include setting up of specialized credit related banks,
fixation of sectoral targets for credit dispensation, loans on subsidized rates etc.
In spite of the vast expansion of formal credit portfolios in our country the
dependence of rural poor on money lenders continue in many areas, especially

2
for meeting emergent requirements. The credit delivery system is weakened by
poor credit discipline among borrowers resulting in low recovery of dues.
Further banks experience constrains like high transaction cost high risk due to
non availability of physical and collateral security etc, which restrict the
outreach of formal banking system to the poor.

The national bank for agriculture and rural development (NABARD)

formulated a scheme during 1991-92 extending finance to self help groups, to
overcome the above impediments in credit delivery and recovery and there by
addressing the economic aspirations and credit needs of the rural poor.

3
 CHAPTER 2

RESEARCH DESIGN

BACKGROUND OF THE STUDY

4
India has the world’s most extensive banking infrastructure. There are about
60,000 retail credit outlets of the formal banking sector comprising of 12,000
branches of district level co-operative banks , over 14,000 branches of
regional rural banks and over 30,000 rural and semi-urban branches of
commercial banks, in addition to 1,12,000 cooperative credit societies at the
village level. There is at least one retail outlet on an average for about 5,000
rural people or every 1000 households. However poor credit-deposit ratios,
unsustainable lending and high levels of nonperforming assets often cripple
much of this infrastructure.
Notwithstanding the phenomenal expansion of the outreach of the formal
banking structure and the pro-poor directed policies and programmes , the All
India Debt and Investment Survey ,1992, gave indications that the share of
non institutional agencies (informal sector) in the outstanding cash dues of the
rural households as quite as high at 36% . The main players in this sector are
traders, money lenders, friends and relatives; revolving savings and credit
associations and other neighborhood self help groups.
The credit delivery to rural people has been target oriented and imposed on the
banks through government schemes. Hence it has many inherent defects and
the recovery level is generally low. Whereas the credit delivery through self
help groups is a credit innovation program, which works on the principles of
group dynamics and peer pressure and offers cost effective approaches to
banks for expanding quality asset creation in rural areas. Since groups are
catered to and since banks do not have deal with individuals, transaction cost
is substantially reduced and the customer outreach is highly expanded. The
study has relevance on the impact on the rural community considering that the
focus is mainly on the rural poor, especially women and facilitates their
empowerment. The study also centers around the macro- economic objectives
of the growth of the country. In addition to all these, specific advantages to the

5
 bank being lenders and the rural poor being the borrowers, prompted me to
take up the study.
Developments in the last two decades in the provision of financial services to
the poor, both savings and credit, have demonstrated the potential of
microcredit. Poverty is an un acceptable human condition, microfinance is an
important means to address the critical challenge of poverty; it enables the
hard core and asset less poor to access socio economic entitlements. A silent
revolution is taking place in rural areas where the poorest of rural women are
provided with collateral free micro credit for economically viable projects that
help in their empowerment. Hence a study on microcredit assumes great
significance.

OBJECTIVES OF THE STUDY:

6
The broad objectives of the study can be listed as follows:

1. To study the evolution of micro credit concept in Indian banking

scenario with particular reference to the Federal Bank Ltd.
2. To assess the awareness level of micro credit concept among the
general public and bank officials with particular reference to the
Federal Bank Ltd.
3. To assess the impact of SHG concept in credit disbursement by the
bank and the performance of loans granted under the scheme.
4. To assess the present polices and strategies adopted by the Federal
Bank Ltd., in the micro credit portfolio.
5. To assess the future plans of the Federal bank Ltd in the area of
micro credit and their relationship with SHGs.
6. To assess the impact of micro credit concept in the overall lending
strategies of banks with particular reference to the federal bank Ltd.
7. To improve recovery and reduce the level of NPA, thus reducing
the credit risk of the federal bank Ltd.
8. To spread outreach of the Federal Bank Ltd with the aim of having
at least one member of a rural family to start banking operations for
other than credit needs.
9. To have an exposure to the work environment that relates to the
actual practice of banking industry with reference to the Federal
Bank Limited.

RESEARCH METHODOLOGY

7
Research design: Descriptive study is done by analyzing the SHG financing of
Federal Bank for a period of 5 years from 2005-06 to 2009-10.

Primary data: it is proposed to collect primary data by interviewing the bank

officials, members of self help groups, voluntary agencies, nongovernmental
organizations, panchayath authorities etc.

Secondary data:
Inputs to this category will be collected from Federal bank archive by referring
to bank circulars, reports, statements, balance sheets etc. It is also collected
from data published by NABARD, RBI etc.

Expected contribution from the study:

It is expected that after completing the study, it will be possible to evolve
methods for
1. Reducing the cost of rural financing by the bank.
2. Improving the outreach of the bank.
3. Improving the opportunities to the bank like utilization of the SHGs for
activities like recovery, marketing of banks products etc.
4. Ensuring future quality clients to the bank in rural areas.
5. Reducing the dependence of the rural people on moneylenders at
exorbitant rates and thus helping them to get out of the dept trap.
6. Increasing thrift and savings mentality among rural poor
7. Empowering the rural poor, towards credit discipline, improvement of
standard of living, awareness of hygiene standards and overall
community development.

LIMITATIONS OF THE STUDY

8
The study has certain limitations such as
1. The period under study is limited to a time span of 5-6 years,
depending on the availability of data and the relevance if the available
data.
2. Since most data relating to the bank is of confidential nature, full
information may not be available.
3. The time available for study is limited and hence it may not be
possible to cover all the areas in full depth.
4. Interaction with rural people may not give the complete result,
since most of the groups are informal in nature and members are
illiterate.

Since the primary data is to be collected from geographically diverse areas,

sample studies have to be resorted to and this may result in generalization of
data to some extent.

9
 CHAPTER 3
PROFILE

INDUSTRY PROFILE

10
Banking in India is considered to as fairly as mature in terms of supply,
product range and reach; even though reach in rural India still remains a
challenge for the Private Sector and Foreign Banks. Even in terms of quality
of assets and capital adequacy, Indian Banks are considered to have clean,
strong and transparent balance sheets as compared to other banks. The
Reserve Bank of India in its road map for the banking industry has indicated
that the Indian market will be opened for international banks. It is expected
that many foreign banks would gain entry to Indian markets to tap the vast
potential that exists today. These banks with the help of advanced technology,
adequate capital for investment, and their customer centric approach will be
able to attract the profitable customers from existing banks. To effectively
meet the competitive challenges from such banks, Indian industry will have to
gear up and adopt the global best practices, which would make them stronger
and comparable with the international banks.

According to RBI, key monetary aggregates have witnessed some growth in

2008-09. This reflected in the changing liquidity positions arising from
domestic and global financial conditions and policy initiatives taken by the
government. Also reserve money variations have largely reflected an increase
in currency circulation and reduction in cash reserve ratio of the banks. There
has been variation in credit expansion across bank groups. Several measures
initiated by reserve bank have resulted in banks reducing their deposit and
lending rates. The Indian banking industry has realized the critical importance
of IT based operational solutions for surviving the fierce competition to
enhance the customer base. Capital being a scarce resource in Indian banking
industry, it is necessary to increase the capital efficiency of Indian banks.
Hence Indian banks have to prepare for better management of capital risks
which would be the essence for their survival.

COMPANY ROFILE

11
THE FEDERAL BANK LIMITED

The Federal Bank Limited is one of India ‘s leading private sector banking ,
incorporated Linder company ‘s Act 1956 , and having ( more than 600
branches spread over india . The bank has a remarkable presence in the state
of Kerala where its headquarters is situated . The bank is governed by a Board
of Directors as per the Banking regulation Act 1949. The board consists of
eminent persons with practical experiences and specialized knowledge in
banking , accounting , agriculture , information technology, trade and
commerce. There are seven members in the Board including a full-time
chairman and Chief Executive Officer .The bank became a scheduled
commercial bank in 1970, which also coincided with the silver jubilee year,
since the bank commenced its operation in Aluva .

The bank became an authorized dealer in Foreign exchange in 1972 .

International Banking Department started functioning from Mumbai in
1973. Since then the bank could substantially increase in its market share of
the NRI business. The internationally Banking department was later shifted to
Cochin in 1982 as a part of consolidation and centralization of activities .

During the period 1973 to 1977 the bank adopted a massive branch expansion
program . The total number of branches reached 276 from a position of 114
in 1973 and now it has a network of more than 600 branches spread over
india . The bank has remarkable presence in the state of Kerala where its head
quarter is situated.

A board of directors appointed as per the Banking Regulation Act 1949

governs the bank. The board consist of eminent persons with practical
experiences and specialized knowledge in Banking , Accounting, Agriculture ,
Information Technology , Trade and Commerce etc . Federal bank has bagged
the prestigious IBA award for the best use of Information Technology in retail

12
banking for two consecutive years . The bank also has the unique distinction
as the first traditional bank to network all its branches and attain 100%
connectivity . There are seven members in the board including , a full time
chairman and Chief Executive Officer.

The bank is broadly guided by the policy objective of efficient and profitable
utilization of resources; risk diversified portfolios and commensurate return
for credit risks undertaken.

The bank advances credit in the retail sector , corporate sector etc and focuses
on social leading also. The bank has around 300 rural semi-urban branches
and credit extended under priority sector constituted more than 41% of the net
bank credit during the financial year 2006-07.

The steady growth in business necessitated the strengthening of its capital

base. The paid up capital was increased to 100 lakhs in 1977 from a position
of 10.66 lakhs. In 1994 the bank has gone for a public issue , which was
oversubscribed by 60 times, and now the paid up capital of the bank is Rs
21.76 crores. The bank ‘s business crossed Rs 10000 crore mark as on 31
march 1998 for the first time .

The bank employs nearly 7000 people in over 600 offices all over the country
with a dominant presence in the state of Kerala with more than 300 branches
and has over 400 ATMs to supplement its delivery options . Federal bank has
played a pioneering role in development and deploying new technology
related customer friendly products and services . The bank continues to be the
favorite choice for NRI’s as is evidenced from the fact that about 40%
deposits come from the NRI segment .

The bank offers a range of treasury products , services to corporate and retail
customers in the form of derivative instruments and retail treasury products .
The bank is having arrangements for cash management services with various
13
institutions and corporate such as BSNL,LIC,ITC,Air India and HDFC and
banks like ABN AMRO , CITI BANK , HDFC Bank , ICICI Bank etc. the
bank offers other services like depository, electronic bill payments , debit
cards, co-branded credit cards , merchant banking etc.

The bank gives ample importance to the social responsibility aspect and has
been associated with many charitable organizations. A program branded
“Samurdhi” is launched aiming to satisfy the banking needs of the residents of
selected villages as a part of innovations in rural banking. Ongoing research is
conducted to understand and anticipate the changing needs and expectations of
its customers , thereby making the bank into a financial supermarket.

PRODUCT PROFILE

14
The Bank has now emerged into a financial supermarket giving the customers
a range of products and services. Apart from the entire slew of Banking
products and delivery channels bank also provide the following facilities:

 Depository Services
 Credit Cards
 Life Insurance Products in association with ICICI Prudential
 General Insurance Products in association with united India
Insurance
 Export Credit Insurance Products in association with ECGC
 Express Remittance Facility from Abroad – FEDFAST
 Cash –On- Line Express Cash Remittance
 Lock Box Service for NRI’s in the US
 Cash Management Services
 Merchant Banking Services
 E-shopping Payment gateway
 BSNL Bill Payment
 Online LIC Insurance Payment
 Easy Pay –On-line fee payment system
 Online Railway Reservation System
 Online Kiosks for customers

The bank advances credit in the retail sector, corporate sector

etc .and focuses on social lending also . The bank is extending credit to SHGs
directly through bank linkage programme as well as through voluntary
agencies and non – governmental organization . The bank is extending credit
to the Kudumbashree programmes set up under the Kerala State Poverty
Eradication Mission.
The bank functions from a network of branches and the branches are
controlled by the Regional Offices set up at twelve locations spread across the
country . The total business of the bank stands at Rs 36483.54 crores as on

15
march 2007 which shows a growth of 23.19% . it includes deposits of Rs
21584.44 crores and advances of Rs 14899.10 crores .
The Federal bank is a vibrant bank geared to take up the emerging
opportunities and threats in the banking industry by the capitalization on its
core competencies and smart sizing the operations thereby emerging as the
“perfect Banking Partner”.

16
 PROFILE OF THE STUDY AREA

Study area

The present study is made to evolve a strategic plan for the Federal Bank
Limited to expand its credit delivery in rural areas with simultaneous
expansion in deposit mobilization and outreach. The study is based on the
SHG finance made by the bank directly and through Voluntary Agencies in
Kerala. The performance of the bank in financing to self-help groups for the
past five years in the state of Kerala is analyzed.

The profit of the Federal Bank Limited, its general performance, credit
delivery areas, lending to priority sector, agriculture, weaker sections, SHGs
etc. are touched upon in this chapter to gather a general idea on the banks
performance and interest.

The Federal Bank Limited

The total business of the bank stands at Rs.29615.21 crore as on 31 march

2010 which includes deposits of Rs.17878.74 crore and advances of
Rs.11736.47 crores. The banks registered a profit if Rs.225.21 crore during the
financial year ended 2010.

The bank offers a number of deposit products to its retail customers, including
Non-resident Indians , such as savings bank accounts, current deposits, time
deposits and recurring deposits with suitable variations for customized
products targeting different groups like students, salaried employees, senior
citizens etc.

The bank offers a variety of loan products and services to corporate customers,
small and medium Enterprises and Retail customers. The pricing of loans and
advances is linked to the benchmark Prime Lending rate (PLR) of the bank,
subject to periodical reviews to protect the interest margin.

17
The special retail loan products such as housing loans, auto loans, educational
loans, personal loans, etc. that have been tailor-made to suit specific segments
constitute the bank’s retail loans. The bank has tie-up arrangements with
agriculture machinery manufactures, SIDBI, Kerala Chamber of Commerce
and industry , rubber producers’ co-operative societies, etc. to have strong
growth in agriculture and SME advances. The unique Federal Credit Card, is
well received in the market.

The total credit portfolio of the bank registered a growth of 33.03% during the
current fiscal 2009-10. The growth of advances under retail sector is 50%,
housing loan segment is 53%, SME segment is 31% and agricultural advances
is 123%. Standard advances constitute 95.38% of the total advances. Gross
NPA was 4.62% of gross advances and net NPA was 0.95% of net advances.

The bank offers a range of treasury products, services to corporate, and retail
customers in the form of derivative instruments and retail treasury products .
The bank is having arrangements for cash management services with various
institutions / corporates such as BSNL, LIC, ITC, Air India, HDFC etc., and
banks like ABN Amro, Citibank, HDFC bank, ICICI Bank etc. The bank
offers other services like depository, electronic bill payments, debit cards, co-
branded credit cards, merchant banking, etc.

The bank has well placed systems for integrated risk management, risk rating,
portfolio management, credit approving, loan review mechanism etc. The
bank has formulated a separate policy for operational risk management. It has
a well-documented Asset Liability Management policy.

The bank has taken several initiatives in technology up gradation for customer
convenience. All the branches and offices of the bank are networked and offer
any where banking facilities. The customers have the opportunity to avail of
multiple channels like internet banking services, VISA enabled ATM network,

18
mobile and e-mail alert service, electronic bill payment system, Tele-banking,
etc. The bank offers express remittance facility – Fed fast- to Non Resident
Indian for inward remittance from gulf countries. It offers RTGS facility
through all its branches. The bank offers online services like payment of
BSNL bills through a e-enabled comprehensive bill presentment and payment
system, reservation of railway tickets, payment of LIC premium, etc.

There are adequate internal control systems with well-established audit and
inspection methods. The bank has adopted effective human resources practices
aiming at attracting, motivating and retaining qualified and competent
employees and consistently up grading their knowledge and skills. The bank
gives ample importance to the social responsibility aspect and has been
associated with many charitable organizations. A progrmme branded
‘samrudhi’ is launched aiming to satisfy the banking needs of the residents of
selected villages as a part of innovations in rural banking.

19
 CHAPTER 4
REVIEW OF LITERATURE

MICRO FINANCE`

20
 Micro financing in the global context is commonly understood to refer to
programs meant for providing credit for self employment and other
financial and business services provided to rural people to operate small or
micro enterprises , provide services work for wages or commission and other
individuals and groups working at local levels.

CONCEPT OF MICRO FINANCE

Micro credit means the credit as repeated credit provided in small measures
to suit recipients’ requirements with a comfortable pace of payment and at an
approximate rate of interest. Micro finance is the provision of a broad range
of financial services such as:
 Deposits
 Loans
 Payment services
Micro credit can be interpreted in a broader context as micro credit and micro
savings. The aim of micro finance is to develop habits and fi nancial vision
among the rural poor, such that they are able to save seek credit and know
several finance related aspects, and thus improve their financial positions and
living standards. The focus of micro finance is to facilitate the shift from the
induced developments.

NABARD has defined microfinance as the provision of thrift credit and

other financial services and products of very small amounts to the poor in
rural semi urban or urban areas so as to enable them to raise their level of
income standards. The satisfaction of financial need of poor clients having
little current income and no assets to use, to meet any of their financial needs,
which is of small quantity take the shape of microfinance. Therefore typical
microfinance clients are low income borrowers and usually , but not
exclusively women.

21
Microfinance thus can be perceived as micro saving, micro credit , housing
credit for poor, micro insurance, and even micro leasing. Thus microfinance
is the extension of small loans to entrepreneurs ,too poor , to qualify for
traditional bank loans or can be defined as small scale financial services to
clients that are economically active in various urban and rural areas.
The operational frame work of microcredit therefore essentially rests on the
premises that
1. Formation of a self employment enterprise is a viable alternative means of
alleviating poverty.
2. Lack of access to capital assets credit act as a constraint on the potential
micro enterprises and
3. The poor are capable of saving despite their poor income level.

In essence micro finance can be referred to as an institutional mechanism of

providing credit support in small amount and usually linked with small
groups along with other complementary projects such as training and other
related services to the people with poor backgrounds and skills for enabling
them to take up economic activities.

FEATURES OF MICRO CREDIT

The important features of micro credit are :

22
  Loans under micro credit programs are very small ,usually
less than Rs. 50000.
 Micro credit is targeted to rural and households.
 Credit under microfinance follows thrift ie. Mobilizing
savings and lends the same.
 Low transaction cost.
 Transparency in operation.
 Shorter repayment period.
 Need based loan disbursement.
 No collateral security needed for loans.

SOURCES OF MICRO CREDIT

Micro credit provides a wide range of financial services to the poor on a
sustainable basis and is slowly but steadily gaining popularity.
It is provided primarily through the following sources:

 Formal institutions ie. cooperative banks and rural banks.

 Semi formal institutions ie.. nongovernmental organizations.
 Informal sources ie.. money lenders and shopkeepers.

Institutional micro credit includes credit services provided by both formal and
semi formal institutions. Micro finance institutions are those whose major
business is provision of micro finance services. Micro financing is recognized
world over as a powerful tool for raising the poor above poverty line. It is
accost effective way to help the poor ,overcome their poverty .

CLASSIFICATION O MICROFINANCE ORGANISATIONS

The different organisations in the field can be classified as

23
 1. Mainstream ( Inclusive MFIs)
2. Alternative ( Exclusive MFIs).

Main stream micro finance institutions:

These institutions provide financial services to the poor:

1. National Bank for Agricultural and Rural Development(NABARD)

The micro finance initiatives by NABARD has evolved as a sustainable
social movement over a decade by now. The relevance of micro finance
program was greatly enhanced for the partners through the core strategy
of SHG bank linkage , the pilot project started in 1992 has turned into a
national movement, linking more than one million SHGs with bank
leading to socio economic empowerment of women.
2. Small Industries Development Bank of India (SIDBI)
SIDBI operates micro credit scheme 1994 . it provides bulk lending to
NGOs for on lending to SHGs or individuals by NGOs. SIDBI has
modified its approach of bulk lending to NGOs from time to time and
has emerged as a major apex financial institution in the field of micro
finance in India. The SIDBI has initiated a micro finance development
for promotion and capacity building for micro entrepreneurs .the SIDBI
foundation for micro credit(SFMC) was launched for delivering the
funds to poor people through a new focus and approach.

Alternative micro finance institutions:

24
 These are institutions which have come up to fill the gap between the
demand and supply for micro finance. These institutions provide financial
services to tile poor at least at the entry level and their first time customer is
poor.
1. Non government organizations (NGOS)
2. Federation of SHGs
3. Mutually aided cooperative societies (MACS)
4. MFIs, which are organized as NBFCs.
NGOs are mainly engaged in promoting SHGs and their federations and
linking SHGs with the banks . NGOs directly lend to borrowers , who are
either organized into SHGs or into Grameen Bank style groups and centers.
Some alternative micro finance lending institutions are SEWA bank in
Gujarat, MACTs in Andhra Pradesh , MYRADA in Karnataka, and PREM in
Orissa etc..

MODELS OF MICRO FINANCE PREVAILING IN INDIA

There are two models of micro finance prevailing in India. They are
1. Direct Financing Model: In this model the bank lends to NGOs, and
NGOs promotes and imparts training to SHGs and provides credit facilities
for them.
2. Self Help Group Bank Linkage Model: In this model SHGs act as a
bridge between bankers and grass root clients. Banks transfer funds to micro
finance bodies that are responsible for disbursal and collection. The risk
completely lies with the banks. Advances to the SHGs would be reflected
in the portfolios of the banks.

25
RISK MANAGEMENT IN MICRO CREDIT

As large number of activities is conducted through SHG the quality has become
a victim of quantity mainly because of the inadequate supervisory mechanism .
Some of the risk mitigating measures in micro finance through SHG is as
follows :

Encourage short-term loans to build credit track record history.

SHG to take up restructuring exercise .
Transparency and good governance are put in place for ensuring
end use of funds.
A structured risk assessment model may be evolved to capture the
risk at least on a half yearly basis .
Quality internal audit system should be put in place and the
important needs to be explained to SHG members.
Active SHG leaders are to be identified as field official to prevent
staff turnover , but rotation of leaders should be ensured.

26
CREDIT DELIVERIES TO SHGs BY THE FEDERAL BANK
LIMITED

The finance to Self Help Groups was introduced in the bank during 1988 . The
scheme has a very slow pick up in a few pockets in the state of Kerala,
especially in Alleppy and Thiruvananthapuram districts. With the
implementations of Government sponsored schemes like swarna jayanthi
Gram Swarozgar Yojana , Swarna Jayanthi Shahari Rozgar Yojana and
Kudumbashree there was enhanced initiative among the bank officials and
there was acceleration in the growth of SHG finance .

DESIGN FEATURES OF THE PRODUCT-SHG FINANCE

The design features of the product –SHG finance is examined below :

1. Small and fixed savings at frequent intervals :small and fixed savings
made at regular intervals coupled with conditions like compulssary
attendance , penal provisions to ensure timely attendance , saving ,
repayment etc forms a deterrent for the rich to join the SHG system
thereby enables exclusion of the rich .
2. Self-selection: The members select their own members to form groups .
The members residing in the same neighbourhood ensure better character
screening and tend to exclude deviant behaved ones .
3. Focus on women: As regular meetings and savings are compulssary
ingridients in the product designed , it becomes most suitable for the
women clients – as group formations and participatory meetings is a
natural ally for the women to follow.
4. Savings first and credit later: The saving first concept enables the poor
to gradually understand the importance of saving , appreciate the nuances
of credit concept using their own money before seeking external support
(credit ) for fulfilling future needs . The poor tend to understand and
respect the terms of credit better .

27
5. Intra group appraisal systems and prioritization: Essentials of good
credit management like ( peer) appraisal for predict needs (checking the
antecedents and needs before sanction ) , (peer ) monitoring - end use of
credit ; ( peer sympathy ) re-schedulement in case of crisis and (peer
pressure ) collateral incase if willful non- payment etc all seems to coexist
in the system - making its one of the best approaches for providing
financial services to the poor .
6. Credit rationing : The approach of prioritization i.e .:meeting critical
needs first serves as a useful tool for intra – groups lending . This ensures
the potential credit takers / uses to meticulously follow up credit already
dispensed , as future credit disbursals rely on repayments by existing
credit uses .
7. Shorter repayments terms : Smaller and shorter repayments scheduled
ensures faster recycling of funds , greater fiscal prudence in the poor and
drives away the slackness and complacency that tends to set – in , in long
duration credit cycles.
8. Market rates of interest : self - determined interest rates are normally
market related . Sub – market interest rates could spell doom ; distort the
use and direction of credit
9. Progressive lending : The practice of repeat loans and often – higher
doses is followed by SHGs in their intra group loaning , thereby enticing
prompt replacements .
10. A multiple eyed operation : The operations of SHG are transacted in
group meetings thus enabling high trust levels and openness in the SHG
system . The banking transaction are also generally conducted by SHG
members facilitating openness and freedom from unfair practices .

28
SHG FINANCE IN FEDERAL BANK
The bank finances to SHGs under the 3 basic models of SHG – banks linkage,
as follows :
1. SHGs financed directly by the bank
2. SHGs financed directly with NGO’s facilitation
3. SHGs finance through the medium of NGO’s

A detailed examination of the delivery of credit to Self Help Groups by the

bank under the above 3 models for the past 5 years, as the end of the financial
years of 2005-10 is made in the following pages . T he data as on 31 st march
of every year is tabulated . The year wise data under the three basic models of
financing is tabulated in the following pages . The data relating to the finance
under the 3 basic models during the years 2005-10 is tabulated in following
pages.

29
 CHAPTER 5
ANALYSIS AND INTERPRETATION

30
ANALYSIS AND INTERPRETATION

The study on delivery of credit to Self Help Groups by the Bank during the last
five years is conducted under the following sub heads:

1. Growth in finance to SHG by Bank during the last five years.

2. Market share of the Bank of the portfolio in the state of Kerala

3. Comparison of SHG finance of the Bank with other banks.

4. Recovery in SHG portfolio.

5. Growth of Savings Bank Account in connection with SHGs.

6. Share of SHG finance in Total Priority Sector Advances.

7. Share of SHG finance to Agricultural Loans

8. Comparison of SHG finance to Agricultural Loans

9. Comparison of SHG finance to Loans to Weaker Sections.

The following aspects of finance to Self Help Groups are anaylysed:

10.Awareness level of micro credit concept among Federal Bank Officials.

11.Use of SHGs in marketing/ servicing of banks products.

Data Source: Statements of Micro Credit of the Federal Bank Ltd.

submitted to RBI

31
GROWTH IN FINANCE TO SHG
The number of SHGs financed and the amount disbursed during the last five
years have been examined and the growth in the disbursement studied. The data
is tabulated below. A bar chart showing the comparison is plotted.

Table 1. Growth in finance to SHG during the last five years

YEAR WISE GROWTH –NUMBER OF LOANS DISBURSED- REGION WISE
(amount in lakhs)
Sl.no. Region 2005-06 2006-07 2007-08 2008-09 2009-10
1 Alappuzha 119 122 235 457 719
2 Ernakulam 17 48 37 181 194
3 Kozhikode 20 6 0 38 59
4 Kottayam 69 131 123 126 126
5 Pathanamthitta 19 11 5 24 54
6 Thrissur 3 19 28 25 42
7 Thiruvananthapuram 38 85 82 289 771
8 Kolkata 0 0 0 0 0
9 Bangalore 0 0 0 0 113
10 New-Delhi 0 0 0 0 0
11 Mumbai 0 0 0 0 0
12 Chennai 0 0 0 0 0
Total 285 422 510 1140 2078

YEAR WISE GROWTH –AMOUNT OF LOAN DISBURSED- REGION WISE

(amount in lakhs)
Sl.no. Region 2005-06 2006-07 2007-08 2008-09 2009-10

1 Alappuzha 58-78 37.55 143.30 605.02 412.72

2 Ernakulam 10.40 7.75 15.81 52.44 128.45
3 Kozhikode 10-81 3.50 0.00 32.13 78.88
4 Kottayam 4.75 47.84 53.44 55.44 52.49
5 Pathanamthitta 5.77 7.76 5 45.54 83.50
6 Thrissur 0.45 7.10 28 10.86 22.15
7 Thiruvananthapuram 23.61 60.03 31.45 115.86 592.07
8 Kolkata 0.00 0.00 0.00 0.00 0.00
9 Bangalore 0.00 0.00 0.00 0.00 3.52
10 New-Delhi 0.00 0.00 0.00 0.00 0.00
11 Mumbai 0.00 0.00 0.00 0.00 0.00
12 Chennai 0.00 0.00 0.00 0.00 0.00
Total 114.57 171.53 271.09 917.29 1373.78

32
SUMMARY-
YEAR WISE GROWTH-FINANCE TO SHGs BY FEDERAL BANK
(amount in lakhs)
2005-06 2006-07 2007-08 2008-09 2009-10
No of SHGs 285 422 510 1140 2078
financed
Amount 114.57 171.53 271.09 917.29 1373.78
disbursed
CHART 1

2500

2000

1500
No of SHGs financed
Amount disbursed
1000

500

0
2005-06 2006-07 2007-08 2008-09 2009-10

INFERENCE:

There is growth in the number of SHGs financed and the amount of loan
disbursed. The trend line shows marginal increase only. For substantial growth,
the bank needs to improve the thrust on SHG finance.

33
MARKET SHARE OF THE BANK IN THE PORTFOLIO IN KERALA

Cumulative number of SHGs financed and the amount of loan disbursed by

Federal Bank is compared with the total figures for Kerala as on 31 March
2010. The figures corresponding to the regions of the Bank are tabulated. Some
of the regions spread to more than one district.

Table 2. Market share of Federal Bank in SHG Finance

Region of Bank Cumulative number Cumulative Amount

of SHGs financed of bank loan 31 March 2010
31 March 2010

All Banks Federal Bank % All Federal %

Banks Bank
Alappuzha 7587 1862 25% 7263 984 14%
Pathanamthitta 3648 366 10% 3688 532 14%
Ernakulam 6430 364 6% 2018 165 8%
Thiruvananthapu 17986 1479 8% 9852 832 8%
ram
Kozhikode 15421 177 1% 6428 210 3%
Kottayam 13952 172 1% 8111 70 1%
Thrissur 21964 183 1% 10855 114 1%
Total 86988 4603 5% 48215 2907 6%

CHART 2
34
 25000

20000

15000

10000
All Banks
5000 Federal Bank
%
0
a
uzh itt
a
p th lam am e
lap m ku ur od am
A na na p ik
ay ur
tha Er tha zh tt ir ss
Pa n Ko Ko Th
ana
v
iru
Th

CHART 3. Market Share in Kerala – SHG Finance

Cumulative Amount of loan disbursed – as on 31 March 2010

12000
10000
8000
6000
4000 All Banks
2000 Federal Bank
%
0
ha itt
a
lam am de am ur
puz th ku ur iko ay r iss
am a p zh tt Th
ap n ha Ko
Al an Er nt Ko
th a
Pa v an
hir u
T

INFERENCE:

The market share of the bank is normal. The percentage of loan disbursed when
compared with the total amount disbursed by all banks is 14% in Alleppey and
Pathanamthitta. In the rest of regions, it is less than 10%. There is much scope
for improvement.

35
COMPARISON OF SHG FINANCE OF THE BANK WITH OTHER
BANKS.

The position of Federal Bank is compared with other banks as on 31 March

2010 and the data is tabulated below. The comparison is plotted on a pie-chart
for easy reference.

Table 3. Comparison of Performance of Federal Bank with Other Banks as on 31

March 2010

Cumulative Percentage on total for all banks

NAME OF BANK No.of Amount No Amount
SHGs in Lakhs
State Bank of India 392494 204709 33.0% 29.3%
Andhra Bank 113466 84290 9.6% 12.1%
ICICI Bank 17755 41253 1.5% 5.9%
State Bank of Travancore 8719 5208 0.7% 0.7%
United Bank of India 16677 2783 1.4% 0.4%
Oriental Bank of Commerce 8132 2706 0.7% 0.4%
Dhanalakshmi Bank 5592 2514 0.5% 0.4%
Federal Bank 3060 2264 0.3% 0.3%
South Indian Bank 2155 1127 0.2% 0.2%
UTI Bank 328 200 0.0% 0.0%
Total for all commercial banks 1188040 698744

CHART 4

36
 Amount disbursed by selected Banks
Andhra Bank

ICICI Bank

State Bank of Travancore

United Bank of India

Oriental Bank of Commerce

Dhanalakshmi Bank

Federal Bank

South Indian Bank

UTI Bank

INFERENCES:

The comparison of performance with other banks shows that there is only
nominal exposure for the bank in the portfolio.

RECOVERY IN SHG PORTFOLIO OF FEDERAL BANK

37
The recovery position in the portfolio for the last five years have been studied.
The percentage of recovery is calculated based on the data. The data is tabulated
below and is plotted as a bar chart.

Table-4 demand Vs Recovery analysis for last five years

2005-06 2006-07 2007-08 2008-09 2009-10

DEMAND 13 30 116 395 543
RECOVERY 13 28 111 383 517
% RECOVERY 100% 93% 96% 97% 95%
CHART 5

600

500

400

300 DEMAND
RECOVERY

200

100

0
2005-06 2006-07 2007-08 2008-09 2009-10

INFERENCE

Even though the percentage of recovery have declined, the NPA with respect to
SHG lending is nil throughout the period under study. The recovery percentage
is almost 100% showing that this is a low risk portfolio.

GROWTH OF SAVINGS BANK ACCOUNT IN CONNECTION WITH

SHGS
38
The SHGs maintain their thrift savings in savings Bank accounts and all their
internal micro credit activities are routed through the SB account. Hence there
is good operation in these accounts and the group members are brought to the
banks. The group members open individual accounts for their personnel needs.
Hence the bank benefits from increase in the outreach to each and every
household in the locality. The growth in the number and amount of SB
accounts is studied in detail and a combined bar and line graph is plotted to
study in the increase.

Table 5. Year wise growth of SB a/c under SHG bank linkage programme.

Sl. Region 2005-06 2006-07 2007-08 2008-09 2009-10

no.
No. Amount No. Amou No Amount No. Amou No Amou
nt nt nt
1 Alappuzha 821 2134 917 2717 2105 7726 1311 4337 2073 5655

2 Ernakulam 192 1415 268 1319 265 1495 908 6733 1075 5927

3 Kozhikode 6 42 6 42 138 689 372 2879 515 3340

4 Kottayam 723 2356 1098 3729 1104 2770 1175 3728 1114 3749

5 Pathanamthitta 421 956 544 1512 377 964 578 5471 584 5608

6 Thrissur 61 1821 307 2086 106 564 625 2777 691 2971

7 Thiruvananthapuram 1187 4134 1257 5944 1256 4988 1849 9374 2674 46853

8 Kolkata 0 0 0 0 0 11 108 3 17

9 Banglore 0 0 0 18 63

10 New Delhi 0 0 0 0 0

11 Mumbai 0 0 0 0 0

12 Chennai 0 0 0 0 0

TOTAL 3411 12858 4397 17349 5351 19196 6829 35407 8747 74183

39
Yearwise growth-savings accounts under SHG finance

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Number 3411 4397 5351 6829 8747
Amount 12858 17349 19196 35407 74183

80000

70000

60000

50000

40000 Number
Amount
30000

20000

10000

0
2005-06 2006-07 2007-08 2008-09 2009-10

INFERENCE

There has been appreciable increase in savings bank accounts in connection

with SHG finance and the growth in the amount in SB Accounts is more than
50% during 2009-10

SHARE OF SHG FINANCE IN NET BANK CREDIT OF BANK.

40
The amount of credit in the SHG finance in the Net Bank Credit of the bank is
analysed for the last five years. The share of SHG finance is expressed as a
percentage of the Net Bank Credit. The data is tabulated below and plotted as a
bar-chart showing the growth in percentage.

Table 6.Finance to SHGs Vs Net Bank Credit

2005-06 2006-07 2007-08 2008-09 2009-10

NET BANK CREDIT 261975 463993 640917 789590 1069319
SHG LOANS 93 206 321 975 2266
% 0.04% 0.04% 0.05% 0.12% 0.21%

Chart-7

1200000

1000000

800000
NET BANK CREDIT
600000 SHG LOANS

400000

200000

0
2005-06 2006-07 2007-08 2008-09 2009-10

INFERENCE:

There is increase in the cumulative share of SHG over the years even though
nominal. The share is 0.21% of the NBC in 2010.

SHG FINANCE COMPARED WITH TOTAL PRIORITY SECTOR

LOANS

41
The amount of credit delivered in SHG sector has been compared with the Total
Priority Sector advances of the Bank. The percentage share is worked out based on
the data. The data is tabulated below and expressed as a bar-chart with percentage
line.

Table 7 . SHGs vs Total Priority Sector Loans-last 5 years

2005-06 2006-07 2007-08 2008-09 2009-10

TOTAL PRIORITY SECTOR LOANS 167507 202672 249391 319371 443076

SHG LOANS 93 206 321 975 2266

% 0.06% 0.10% 0.13% 0.31% 0.51%

450000
400000
350000
300000
250000
200000 TOTAL PRIORITY SECTOR LOANS
SHG LOANS
150000
100000
50000
0
2005-06
2006-07
2007-08
2008-09
2009-10

INFERENCE:

The share of SHG in total Priority Sector Advances has been increasing
nominally and the percentage is 0.51% during 2010.

COMPARISON OF SHG FINANCE TO AGRICULTURAL LOANS

42
The credit disbursals to SHGs have been compared with Agricultural Loans for
the last five years to analyze the potential of expansion in the agricultural
portfolio. The data is tabulated below and expressed as a bar-chart.

Table 8.SHG finance Vs Agricultural Loans

2005-06 2006-07 2007-08 2008-09 2009-10

AGRICULTURAL LOANS 36097 36915 50008 68433 147035
SHG LOANS 93 206 321 975 2266
% 0.26% 0.56% 0.64% 1.42% 1.54%

Chart -10

160000
140000
120000
100000
80000
AGRICULTURAL LOANS
60000 SHG LOANS
40000
20000
0
2005-06
2006-07
2007-08
2008-09
2009-10

INFERENCE :

The loans to SHGs have been increasing and the percentage of SHG loans to
Agricultural Advances is 1.54% as on 31 March 2010.

COMPARISON OF SHG FINANCE TO LOANS TO WEAKER

SECTIONS.
43
The SHG finance is compared with the credit given to weaker sections of the
society since the SHG finance started as a helping hand to the weaker sections.

Table 9. SHG vs Loans to weaker sections-last 5 years

2005-06 2006-07 2007-08 2008-09 2009-10

LOAMS TO WEAKER SECTIONS 22096 22891 23686 64144 76414
SHG LOANS 93 206 321 975 2266
% 0.42% 0.90% 1.36% 1.52% 2.97%
CHART 10

80000
70000
60000
50000
40000
LOAMS TO WEAKER SECTIONS
30000 SHG LOANS
20000
10000
0
2005-06
2006-07
2007-08
2008-09
2009-10

INFERENCE : The percentage of SHG loans to that towards weaker sections

have been increasing. But the share is nominal at around 3% on 31 March
2010.

AWARENESS LEVEL OF MICRO CREDIT CONCEPT AMONG

FEDERAL BANK LIMITED

44
Around seventy percent of the branches of the Bank are located in rural/semi
urban areas and there is enormous potential for the Bank in the portfolio.
However , the exposure of the Bank in SHG finance is nominal and confined
to centers like Alleppey , Thiruvananthapuram , Pathanamthitta and
Eranakulam districts of Kerala.

However , the need for exposure has been identified by the bank and steps
have been initiated for improving the awareness level of the officials at
various levels.

The following steps have been taken in this respect :

1. Bank issues circulars to the branches/ offices providing details of

instructions to be followed , RBI guidelines , NABARD guidelines etc.
2. Bank sends three managers / officials of potential branches for the
training programs at external institutions like Regional Training Centre ,
NABARD , National Institute of Banking Management, Pune , Bankers
Institute of Rural Development , Lucknow , College of Agricultural
Banking , Pune etc.
3. Bank gives training to managers / officials of potential branches at
bank’s own training college .
4. Bank conducts contact programmes with the NGOs promoting self help
groups, with the participation of group members.

Further and continuing efforts are required for imparting knowledge to the
officials of the bank to improve their awareness level about the opportunity
available and the procedures to be followed for successful implementation of
the schemes .

USE OF SHGs IN MARKETING /SERVICING OF BANK’S

PRODUCTS

45
 The bank formulated a scheme for utilizing the services of SHGs for the
routine functioning of bank’s branches , during 2005 . SHGs with good track
recovers are appointed as agents on commission basis for

1. Selling various products of the bank

2. Collecting loan installments from customers
3. Rendering value added services to deposit clients like collection of
cheques , delivery of demand draft, cash , cheque books ,registering for
debit cards , internet banking and other technology enabled products etc.
4. Selling of insurance products of companies with whom the bank has
corporate agency arrangements .
5. Collection of utility bill payments
6. Distributing the brochures/pamphlets/notices on various deposit /loan
schemes of the bank.

Detailed instructions are provided to branches and Regional Offices of the

bank for implementing the scheme.

However, there has been very slow progress in the implementation of the
scheme. The reasons for the slow pick up of the scheme can be attributed to
the slow growth in SHGs. Even in areas where SHG finance is growing , the
formal utilization of the groups by the branches have not improved .

More thrust is required at Regional levels for implementation of the scheme

and regular follow up for effectively utilizing the services of the groups for the
benefit of the bank.

LIMITATIONS AND CONSTRAINTS

46
The present study is made on the Self Help financing of The Federal Bank
Limited for analyzing the position of the bank in the scheme of finance and the
advantages for the bank in extending the finance.

a. The study mainly focuses on the opportunity available to The Federal

Bank Limited for expanding thrust in extending finance to Self Help Groups
and hence is limited to the macroeconomics of the finance. The operation of
the scheme and the performance at the branch level has not been examined.
b. The scope of study is limited to a period of five years from 2005-10.
c. The data available is vast in nature and hence detailed analysis of all
related aspects has not been possible. The study had to be focused on a very
small spectrum, giving thrust to the analysis of the present position of the
bank.
d. The data for the study has been obtained from the published reports of
NABARD, RBI and the bank and the study is based on the same.
e. The data of the bank is collected from the head office of the bank where it
has been complied after collecting from the branches / offices. There are
changes that the accuracy may be affected during reporting by branches and
compiling at head office.
f. The collection of data is restricted to the requirements of reporting to
Reserve Bank of India, NABARD, etc. and the utility of the data to the bank
is inadequate.
g. The rational conclusions made in the study are based on personal
interaction with the officials of the bank, the voluntary organizations, the
members of the group, and are not quantifiable.
h. The continued patronage of NABARD and the support from the central
and state governments are inevitable elements for the existence and
sustainability of the groups and the scheme of finance. The viability and the

47
saturation of the groups, the requirements for continued existence of NGOs,
the risks involved etc. have not been covered in this study.
i. Detailed interaction with the financed units, nature of activities
undertaken by the units and members, the quantum of their expanding
banking needs, the social benefits derived etc. are beyond the scope of the
present study.
j. The schemes for expanding the portfolio by the bank, making projections
for future years, collection and detailed analysis of the figures at the branch
level, identification of potential centers etc. are areas which require future
studies.

48
 CHAPTER 6
FINDINGS AND SUGGESTIONS

49
FINDINGS AND SUGGESTIONS

Micro Finance, the provision of a wide range of financial services to the

poor on a sustainable basis, has proved to be immensely valuable. Access to
financial services has allowed many families throughout the developing
world to make significant progress in their own efforts to escape poverty. In
recognition of the potential of the micro finance to address the diverse
aspects of poverty, the United Nations launched the International year of
micro credit 2005. In the words of Mr. Kofi Annan, then UN secretary
general “The importance of micro finance is identified as an integral part of
our collective effort to meet the Millennium Development Goals. The
challenge before us is to address the constrains that exclude people from full
participation in the financial sector”. The importance of microfinance and
the relevance of participation in the process by the banks globally in the
evident from these words.

In the light of the forgoing study and analysis, summary of the findings is
listed and a few conclusions are made.

FINDINGS

1. The number of loans disbursed under SHG finance by Federal Bank as on

31 March 2005 was 285 and it increased to 422 in 2006, 510 in 2007, 1140
in 2008 and 2078 in 2009 . The amount of loan disbursed was 114.57 lakhs
in 2006, 171.53 lakhs in 2007, 271.09 lakhs in 2008, 917.29 lakhs in 2009
and 1373.78 lakhs in 2010
2. The market share of the bank taking into consideration the cumulative
amount of loan disbursed as on 31 March 2010 was 14% in Alleppy and
Pathanamthitta regions, 8% in Ernakulam and Trivandrum regions, 3% in
Kozhikode region and 1% each in Kottayam and Thrissur regions in the state
of Kerala

50
3. A comparison of the performance of SHG finance by Federal Bank with
some other banks shows that the bank has a nominal share of 0.30% in the
sector of finance on a national level, while the state bank of India holds a
29.3% share, Andhra Bank 12.1% and ICICI bank holds 5.95. Among Kerala
based banks, State Bank of Travancore holds 0.7%, Dhanalakshmi Bank
0.4% and South Indian Bank 0.2%.
4. As per the demand versus recovery analysis made, the % recovery is
100% during 2006, 93% in 2007, 96% in 2008, 97% in 2009,and 95% in
2010.
5. The number of savings Bank accounts increased from 3411 in 2006 to
8747 in 2010. The amount in Savings Bank accounts also correspondingly
increased from 12858 in 2006 to 74183 in 2010.
6. The share of SHG loans in net bank credit increased from 0.04% in 2006
to 0.21% in 2010.
7. The share of SHGs in Total Priority Sector loans increased from 0.26% in
2005 to 1.51% in 2010.
8. The share of SHGs in agricultural loans increased from 0.26 in 2005 to
1.54% in 2010.
9. The share of SHGs in Loans to weaker sections increased from 0.42% in
2005 to 2.97% in 2010.
10.The bank has identified the need for improving the awareness level of
micro credit concept among its officials.
11.The bank has formulated schemes for utilizing the services of the groups
for marketing/ servicing of its various products

51
SUGGESTIONS
Based on the findings and conclusions drawn from the study the following
suggestions are made:
1. The bank need to focus more attention to the scheme of finance taking
into account the benefits for excellent recovery and scope for expanding
outreach especially in the state of Kerala where the bank is having a good
number of rural / semi urban branches.
2. There is scope for improvement in increasing the share of finance in
Ernakulam and Trivandrum regions of the bank, which can be achieved
through identifying potential branches in the region and resorting to
concentrated efforts.
3. The exposure of the bank in the northern Kerala in the scheme of finance
is very low. Intensive efforts are required in the regions of Thrissur,
Kozhikode and Kottayam to increase the bank’s presence. There is ample
scope in the districts of Malapuram, Wayanad, Kazarkode etc.,where the
SHG initiative is getting deep rooted.
4. Professional approach is needed for implementing the scheme, collecting
relevant data for identifying potential areas, following up of performance of
potential branches , facilitating the process of loans and providing necessary
support to the branch level officials.
5. Most of the people in the rural areas are not aware of the financial
inclusion programme of the government . So bank should take initiatives to
increase awareness about financial inclusion to rural people through
campaigns and other promotional activities.
6. Setting up of a micro enterprise development cell, which may provide,
services like training , financing, advisory, and host of other services, in the
relation to micro enterprises development.
7. Network of groups may be used by the bank to strengthen its marketing
efforts.

52
 8.The bank may contemplate opening of specialized branches for micro
credit in each district, which will cater credit requirements of SHGs NGOs
and MFIs .
9.The bank should take initiatives in expanding the business of the bank
using the SHGs not only by giving credit, but also utilizing their services
for marketing bank’s products.
10.Most of the SHGs have only partial utilization of bank credit. There
must be proper monitoring from the part of bank for the effective utilization
of bank credit.
11. The bank needs to chart a vision plan , achievable in terms of short term
missions for every year

53
NEED FOR A VISION PLAN

VISION BUILDING PROCESS

The bank needs to chart a vision plan for expanding the portfolio of association
with Self Help Groups. Vision building process on micro finance is a structured
long-term perspective planning for the bank to achieve larger outreach and more
exposure towards a risk free lending portfolio. A vision has to be achievable in
terms of short-term missions for every year or once in two years. Such missions
are otherwise milestones in the long journey towards reaching the vision to be
reached over a period.

IDEAS ON METHODS FOR VISION BUILDING

A list of futuristic ideas to conceive a larger vision in terms of priorities is

suggested below:
 At least one village as SHG intensive village where 100% of women population
will be covered.
 Each branch in rural area to cede on an average 25 SHGs and systematically
credit link all the SHG in that village.
 Opening of savings bank account or SHG shall be automatic and without the
endorsement of block officials or other officials and needed to be as ‘no frills’.
 Bank shall strive to reduce the application turn around time to a fortnight in line
with priority sector guidelines and bring down the time lag between the SB account
opening and credit linkage.
 Line of credit for all SHGs of over three years old and recruiting at least one
third of the SHG from third year onwards, another third in the second year and the
remaining third in the fifth year for livelihood to the households.
 Achieve an annual growth rate in SHG lending at least 25% at branch level .
 Evolve to graduate from retailing to wholesaling in micro finance lending.

54
 Ensure that SHGs becoming eligible gets repeat linkages by keeping a threshold
of at least 50% of the SHGs rank for repeat linkages.
 Set a new vision in terms of per branch business and per employee business in
terms of number of SHGs credit linked and quantum o credit deployed.
 Establishing micro credit cells at head office and Regional Office levels.
 Setting a certain share of micro finance clients to be mainstreamed as regular
clients of the bank.
 Using SHGs to maximum advantage in addressing to overcome the NPASs and
strive to clear off all NPA accounts through SHGs.
 Recruiting more women agricultural officers to serve the micro finance mandate
so that there is better ownership by SHGs and bank is organically weaved into
SHG based lending.
 Announcing and celebrating SHG year / month/ week at branch/ bank level.
 Participating in joint identification of prospective SHGs for credit linkages in
large programes.
 Agreeing on commitment to support government initiatives in SGSY
programme.
 Establishing tie-ups with committed voluntary agencies for their banking needs
and banks business needs.
 Framing monitoring methods for assessing, analysing, and expanding the
portfolio.
 Respect for the SHG clients as any other customer of the bank.
 Look at micro finance as an approach and generate as many SHG based micro
finance products as possible.

55
 The innovations that are taking place in the rural hinterland are many. The
Central and State Governments have been trying to reach out to the rural
mass by announcing the programs like developed India 2020, PURA
(providing urban amenities in rural areas ), “Bharat Nirman” programe etc.
Each of these innovations offers potential to replicate with a view to reach the
unreached. The pace, depth , and universality of these changes are exciting.
As competition among banks intensifies that there is a very need that
Broadening and deepening of the innovation process is viewed with interest.
Self Help Groups and micro credit are the pillars of growth in rural areas and
Voluntary Agencies and banks play pivotal role in the process of growth. As
a growing bank with considerable rural presence, The Federal Bank Limited
needs to involve intensely in the area.

56
CONCLUSIONS
On the basis of the analysis following conclusions are made:

1. There is increasing in the number and amount of credit delivered to SHGs

over the years. The rate of growth in the finance was gradual in the initial
period and has reached out around 50% in the recent years. The growth
registered by Federal Bank in micro financing through SHG in the recent
years is on the higher side as compared to earlier years.
2. The bank has good market share in Alleppy and Pathanamthitta regions.
There is scope for improvement in Ernakulam and Trivandrum. Focus is
required to increase the presence in Kozhikode , Kottayam and Thrissur
regions, which are potential regions for the business. Northern region of
Kerala comprising Kasarkod, Kannur, Kozhikode, Wayanad and Malappuram
is not fully explored.
3. On the national level, bank holds a nominal share of 0.3%. The bank
being a Kerala Based bank, the presence outside the state is limited to
commercial centres and there is not much scope for expanding the business
outside Kerala , except in Tamil Nadu, Karnataka and Andhra Pradesh.
4. The recovery percentage is almost 100% depicting that SHG finance is a
low risk portfolio.
5. The Savings Banks accounts have increased substantially due to the SHG
linkage since the groups open thrift and savings accounts for their operation.
The increase is more than 50% in the recent years.
6. The SHG finance is increasing over the years. However, the share on Net
Bank Credit, Total Priority Sector Advances, Agricultural Advance and Loans
to weaker Sections show marginal increase only.
7. There are quite a few expert officials in the bank dealing with the
portfolio. However, the general awareness level is low and there is a need to

57
improve the awareness of the officials at least in the rural and semi urban
areas.
8. The bank has taken initiatives in expanding the business of the bank
using SHGs not only by giving credit, but also utilizing their services for
marketing the banks products , recovery of other loans etc., which is a move in
the right direction.
9. The participation and lending to SHG is fragmented and limited to certain
pockets. Most of the potential areas are not attended. There is no strategic
planning, split into short term goals. There is need for long term vision plan.

58
 BIBLIOGRAPHY

WEBSITES

59
Along with the secondary sources of data, the following websites were also
used :

 www.microfinancegateway.org
 www.kerala.gov.in
 www.rbi.org
 www.nabard.org
 www.federalbank.co.in
 www.adb.org
 www.gsgsk.org
 www.kudumbashree.com

REPORTS

 Annual reports of The Federal Bank Limited

 Annual reports of NABARD

 Economic survey (2008-09)

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