YES Bank-Business World Transformational Series 2.

Institute Name: Institute of Management Technology, Ghaziabad Institute Address: Institute of Management Technology, RajNagar, Hapur Road, Ghaziabad-201001. Participants Name: Srikanth Konduri (Finance), S Bharadwaj Adibhatla(Marketing) Phone Numbers: 7838590567, 9953901018 E-mail Ids: srikanthkonduri@live.co.uk, satyabharadwaj@yahoo.com Team Name: Path Makers

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YES Bank-Business World Transformational Series 2.0

Executive Summary: Though India boasts of being a fastest growing economy and consistently clocking a GDP of 8-9%, it is still struggling to include the people from lower income strata in its growth story. Many subsidies and incentives sanctioned to uplift them are either not reaching to the intended beneficiaries or diverted by the middle men. Moreover, the tendency to borrow from local moneylenders at high interest rates is aggravating the existing situation. Need of the hour is to provide financial services to those excluded sections in the urban & rural areas at an affordable cost .However, it is difficult & costlier to establish a bank in every village. So, the RBIs new policy initiatives for connecting people with banking system can be driven forward through the widely penetrated Mobile services complemented by expertise of Information Technology. Branchless banking models using mobile telephones can be developed and the business correspondents like local kirana stores, retired teachers, self-help groups etc. can be utilized to provide financial services like remittances, deposits and withdrawals. M-Pesa is one such successful solution in Kenya, which has a low penetration of banking services, led to 21% of its GDP transferred through mobile services.

Exhibit 1: Earners having Bank Accounts (Percentage of total earners) Annul Income (INR) Urban Rural Total <50,000 50,000100,000 100,000200,000 200,000400,000 >400,000 All 34.1 75.5 91.8 95.5 98 61.7 26.8 71.2 87.4 93.6 96.3 38 28.3 73 89.9 94.9 97.6 44.9

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YES Bank-Business World Transformational Series 2.0

Source: RBI report on Currency & Finance 2006-08 Exhibit 2: Population per Bank Branch (in thousands) Year Rural Urban Total 1969(June) 1981(March) 1991(March) 2001(March) 2007(March) 82 20 14 16 17 33 17 16 15 13 63 19 14 16 16

The above exhibits indicate that very less no. of earners in rural areas have bank accounts and large no. of people per bank branch. So, a system like mobile banking is really helpful not only to include them in the formal banking sector but also provides a huge market potential for the bank. Partnerships with mobile payment gateways like Obopay which will facilitate the secured monetary transactions. BCs (people/units like retailers, retd. Govt. teachers who can encourage or help out to perform mobile transactions) can be utilized to spread the awareness cum usage among people through community meetings wherein knowledge about better farming & harvesting techniques can be taught along with the financial benefits of using m-banking systems Spreading awareness and benefits of this solution through BCs like panchayats Office, wise families in the village, communicating govt. benefits through school teachers and self-help groups. Aim is to keep the NPAs minimum, by using the model of MFIs who usually assign loan to a group of people and make the entire group as a whole responsible for

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YES Bank-Business World Transformational Series 2.0

clearing the debt so that all the members will make sure that no other member from their group is defaulting Use of third part outlets, such post officers and small retailers, that act as agents for financial services providers and that enable customers to perform functions that require their physical presence, such as cash handling and customer due diligence for account opening. Hence the adoption of mobile banking service by banks, reduces their operating costs, by eliminating the need for costly call centres and customer service help. Using a mobile platform such as SMS text messaging for simple and repetitive tasks such as reminders about payments due or balance requests can reduce the burden on IT and personnel resources. Using secure and integrated messaging platforms means reducing the costs and errors associated with paper-based payments. The saving in the costs of microfinance loans to rural poor can be observed from the experiences of the mobile banking services- M-Pesa of Kenya, G-Cash of Phillipines, Wizzit of South Africa. Roll-Out Strategy is done as a 3-step process: First step involves providing a secure & easy to use remote payment system for enabling payments over a distance (remittances). Then it will be easy to offer saving products based on regular payments, as there is no credit risk involved here. Later, the behaviour of the customers savings and payments can be studied to determine his/her credit score and can introduce lending products. Implementation of UID in India will further ease the procedure for creation of accounts & disbursal of loans to the recipients.

Basically, it should address the following key issues for the service to be adoptable and sustainable: Eligibility-Stringent KYC norms of telecom companies can be leveraged to sanction a new bank account easily.
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YES Bank-Business World Transformational Series 2.0

Solution should authenticate every eligible customer before the processing of a transaction through a secured payment gateway. Besides, anti-theft and device recovery features via GPS have to be kept in place MIS system Though it incurs high initial cost for setting up a reliable & robust MIS system, it is highly required to make the solution scalable for future increase in demand Need of a Model driven cum Proportionate regulation-adhering to the bank-based model norms of RBI and proportionality in regulation of various banking services The product should be marketed as the viable solution for easy sending and secure saving of money. Places of marketing can include weekly market areas (mandis), banners in all the rural govt. offices, jingles over the radio, conducting community meetings with the help of local BCs. Once a customer is encouraged to transfer money remotely through this service, he/she will always motivate the receiver to use this service as both sender and receiver needs to have this app. Installed on their mobile phones. Once the service is established, word-of-the-mouth marketing will take place automatically. No. of Loan Taking Earners (MM) Purpose of Loan Financial Emergency Medical Emergency Business Needs Others Total Rural 20.2 12.5 7.1 36.8 76.6 Percent of Loan Taking Earners Urban 31 11.7 14 43.3 100

Urban Rural 4.7 1.8 2.1 6.5 15.1 26.3 16.3 9.3 47.1 100

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YES Bank-Business World Transformational Series 2.0

From Non-institutional Sources Financial Emergency Medical Emergency Business Needs Others Total From Institutional Sources Financial Emergency Medical Emergency Business Needs Others Total 4.8 2 3.2 24.2 34.2 1.3 0.3 0.9 5.3 7.8 19.6 8.1 13 59.3 100 24.9 6 17.1 52 100 10.5 3.9 22.6 52.4 1.5 1.2 3.8 9.9 20.1 7.5 43 100 14.8 12.3 38.6 100 15.4 3.4 29.4 34.3

The above exhibits indicate that more no. of people are seeking loans for financial and medical emergencies. This means there will be more chances of people seeking our loans if the loan products are offered around these needs. This table also gives a framework approach for the banker to configure the loan portfolio as per the needs & requirements of the rural users, so that there are fewer defaulters & increases the trust of depositors in the system, thereby containing the value of NPAs. As an example, had the banker proposed to have Rs.10000 Crore allocated towards rural financing, Rs. 2500 crore of it can be allocated to financial emergency needs, Rs.1500 crore towards medical emergency needs and remaining among other purposes mentioned above.

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