Issue 1 - September 2012

Department of Financial Services Ministry of Finance Government of India

Banking, Insurance, Pension

A Journal of the Department of Financial Services

Theme :

Financial Inclusion

Contents
Editorial and Messages Financial Inclusion Recent developments in Banking Recent developments in Insurance Recent developments in Pensions Important appointments

Publication issued by the Department of Financial Services, Ministry of Finance, Government of India

odern economies depend upon efficient allocation and optimal utilisation of savings and credit. Banks, Insurance companies and Financial Institutions (FIs) play a pivotal role in undertaking this function and ensuring that high economic growth is sustained. In India, these institutions have facilitated the growth in the economy and have displayed remarkable resilience in the post financial crisis period. In the recent past, though the Indian economy has slowed down, Financing, Insurance, Real Estate and Business Services continue to record impressive growth of over 9 per cent. To improve the functioning of various FIs, the Department of Financial Services (DFS) has taken several initiatives and many more on the anvil. These include steps aimed to achieve effective financial inclusion, improve flow of agriculture credit and lending to minorities and for education, payments and receipts through electronic mode, infrastructure financing, debt recovery, timely settlement of insurance claims, customer grievance redressal, pension reforms etc. The Banking, Insurance and Pension - A Journal for the Financial Services will be published at the beginning of every quarter with a view to effectively disseminate the developments in the financial services sector. Each issue covers a specific theme. The theme of the first issue is Financial Inclusion. Insurance for the masses would be the theme for the next issue . We at DFS look forward to reach out to the readers for deeper understanding of financial services and undertaking the requisite course correction in policy interventions. Readers are invited to contribute an article on the theme of the next issue and provide their feedback and suggestions for further improvements in this Journal.

Editorial

Message from the Finance Minister

Shri P. Chidambaram Finance Minister

Department of Financial Services - Quarterly Journal

Messages

(Expenditure & Financial Services)

Shri Namo Narain Meena Minister of State for Finance

Shri D.K. Mittal Secretary, Department of Financial Services

September 2012 - Issue 1

Financial Inclusion

Why Financial Inclusion

he objective of Financial Inclusion(FI) is to extend financial services to the large hitherto unserved population of the country to unlock its growth potential. In addition, it strives to achieve more inclusive growth by making financing available to the poor in particular. FI enables Banks to channelize the savings of the unserved population of the country and offers new business avenues for lending to this group. Prior to the recent sustained efforts on FI, the banks were barely scrapping the potential business ,both on the deposit and lending side. Rural incomes have grown rapidly in a short time span due to high priority accorded by the Govt. to rural development and employment programs. A survey by CRISIL, a ratings and research firm, has reported in August 2012 that for the first time since economic reforms began two decades ago, consumption in rural India is growing faster than in

Swabhimaanthe Financial Inclusion Campaign

To increase the penetration and FI, the Swabhimaan campaign was launched in pursuance of Budget Announcement (201011). Government advised banks to open branches in all habitations of 5,000 or more population in under-banked districts and 10,000 or more population in other districts under this campaign. In two years time ending March 2012, Banking facilities were provided to 74,194 such villages. Further, 62,468 Banking Correspondent Agents (BCAs) were appointed and about 3.16 FI accounts had been opened by end of March, 2012. To build on the momentum and success achieved, the Swabhimaan campaign was extended as per Budget Announcement (2012-13) to habitations with population of more than 1000 in North Eastern and hilly States and to other habitations which have crossed population of 2,000 as per Census 2011. About 45,000 such habitations have been identified to be covered under the extended Swabhimaan campaign. Bank branches in 1237 such villages have been opened in the current year.

urban areas. Between 2009-10 and 2011-12, additional spending by rural India was Rs. 3,750 billion, significantly higher than Rs. 2,994 billion by the urban population. Banks have a key role in converting into business opportunities, the untapped large no. of small deposits in rural areas and facilitate achievement of the aspirations of the bulk of our population in these areas. The increase in rural income will open up various types of lending. Not only will the demand for business/commercial, education, home and personal loans increase substantially, various types of services such as remittance facilities will need to be provided by the banks through modern payment system to a very large number of people who have hardly interfaced with a modern financial system. The process is expected to enable manifold growth in the banks business. Thus, FI is a win win situation for both the hitherto uncovered people and the banks.

Department of Financial Services - Quarterly Journal

Financial Inclusion
Business Correspondent Agent
Business Correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM and to ensure a closer relationship between poor people and the organized financial system. RBI has permitted various individuals/entities that the banks may engage as Business Correspondents. Business Correspondent Agents (BCAs) are the individuals appointed by the Business Correspondents at the point of customer interface or retail outlet of a bank.

Policy for Branch Expansion

he first step in FI is the interface between a bank customer and a bank. In India, conventionally this interface has been through a normal brick and mortar bank branch. Since banking is essentially a commercial business there are limits to which such bank branches can be spread out in different areas to cover the entire population. It is only in the recent past that with the use of communications technology that a

bank branch has been able to spread out geographically. Scheduled Commercial Banks (SCBs) had 97,473 branches in the country as on 30th June, 2012.Out of these 63.12% are located in rural and semi urban areas. To increase the outreach of banking services and to promote the FI efforts of banks, detailed guidelines have been issued by the Government whose salient points are-

l Setting

up more brick and mortar branches with the objective to have a bank branch within a radial distance of 5 km.

lopen To

bank branches in all habitations of 5,000 or more population in under banked districts, and 10,000 or more population in other districts

RBI has provided for a Branch Authorization Policy under which SCBs are permitted to open branches in rural, semi urban and urban areas, in North Eastern States & Sikkim and in Tier 2 to Tier 6 centres (population upto 99,999) in rest of the country, without having to take permission, subject to reporting. In their Annual Branch Expansion Plan (ABEP), SCBs are required to allocate at least 25% of the total number of branches proposed to be opened during the year in unbanked Tier 5 and Tier 6 centres (population upto 9,999) which do not have a brick and mortar structure of any SCB for customer based banking transactions. To incentivize banks to establish additional branches in Tier II centers, obtaining the prior approval of the RBI is no longer a requirement in the case of commercial banks looking at opening branches in such centers. The RBI has also incentivized banks by authorizing them to set up additional branches in Tier I centers for every branch they open in Tier II centers.

Launch of Ultra Small Branches(USB) by the Bank of Baroda

Ultra Small Branches (USB)

To minimize the cost of FI initiative, ensure universal accessibility to a range of banking services and instill confidence amongst bank customers, Ultra Small Branches(USBs) are set up at all places where opening of a brick and mortar branch is presently not viable. USBs comprise an area of 100-200 sq. feet where a bank-designated officer will be available with a laptop at a predetermined day and time of the week. The BCA also operates from such premises. The BCA provides cash dispensation services and the bank officer offers other bank services, undertakes field verification and follows up on banking transactions.

Banking presence ensured in all unbanked Blocks by March, 2012

There were 81 unbanked Blocks in the country, as on 31.03.2011. With the persistent efforts of the Government, banking facilities have been provided in all the unbanked Blocks by March, 2012, either through Brick and Mortar Branches or Business Correspondents Model or Mobile Banking. As a next step, Banks have been advised to cover all those blocks which have so far been covered by mobile banking only, with BCA and USBs.

September 2012 - Issue 1

Financial Inclusion
FI First product- basic bank accounts (excerpts) by Mr. Y. P. Issar, General Manager, Financial Inclusion Division, Punjab National Bank
Indian banks offer a savings bank account to all its individual customers. RBIs 2005 initiative to introduce no frill accounts where no introductory deposit or very low minimum balances were to be maintained proved very effective as the banking system has opened 103 million no frill accounts as on March 2012 An unsung hero of our bank accounts group is the Small Account created under Prevention of Money Laundering Rules, 2005 for those having no KYC documents. This account can be opened by simply submitting own photograph and declaring the residential address and stating before a bank officer in a CBS branch that one does not have any proof of identity or residence and promising to submit KYC document with 12 months. Small accounts has no introductory balance, maximum balance allowed is Rs 50,000, maximum credit of Rs 1,00,000 per year and maximum withdrawals of all types are Rs 10,000 per month, with foreign inward remittances not allowed. What better account can be offered to crores of migrant workers within the country! Basic bank accounts remain only a first step in the long march to FI- though a very critical first step. The challenges of access, usage and quality are ongoing concerns. Covering our population with meaningful bank accounts is likely to remain work in progress for a long time to come and shall require well knit efforts on the part of Indian banks under the close support and guidance of the Government and RBI. (The author can be reached at ypissar@pnb.co.in)

Opening of one bank account per family

Opening of a Bank Account is one of the key requirements in FI. The country has made appreciable progress on this parameter during 20012011 as per Census data on Households (HHs) Availing Banking Services.
Number of Households availing Banking Services 2001 Total Rural Urban 68,230,642 41,639,949 26,590,693 2011 144,814,788 91,369,805 53,444,983 Total Number of Households 2001 191,963,935 138,271,559 53,692,376 2011 246,692,667 167,826,730 78,865,937

Percentage of Households availing Banking Services in 2001 and 2011

Percentage of Households availing banking services 2001 Total Rural Urban 35.5 30.1 49.5 2011 58.7 54.4 67.8

Source: Census of India

In 2001, slightly more than 35% of the total number of HHs availed banking services. In rural areas, less than one in three HHs and in urban areas, one in two HHs availed banking services, 11 years ago. In 2011, the position has improved considerably with nearly 3 out of every 5 HHs in India availing banking services.In rural areas more than one in two and in urban areas more than 2 out of every 3 HHs availed banking services. During 2001-2011, the no. of HHs availing banking services overall has increased by 112 % or a

CAGR of 7.8 % per annum. In rural areas they have increased by 8.2 % p.a and in urban areas by 7.2 % p.a. Prime Minister, in his Independence day speech of 2012, has announced that it will be our endeavour to ensure that all households benefit from bank accounts in the next 2 years. It has been decided to take up this task on a campaign basis. Accordingly, banks have geared up their branches and it is expected that most of the families shall have a bank account by the end of this year.

Development of Geographical Information system (GIS)

Geographical Information System (GIS) can be effectively used to assist the decision makers in planning for expansion of infrastructure of the Banks by highlighting the pockets of the hinterland which are yet to have access to these facilities. A web based application to develop a GIS for the banking network in the country has been launched by the DFS. The project envisages capturing existing information about bank branches, ATMs, Business Correspondents, Clearing houses and Currency chests of Scheduled Commercial Banks at village level. This facility enables the Banks to easily identify the deficit areas as per the guidelines of the Department, where expansion of branch/ ATM/BCA network needs to be carried out.

Department of Financial Services - Quarterly Journal

Financial Inclusion
Households availing Banking services State wise position
In 2011, the percentage of Hhs availing Banking Services in major States.

Basic Savings Bank Deposit Account

RBI has advised all Scheduled Commercial Banks/Regional Rural Banks/all Cooperative Banks to offer a Basic Savings Bank Deposit Account which will offer minimum common facilities to all their customers such as ATM card or ATM-cum-Debit Card, no requirement of any minimum balance and no charge for nonoperation/activation of in-operative account.

Bank Accounts for Migrant labor

To inculcate saving habits and to extend banking facilities to the migrant labour and street vendors/ hawkers in urban areas, a drive has been launched to open their bank accounts. Oriental Bank of Commerce (OBC), Convenor State Level Bankers Committee (SLBC ) of Delhi launched this drive. The bank (i) started 24x7 Call Centre with toll-free telephone number, telephone number for SMS and has created e-mail ID for e-mail queries, (ii) imparted training to the Call Centre Staff, (iii) provided wide-publicity of the campaign , (iv) identified the target pocket and (v) undertook regular monitoring of the accounts opened. The drive has started giving results with nearly 42,000 accounts opened. All PSBs have now been advised to initiate similar drives in the State(s)/UTs where their Bank is SLBC Convenor.

Access to Banking : Major States

HP Uttrakhand Kerala UP JK Maharashtra Maharashtra Rajasthan Punjab Karnataka All India Gujarat Jharkhand AP TN WB Chattisgarh MP Odisha Bihar Assam 0 10 20 30 40 54 53.1 52.5 48.5 48.8 46.6 45 44.5 44.1 50 60 70 80 90 100 58.7 57.9 80.7 74.2 72 72 68.9 68.1 68 65.2 61.1 89.1

Simplification of Savings Bank Account Opening Form

To ease the opening of bank account by the migratory labour, street hawkers, and other poorer sections of the society, Simplified Account Opening Form has been designed .Banks have been requested to put in place a system to enable the customer to fill the account opening form on an online mode. This Form contains sections for Small Account, Accounts with Introduction and Basic Saving Bank Deposit Account.

September 2012 - Issue 1

Financial Inclusion
Simplification of Know Your Customer (KYC) Guidelines
To open a Regular Account, a customer has to provide documents on (a) Proof of identity, and (b) Proof of address, as per RBI guidelines. RBI has provided an indicative list of documents that can be relied upon for the aforesaid proofs. It has also allowed each bank to specify any other document which the banks can use for this purpose. Customers face difficulties in providing the requisite documentation for opening regular bank accounts. The Government has tried to address this problem . To simplify the issue of documentation, a Sub-Group of senior officers of some select public sector banks (PSBs), constituted by DFS, has suggested uniform KYC guidelines and a common list of documents, for guidance and adoption by the PSBs. The Sub-Group noted that most banks/FIs have either not specified the documents under the category any other document which their branches/offices may rely upon for opening of accounts, or there is no uniformity in such documents across banks. To overcome difficulties being experienced in this regard, the sub-Group has suggested a list of documents that can be relied upon by the Banks as Proof of identity (30 documents) and Proof of residence (33 documents) at the time of opening the accounts. The KYC Guidelines and the simplified account opening form have been sent to the Indian Banks Association (IBA) for adoption by the banks.

Mobile phone banking

Mobile phone banking enables access to basic financial services through mobile phones. With its potential for providing the unbanked with banking services, mobile banking has become increasingly prevalent in both developed and developing countries. The potential of mobile banking has not been fully realized in India. The Inter Bank Mobile Payment Service launched by National Payments Corporation of India (NPCI) for mobile-based fund transfers and other banking activities was accessible only on a smart phone and hence unavailable to the common man. NPCI has now developed the Common USSD Platform through which Banks can provide banking services through ordinary phones, which will lead to Financial Inclusion in the rural hinterland.

Financial Literacy cum Credit Counselling Center (FLCCC)

The Indian Overseas Bank has set up 14 FLCCCs in Tamil Nadu . FLCCC at Kothagiri was set up mainly for the benefit of tribals of Nilgiris district with the objective of creating awareness about various products & services available from financial institutions.

Inauguration of RTC by Hon'ble Finance Minister

Launch of Mobile Van by the Bank of Baroda

Mobile banking vans by Bank of Baroda

Mobile Vans move within a cluster of villages in close proximity to existing branch. Currently, Mobile vans have been deployed by Bank of Baroda at five centers in Gujarat, Uttar Pradesh, Bihar & Goa. The mobile vans also work as an advertising medium for the bank in rural area.

Rural Training Centre (RTC), Karaikudi by Indian Overseas Bank

Established jointly by the IOB, Indian Bank and NABARD.

Inauguration of FLCCC at Kothagiri, Nilgiris

Department of Financial Services - Quarterly Journal

Financial Inclusion
Boost to e-payments
To achieve quick success in FI, the country has to urgently move from the conventional paper based banking to ebanking. Banks, Governments at the Centre and State level and the RBI need to constantly keep in focus this crucial endeavour. Taking into account the increased volume and value of mobile banking transactions, the RBI has removed the Rs 50,000 per day cap on transactions conducted by this mode, thereby giving a boost to e-payments. However, the regulator has directed banks to set limits for transactions, based on their own assessment of risk and following the prior approval of their board members

RTGS and NEFT Systems for Electronic Payments

National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) are the centralized payments systems. NEFT is an important, vital and convenient delivery channel. For the purpose of encouraging the people to increasingly adopt this channel and to enable them transact through NEFT at anytime convenient to them, the extent of coverage of NEFT and RTGS has been extended to all licensed banks through the sub-membership route. The DFS has also advised all the Public Sector Banks (PSBs) to proactively offer sub-membership of the centralized payment systems (like NEFT and RTGS) to all the banks including the State Cooperative Banks. 80 out of the 82 RRBs which have migrated to Core Banking Solution are offering NEFT services. PSBs could also offer their systems to enable these cooperative banks and Regional Rural Banks to provide the remaining payment products such as ATMs, PoS, Credit and Debit Cards to their customers.

Electronic Benefit Transfer

Government of India as well as various State Governments are implementing a number of welfare schemes, which transfers benefits through Scheme Implementing Department (SID), to the Bank account of the beneficiary. The beneficiary can then withdraw from a branch/ ATM/ BC/PoS terminal and use it for his personal consumption or could even utilise the Merchant PoS terminal infrastructure to make purchases through Debit Card. Such transfers into the account of the beneficiary is referred to as Electronic Benefit Transfer (EBT). While the benefit of schemes like MNREGA are being transferred directly into the bank accounts all over the country, the State Government are being persuaded to ensure transfer of as many as 32 schemes into the account of the beneficiaries directly. This includes all schemes of scholarships, old age pension etc. Substantial progress has been made in all States.

National Electronic Funds Transfer (NEFT) System

RBI has asked all banks participating in NEFT to rationalise the customer charges levied by the banks for NEFT transactions effective from 1August 2012. The maximum charges upto Rs 10,000 are Rs 2.50 and above Rs 2 lakhs they are Rs 25.

Roll out of new KCC Scheme

The Kisan Credit Card (KCC) is an innovative tool of credit delivery to meet the production credit requirements of the farmers in a timely and convenient manner. The scheme is under implementation in the Commercial Banks, Regional Rural Banks (RRBs) and Cooperative Banks. A new scheme for KCC has been circulated by NABARD/RBI in May 2012 which provides for KCC as an ATM card which can be used at ATM/ Point of Sale (POS) terminals. DFS has advised all banks to implement the new KCC Scheme and issue ATM/Debit Cards to farmers in July, 2012.

E-Payment sensitization program for Bank Staff

To create awareness on the usage of electronic mode of payment across various categories of payments made by the banks to their customers, vendors etc. and also the payments made by customers of these banks, e-payment awareness/ training program for sensitization of bank staff are being conducted which will assist in furthering the financial inclusion efforts of banks. IDBI Intech was entrusted the responsibility of conducting such program in the first phase in 10 districts of Haryana in consultation with Punjab National Bank, SLBC Convener, Haryana.

September 2012 - Issue 1

Financial Inclusion
KYC Requirements (indicative list) - (At least one document from each list) LIST I - Documents accepted as proof of identity
1 2 3 4 5 6 7 8 9 10 11 12 13 Passport. PAN card. Voters Identity Card. Driving licence. Job card issued by MNREGA duly signed by an officer of the State Government (For Small Accounts). The letter issued by UIDAI containing details of name, address and Aadhaar number. Identity card (subject to the banks satisfaction) . Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank. Government / Defence ID card. ID cards of reputed Public Sector employers. Pension Payment Orders issued to the retired employees by Central/State Government Departments, Public Sector Undertakings. Photo ID cards issued by Post Offices. Photo identity cards issued to bonafide students by a University, approved by the University Grants Commission (UGC) and/or an Institute approved by All India Council for Technical Education (AICTE), or any Central/State Education Board or Government Agency Photo identity issued by any public authority having proper record of issuance of identity proof which is verifiable from records. Ex-Servicemen Card with photograph. Bar Council / Medical Association / ICAI / ICWAI / ICSI Card with photograph. Student Identity Card with photo issued by reputed colleges with validity during the course period. Defense Dependents Card with photograph. Married woman identity proof with maiden name, if supported with a verified true copy of marriage certificate. Credit card with photo together with statement of such card, not more than three months old. Registered Property document with photo identity. Arms License issued by State / Central Government of India. Freedom fighters pass issued by Ministry of Home Affairs, Government of India with photograph of applicant. Employee State Insurance Card (ESIC) with photograph supported by latest months pay slip. Talati/Patwari (a local govt. official) attestation by way of putting rubber stamp and signature. Gram Sarpanch/Mukhiya attestation by way of putting rubber stamp and signature (For Small Accounts). Photo Bank ATM card. Kissan Photo Passbook. CGHS / ECHS Photo card. Disability ID Card/handicapped medical certificate issued by the respective State/UT Governments/ Administrations. Ration/PDS Card.

14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

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Department of Financial Services - Quarterly Journal

Financial Inclusion
LIST 2 - Documents accepted as proof of residence
1 2 3 4 5 6 7 8 9 10 Ration Card. Electricity Bill. Driving License Bank account statement. Signed letter having Photo from employer (to the satisfaction of the Bank). Letter from any recognized public authority (to the satisfaction of the Bank). Credit Card Statement- not more than 3 months old. Income/Wealth Tax Assessment Order. Signed letter having Photo from Public Sector employer on letterhead. Letter from any recognized public authority having proper and verifiable record of issuance of such certificates. Voter ID Card (only if it contains the current address). Pension Payment Orders issued to retired employees by Government Departments / Public Sector Undertakings, if they contain current address. Copies of Registered Leave & License agreement / Sale Deed / Lease Agreement. Certificate and also proof of residence, incorporating local address as well as permanent address, issued by the Hostel Warden of the University / Institute, where the student resides, duly countersigned by the Registrar / Principal / Dean of Student Welfare. Such accounts shall however, be required to be closed on completion of education/leaving the University / Institute provided the constituent does not give any other acceptable proof of residence to the Bank. Any person including a student residing with relatives, address proof of relatives, along with their identity proof, can also be accepted provided declaration is given by the relative that such a person / student is related to him/her and is staying with him/her. In respect of officials of Central / State Governments and Public Sector undertakings, 18 19 17 who are low risk customers for Bank, Branch Heads may verify the photo / identity and confirm residential address of such officials from independently verifiable sources, to their satisfaction, and permit opening of accounts. This facility is extended only to the Gazetted officers of Central / State Government and Senior Management and above functionaries of Public Sector Undertakings. Latest telephone bills from any telephone service providers and mobile service providers not more than 2 month old, postpaid. Consumer gas connection card / book / Pipe gas bill Certificate from ward/equivalent rank officer, maintaining election roll certifying address of the applicant Post Office Savings Pass Book Caste and Domicile Certificate with communication address and photograph Certificate of address having photo issued by Village Extension Officer (VEO) / Village Head or equal or higher rank officer. Branch to confirm the authenticity of the certificate and that it has been issued by the person who is holding the said office. Court divorce order Marriage annulment order issued by a Court of Law Water bill (not older than 3 months) Property Tax Receipt (not older than 3 months) Insurance Policy Signed letter having Photo from banks on letterhead. Vehicle Registration Certificate Registered Sale / Lease / Rent Agreement Caste certificate having Photo issued by State Govt. Passport of Spouse Passport of Parents (In case of minor) Kissan Photo Passbook.

20 21 22

11 12

13 14

23 24 25 26 27 28 29 30 31 32 33

15

16

Note : 1. If passport having current address is given as proof of identity, there is no need to give separate proof for address from List No.2. 2. RBI has clarified that close relatives e.g. wife, son, daughter and parents, etc who live with their husband, father / mother and son, as the case may be should be allowed to open an account on the basis of utility bills (required for the verification of address) of a relative with whom the prospective customer is living, along with a declaration from the relative that the said person is a relative and is staying with him / her.

September 2012 - Issue 1

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Recent developments in Banking

Reduction in lending rates of public sector banks
Pursuant to the meeting of the FM with the CEOs of the PSBs and FIs held on 18 August, 2012 and the appeal of the Finance Minister to kickstart the growth engine of the economy through reduction of lending rates, PSBs have decided to reduce their base rates by 25 to 75 basis points. PSBs have also reduced their interest rates for home loans in the range of 25 to 50 basis points, interest rate on auto loans in the range of 40 to 255 basis point and the interest rate on the retail loans in the range of 25 to 225 basis points.

Finance Ministers` Review Meeting with CEOs of PSBs and Financial Institutions (FIs) at New Delhi on 18 August 2012
Shri P. Chidambaram, Hon`ble Finance Minister asked the CEOs of PSBs and FIs, to follow up and closely monitor the decisions taken at the meeting for reviving the economy, improving CASA deposit, rolling out ATM, which can accept cash, enhancing lending to minorities, removing hurdles for sanctioning education loans, smoothening the flow of credit to MSMEs etc.

Conference of General Managers (Recovery) of Public Sector Banks

A Conference of GM (Recovery) of PSBs was held on 12 July, 2012 in New Delhi. Shri D K Mittal, Secretary, Department of Financial Services addressed the Conference. The issues related to prudential losses, loss assets and amount stuck up in the cases before DRTs were considered at length. The Banks shared various innovative means adopted by them to improve their recovery. It was decided that all PSBs would formulate strategy for recovery of loss assets including holding of Lok Adalats etc.

Conversion of Kisan card into ATM/Smart Card

The norms of the Kisan Credit Card (KCC) scheme have recently been revised and the power for fixing the credit limit for various crops has been delegated to the District Level Coordination Committee. It has also been decided that the credit limit would automatically increase by 10% every year. In addition, the KCC shall now be converted into an ATM/Smart Card so that the farmers can withdraw the money from an ATM.

Finance Ministers meeting with the CEO of PSU Banks and FIs

Providing rescheduled short term crop loan in drought affected areas at a fixed rate of 7%
Under RBI guidelines on natural calamities, loans to farmers are rescheduled at term loan interest rates. As per the decision of EGOM on Effective management of drought and related issues,instructions have been issued by DFS on 17 September 2012 to all banks that in drought affected areas notified by the State Government, the rate of interest on rescheduled short term crop loan will be kept at 7% during the current year

Approval of Financial Restructuring Scheme for State Distribution Companies (Discoms)

With a view to achieve financial turnaround of debt-ridden State Distribution Companies (Discoms), the Government of India has approved the scheme for their Financial Restructuring. The scheme provides for taking over 50% of debt of Discoms by the State Government and restructuring of remaining 50% debt by the banks. The restructuring/reschedulement of loan is to be accompanied by concrete and measurable action by the Discoms/States to improve the operational performance of the distribution utilities.

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Department of Financial Services - Quarterly Journal

Recent developments in Banking

Model Loan Scheme for Vocational Education and Training
Indian Banks Association (IBA) has formulated and circulated a Model Loan Scheme on 31 May 2012 as per directives of Government of India. The scheme aims at providing financial support from the banking system to those students who want to pursue employment oriented skill development courses offered by recognized institutions. To be eligible for this scheme, the student should be an Indian national and should have secured admission to a Government recognized vocational training course which is employment oriented. These courses could have duration ranging from 2 months to 3 years. Loans could range from Rs. 20,000 for a course having duration up to 3 month to Rs. 1.5 lakh for courses having duration greater than a year. The small loans (up to Rs 50,000) need to be repaid in 2 years whereas larger loans (above Rs. 1 lakh) can be repaid in 3 to 7 years time. The scheme does not require any collateral or third party guarantee. The parents should be joint borrowers together with the student.

Recent changes in MSME lending

A special drive has been launched for MSMEs under which banks have been directed to clear all cases pending for additional amount, rescheduling for loan or any other facility by 10 July 2012. New cases for sanction may be disposed off in 30 days time. To help MSE exporters, banks have been instructed to provide adequate and cost effective export credit in foreign currency with special focus on MSEs exporters, directly or through small banks which do not have adequate forex resources.

Modifications in the Education Loan Scheme

Considering the problems being faced by students in availing education loans,IBA has revised the Education Loan Scheme. Education loans would also be provided to meritorious students who choose to take admission against seats under management quota for personal reasons and the illustrative list of eligible courses has been modified to include Nursing as an eligible course. The banks have further been advised not to insist on service area approach in giving educational loans and to strengthen the grievance redressal mechanism.

The Registration of Assignment of Receivables Rules, 2012

The Factoring Regulation Act, 2011 (No.12 of 2012) provides a comprehensive legal and regulatory framework for providing factoring services or receivable management which will be highly beneficial to the MSME Sector. The Registration of Assignment of Receivables Rules, 2012, under the aforesaid Act, were notified on 2 April 2012 to lay down the procedures on the subject and will facilitate the factoring business in the country.

Interest Subvention Scheme for Housing

As per Fms announcement in the Budget Speech (2012-13), the existing scheme of 1% interest subvention on housing loans has been liberalized and extended till March, 2013. The benefits of the scheme will be available on housing loans upto Rs. 15 lakhs(Rs. 10 lakhs till March, 2011) to individuals for construction of new house/extension whose cost does not exceed Rs. 25 lakhs (Rs. 20 lakhs till 31.3.2011).The subsidy of 1% will be defined as reduction in interest rate by 100 basis points per annum for initial 12 months, from the existing rate of interest for a given loan amount.

Reduction of PLR by National Housing Bank (NHB)

NHB has decreased its PLR from 10.50% to 10.00%, keeping in view the need for supporting the industry and individual home buyer. It will directly benefit all floating rate loans linked to PLR; spur demand for individual housing loan and also help in releasing unsold housing stock by creating demand.

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Recent developments in Banking

Setting up of Credit Advisory Centers by SIDBI
To provide free consultancy services to entrepreneurs for obtaining bank loans, SIDBI has set up Credit Advisory Centers in over 100 clusters.

SIDBI Factoring Regulation Act 2011 seminar

Conference of Presiding Officers of DRTs and Chairpersons of DRATs

Website for small entrepreneurs

To promote Youth Entrepreneurs in the country, SIDBI has launched http:/smallb.in website. The website provides a window of all individuals to look at the business opportunities all around and to demystify and simplify the process of establishing a business in India.

MSME Factoring Seminar by SIDBI

To create awareness among stakeholders on the legislation on factoring, a seminar on MSME Factoring - Potential & Opportunity was organized by SIDBI on 25 June 2012 in New Delhi. The first event at New Delhi was followed with events at 10 other centres viz. Chandigarh, Jaipur, Ahmedabad, Indore, Chennai, Bangalore, Hyderabad, Kolkata, etc.

Conference of Presiding Officers of DRTs and Chairpersons of DRATs

Honble Shri Pranab Mukherjee, the then Finance Minister inaugurated the Conference held at New Delhi on 6th June 2012. The legal, organisational and administrative bottlenecks in expeditious disposal of cases pending before these Tribunals were deliberated upon during the Conference along with corrective measures suggested to overcome these difficulties.

e-DRT Project
To make the processes in all the 33 DRTs and 5 DRATs, simple, efficient and transparent, an ambitious programme e-DRT Project has been initiated. The programme comprises automation and improvement of DRT services through process re-engineering and building IT systems and seeks to achieve improved and consistent services, and high employee satisfaction. e-DRT shall help improve the overall performance and efficiency of the DRTs. The project is at an advanced stage of implementation. RFP has been issued and the Implementing Agency is likely to be finalised by the end of September, 2012.

Guidelines on Standardised Public Grievance Redress System (SPGRS)

To meet rising expectations of customers for prompt redress of their grievances DFS inked guidelines on Standardised Public Grievance Redress System (SPGRS) for Public Sector Banks (PSBs). It is a threetier, three-stage classification, automated grievance redressal system, integrating complaints received from multiple channels into a common digital platform, expects Banks to solve grievances within three weeks, having inbuilt MIS for analysing performance and put customers at the centre of business decisions.

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Department of Financial Services - Quarterly Journal

Recent developments in Banking

Agriculture Credit
Government of India has been fixing agriculture credit targets for the lending institutions since 2004 on annual basis. The credit flow to the agriculture sector has grown from Rs. 86,981 crores in 2003-04 to Rs.509040 crores in 2011-12, showing an overall increase of 485 %. The Govt has fixed the target for credit flow to agriculture sector at Rs.575,000 crore for the year 2012-13 - an increase of Rs.100,000 crores over previous year. The target and achievements during the last three years and current year are given as under:

(In ` Crores)
Credit flow in 2009-10 Credit flow in 2010-11 Credit flow in 201112(Provisional) Credit flow in 2012-13 (Provisional)*

Target

Achievement

Target

Achievement

Target

Achievement

Target

Achievement (Upto June 2012)

Comm. 250,000 Banks

285,799.73

280,000 345,877.29

355,000 368,616.30

420,000

81,561.58

Coop. Banks

45,000

63,496.85

55,000

78,007.09

69,500

87,962.79

84,000

38,095.27

RRBs

30,000

35,217.62

40,000

44,293.05

50,500

54,450.00

71,000

16,299.64

Other

113.85

Total

325,000

384,514.20

375,000 468,291.28

475,000 511,029.09

575,000 135,956.49

September 2012 - Issue 1

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Recent developments in Banking

Dividend Payment by PSBs - 31.03.2012
S.N. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Name of the Bank Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India IDBI Bank Ltd. *- Interim dividend paid by the Bank. Dividend paid on Equity to Govt. (Rs) 165,72,92,508 178,51,92,002 379,57,52,843 251,91,94,090 102,41,14,201 330,00,00,000 116,52,70,852 177,71,97,357 58,01,57,622 257,86,50,000 249,68,73,289 133,68,49,707 418,60,91,272 36,61,12,000 151,34,85,550 130,00,09,098 239,37,16,120 70,66,09,490 68,16,66,840 1446,38,35,505 128,26,00,000*

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Department of Financial Services - Quarterly Journal

Recent developments in Insurance

FMs Meeting with CEOs of Life Insurers
Finance Minister, Shri P. Chidambaram, met the Chairman IRDA, Chairman LIC, Secretary General, Life insurance Council, Secretary General, General Insurance Council and eighteen CEOs of Life Insurance companies on 4 September 2012 to discuss issues to revive growth in the life insurance sector and increase the penetration of Life Insurance Scheme. The CEOs registered the issues pertaining to the regulator, tax and policies etc. FM informed that to bring a sustainable growth in the sector, every effort will be made to find a workable solution to the issues, duly consulting all authorities concerned.

Disposal of long pending claims

An intensive drive was taken up to dispose of all pending non suit claims in public sector general insurance companies. As a result, out of a total pending cases of 429385 as on 31st March, 2012, a total of 228959 were disposed of till 31.7.2012. The drive is continuing. Likewise in LIC, out of a total pending outstanding matured claims of 89117 as on 31st March, 2012, 56770 claims have been paid so far.

Web aggregators to compare insurance products

IRDA has permitted web aggregators, in insurance sector to compare insurance products currently being sold by different insurers in the market. The application currently lets users browse through the different features of the products so as to enable them to decide as to which products suits them in the present scenario and in the future as their needs change over a period of time. Product comparison of selected products across various companies can be made based on various parameters like the coverages, exclusions, discounts, deductibles etc.

Geographical spread of PSU General Insurance Companies

To tap the insurance business in all uncovered towns upto Tier IV level, including uncovered District Headquarters, all General Insurance Public Sector Companies have decided to open 2050 Micro offices in such towns. The Micro Offices are expected to start functioning from September 2012, once the proposals are cleared by IRDA. This will provide access to General Insurance products in all such towns and will help in increasing insurance penetration in India in a major way.

Introduction of insurance policies in electronic format

As insurance looks at going the eway, IRDA is working with depositories to make life insurance policies available in an electronic format, as demat accounts. This will be followed by the introduction of an electronic format for general insurance policies, such as motor policies and health policies being made available electronically. Expected to provide manifold benefits, including easing of the process for buyers, since they will not need to provide their age and address proof each time they buy a policy and large financial savings to insurers in their printing and dispatching costs. An even bigger anticipated benefit includes efficiency gains that are similar to the ones that followed dematerialization of equities by SEBI.

Amendment in Insurance law and merger of AABY and JBY

The Government is shortly expected to consider and approve Official amendments to the Insurance Laws (Amendment) Bill, 2008 and Merger of Aam Aadmi Bima Yojana (AABY) and Janashree Bima Yojana (JBY) in a single scheme.

September 2012 - Issue 1

17

Recent developments in Pension

New Pension System

The Government introduced the New Pension System (NPS) on 1st January, 2004 for new entrants in the central government service, except those in the armed forces. NPS is also available to all citizens on voluntary basis. As on 4th August, 2012, the number of subscribers in NPS is 3.6 million and the corpus is Rs. 193 million. Pension Fund Managers (PFMs) appointed by Pension Fund Regulatory and Development Authority (PFRDA) are either a Central or State Govt. company, Central Public Financial Institution, Scheduled Commercial Bank, Insurance Company or Asset Management Company (AMC) regulated by RBI, SEBI or IRDA. PFMs perform the investment management functions under the NPS. And also provide daily NAV under NPS.

Registration of pension funds for private sector Guidelines - 2012

PFRDA has issued guidelines for the process of registration of Pension Funds with the PFRDA to manage the pension corpus under the National Pension System and other Schemes regulated by the Authority, exclusively for private sector. These guidelines deal with the preparation and reporting of the financial statements for the NPS.

NAV Pension Fund Manager

Annualised Returns CAGR Returns since inception up to 31.03.12 9.94% 8.34% 9.00% 8.42% 9.07% 8.49%

NPS Scheme

31.03.11

31.03.12

27.08.12

Last Year 31.03.12

Current Year Till 27.08.12

SBI Pension Fund Pvt. Ltd.

Central Govt. State Government

13.81 11.69 13.38 11.79 13.38 11.74

14.61 12.48 14.12 12.51 14.15 12.53

15.30 13.10 14.79 13.16 14.82 13.15

5.81% 6.80% 5.52% 6.04% 5.80% 6.68%

11.74% 12.22% 11.80% 12.83% 11.67% 12.17%

UTI Retirement Solutions Ltd. LIC Pension Fund Ltd.

Central Govt. State Government Central Govt. State Government

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Department of Financial Services - Quarterly Journal

Important Appointments

Organisation Reserve Bank of India Reserve Bank of India Reserve Bank of India State Bank of India

Position Deputy Governor Director on the Central Board of Directors Govt. Nominee Director on the Board of RBI Part time Non-official Director on the Central Board of Directors of SBI Presiding Officer Presiding Officer Executive Director Executive Director Executive Director Executive Director Executive Director Executive Director Executive Director

Name Dr. K. C. Chakraborty Shri Y. C. Deveshwar Sh. Arvind Mayaram, Secretary, DEA Dr. Rajiv Kumar

Date of appointment 14-Aug-12* 3-Sep-12 7-Aug-12 6-Aug-12

Debts Recovery Tribunal Aurangabad Debts Recovery Tribunal Madurai United Bank of India Bank of Baroda Bank of India Punjab National Bank Bank of Baroda Allahabad Bank Vijaya Bank

Shri Ramesh Kumar Mahaliyan Shri K Harinarayana Shri S. D Arya Shri P Srinivas Shri B.P. Sharma Shri Sadhu Ram Bansal Shri Sudhir Kumar Jain Shri Arun Tiwari Shri K. Ramadas Shenoy

2-Jul-12 6-Jul-12 18-Jun -12 18-Jun -12 18-Jun -12 18-Jun -12 18-Jun -12 18-Jun -12
*reappointment

September 2012 - Issue 1

19

Useful websites:

Ministry of Finance, Government of India: http://finmin.nic.in/ Dept of Financial Services, Ministry of Finance, Government of India: http://financialservices.gov.in/ Reserve Bank of India: www.rbi.org.in/home.aspx Insurance Regulatory and Development Authority: http://www.irda.gov.in Pension Fund Regulatory and Development Authority: http://www.pfrda.org.in/ National Bank for Agriculture and Rural Development: www.nabard.org Economic and Financial Data: http://finmin.nic.in/stats_data/nsdp_sdds/index.html

Department of Financial Services Ministry of Finance Government of India

About Department of Financial Services

The Department handles policy issues relating to Banks, RBI, Cooperative Banks, Development Banks, Financial Institutions, Insurance and Pension reforms. It is headed by Secretary (Financial Services) who is assisted by Additional Secretary(Financial Services), five Joint Secretaries and an Economic Advisor. Office address Ministry of Finance Department of Financial Services Floor III, Jeevan Deep Building Parliament Street New Delhi - 110 001 Telephone No: +91 11 2374 8705/2334 2287 Comments and suggestions for improvement of the journal are welcome. Please feel free to write back to us at : journal-dfs@nic.in This journal will carry articles on specific themes. The theme for the next issue Insurance and Pension for the masses. Readers are requested to contribute one page article providing perspective from the view point of a customer, employee of bank/insurance company or an expert.

Next issue feature: Insurance and pension for the masses

Disclaimer: "This news letter contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Department of Financial Services nor knowledge partners Ernst & Young Private Ltd. will accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this journal.

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