A PROJECT REPORT ON RURAL BANKING IN INDIA
SUBMITTED BY: Dinesh Singh Ghinga Roll no. 581113515
“Chain of mistakes leads towards failures, chain of failures leads to experience and chain of experience leads to success.” That’s what a life’s path is. Same is applicable to my project work. I do not claim that I have a complete knowledge of the subject. I would like to thanks my friends and many persons who directly or indirectly helped me during my project.
Dinesh Singh Ghinga 5811113515 (M.B.A. 4th sem)
This project report is submitted for the partial fulfillment of Master of Business Administration degree from Sikkim
While developing this project, I was involved with system analysis, design and implementation process. This is a sample report describing in detail various aspects of the system. I have used prototyping model for designing
I hereby declare that the project report entitled
“Rular Banking In India”
Submitted in partial fulfillment of the requirement for the degree of Master of Business Administration to Sikkim Manipal University, India is my original work and not submitted for the award of any other degree, diploma, fellowship, or any other similar title or prizes.
Place: Haldwani Singh Ghinga 581113515
Dinesh Roll No.
Current State of Rural Banking in India Key Drivers of Financial Exclusion of Rural Banking in India Reasons for Unprofitable Rural Banking in India Usage Issues for Rural Customers Market Opportunity of Rural Banking in India Improving Access of rural Banking In India Conclusion Bibliography Annexure
. 4. 3. 6. 8. 2. 5. 1. 7.CONTENT No.
Within the country. 410 in rural
. Jharkhand and Orissa.0% during the last three years2. In addition. in terms of GDP per capita. there is a stark divide in the incomes of urban and rural areas with the average monthly per capita consumption expenditure (MPCE) in urban India being almost double that of rural India. The growth of the economy is equally impressive with an average of over 8. have an MPCE of approximately Rs. there are significant disparities in urban and rural consumption expenditure between different states. India ranks a lowly 160th among other nations. 900 in urban areas and Rs. However.CURRENT STATE OF RURAL BANKING IN INDIA
The Indian Economy
India is the 12th largest economy in the world in terms of gross domestic product (GDP). for example. and fourth in terms of purchasing power parity (PPP)1.
the urban rural disparity is significantly lower. Even in comparison with other developing economies.
Current State of Indian Banking
An important metric to determine the level of financial outreach/inclusion is the ratio of the number of deposit accounts to population. In some states like Jharkhand and Orissa. India has a significant opportunity for increasing penetration of both deposit and credit accounts. Not only is there a large disparity between India and other countries in banking penetration but there is also a large variation in banking penetration within urban and rural India. In other states like Punjab and Haryana. A fifth of the Indian population is below the poverty line (BPL) today with a MPCE below Rs 340. the proportion of BPL is greater than 40%. While urban India seems to be over-banked with more
. It gives a snapshot of the penetration of deposit accounts and credit accounts in India in comparison with a few select countries with similar sociocultural and economic conditions. Diamond believes that the segments that are not considered BPL should all be considered as “potentially bankable” with genuine financial needs that could be met by formal financial and banking systems.areas4.
Access and usage are
. access is the availability of financial services. This low outreach can be explained by two key parameters: access and usage. lack of physical infrastructure facilities. Simply defined. and the economics of rural banking. The low deposit and credit account penetration and low average values in deposit and credit accounts demonstrate that banking outreach in rural India is sub-optimal. The variance in rural and urban deposit and credit account penetration is not restricted only to few states but is common across all states. Diamond believes that the reasons for lower penetration levels are partly economic. the average value of a deposit account and a credit account is also quite low in rural areas as compared to urban areas. incomplete service offerings by banks. and partly a result of “controllable” factors that are inherent in formal banking systems in India today.than 100% penetration (many urban Indians have more than one bank account). and usage is the actual use of those services. Usage is constrained by social issues such as illiteracy. regulatory constraints. Access is influenced by issues such as the basic economic state of rural India. rural India lags far behind with a 19% penetration. In addition. and high transaction costs in the formal banking system. as explained by the low GDP per capita in the rural areas of the country.
Rural Banks in those days mainly focused upon the agro sector. there are 14. SBI has 30 Regional Rural Banks in India known as RRBs.
List of Rural Banks in India
Rural banking in India started since the establishment of banking sector in India.not synonymous. The rural banks of SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East.475 rural banks in the country of which 2126 (91%) are located in remote rural areas. either for sociocultural reasons or because opportunity costs are too high.
Apart from SBI. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. Till date in rural banking in India. These banks are listed below:
. as people may have access to financial services. The total number of SBIs Regional Rural Banks in India branches is 2349 (16%). there are many other banks which function for the development of the rural areas in India. but decide not to use them.
Andhra Pradesh Grameena Vikas Bank Andhra Pragathi Grameena Bank Deccan Grameena Bank Chaitanya Godavari Grameena Bank Saptagiri Grameena Bank Chhattisgarh Chhattisgarh Gramin Bank Surguja Kshetriya Gramin Bank
Madhya Bihar Gramin Bank Bihar Kshetriya Gramin Bank Uttar Bihar Kshetriya Gramin Bank Kosi Kshetriya Gramin Bank Samastipur Kshetriya Gramin Bank
Dena Gujarat Gramin Bank Baroda Gujarat Gramin Bank Saurashtra Gramin Bank
Durg-Rajnandgaon Gramin Bank Himachal Pradesh
Himachal Gramin Bank Parvatiya Gramin Bank
Haryana Harayana Gramin Bank Gurgaon Gramin
Punjab Gramin Bank Faridkot-Bhatinda Kshetriya Gramin Bank Malwa Gramin Bank Kerala
Jammu & Kashmir
• • •
Jammu Rural Bank Ellaquai Dehati Bank Kamraz Rural Bank
Narmada Malwa Gramin Bank North Malabar Gramin Bank
Assam Assam Gramin Vikash Bank
Tamil Nadu Pandyan Grama Bank Pallavan Grama Bank Maharashtra
Langpi Dehangi Rural Bank Jharkhand
Marathwada Gramin Bank Aurangabad -Jalna Gramin Bank Wainganga Kshetriya Gramin Bank Vidharbha Kshetriya Gramin Bank Solapur Gramin Bank Thane Gramin Bank
Ratnagiri-Sindhudurg Gramin Bank
Jharkhand Gramin Bank Vananchal Gramin Bank
• • •
Narmada Malwa Gramin Bank Satpura Kshetriya
Madhya Bharath Gramin Bank Chambal-Gwalior Kshetriya Gramin Bank Rewa-Sidhi Gramin Bank Sharda Gramin Bank Ratlam.Mandsaur Kshetriya Gramin Bank Vidisha Bhopal Kshetriya Gramin Bank Mahakaushal Kshetriya Gramin Bank
Jhabua Dhar Kshetriya Gramin Bank Karnataka Rajasthan
Karnataka Vikas Grameena Bank Pragathi Gramin Bank
Baroda Rajasthan Gramin Bank Marwar Ganganagar Bikaner Gramin Bank
Cauvery Kalpatharu Grameena Bank Krishna Grameena Bank Chikmagalur-Kodagu Grameena Bank
• • •
Rajasthan Gramin Bank Jaipur Thar Gramin Bank Hodoti Kshetriya Gramin Bank
Mewar Anchalik Gramin Bank
Visveshvaraya Gramin Bank Orissa Kalinga Gramya Bank Utkal Gramya Bank Baitarani Gramya Bank Neelachal Gramya Bank
West Bengal Bangiya Gramin Vikash Bank Paschim Banga Gramin Bank
Uttar Banga Kshetriya Gramin Bank
Rushikulya Gramya Bank Meghalaya Arunachal Pradesh
Ka Bank Nogkyndong Ri Khasi.Jaintia Nagaland
Arunachal Pradesh Rural Bank Manipur Manipur Rural Bank Mizoram
Nagaland Rural Bank Tripura Tripura Gramin Bank
As depicted in Following Table. While 60 million out of 245 million may not need
Mizoram Rural Bank
Uttar Pradesh Purvanchal Gramin Bank Kashi Gomti Samyut Gramin Bank Uttar Pradesh Gramin Bank Shreyas Gramin Bank Lucknow Kshetriya Gramin Bank Ballia Kshetriya Gramin Bank
Uttaranchal Uttaranchal Gramin Bank Nainital Almora Kshetriya Gramin Bank
Triveni Kshetriya Gramin Bank
KEY DRIVERS OF FINANCIAL EXCLUSION OF RURAL BANKING
According to Diamond estimates. approximately 245 million adults in rural India do not have a bank account today. this reflects 24% of the total population.
Access Issues for Rural Customers
Access is explained in terms of infrastructure. limited delivery capabilities. What’s more. World Bank & NCAER (2008). the poor physical and social infrastructure also impacts the access to financial services. The banking infrastructure in rural India is not encouraging.
120 100 80 60 40 20 0
To ta lP op ul at io
100 47 53 16
Source: Census India. physical distance.banking services because they are below the poverty line. BSR 2008—Reserve Bank of India. with 23% of villages going without electricity. Diamond believes that approximately 185 million “potentially bankable” people do not use formal banking services because of reasons like poor access or usage. 67% without a
Ad ul tP op U rb ul an at io Ad n ul tP op R ul ur at al io A n du lt Po pu la Ba tio nk n ed P op U ul nb at io an n ke d P op Fi na ul at nc io ia n lly C on st Po ra nt in en ts tia lly Ba nk ab le
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. regulatory constraints and the economics of rural banking. with just 7% of villages housing a bank branch.
Much of rural India is serviced through branches because ATM penetration is low and other channels such as Phone and Internet Banking are non-existent.
. The average distance to a branch in India is approximately 3.8 Kms. this is rarely an option in a country with such low rural teledensity. offer limited services. Intermediaries like Non-Governmental Organizations (NGOs). Limited delivery capability is a significant challenge.Post Office.S. While this compares favorably to the average distance to a branch in a developed market like the U. these channels. (which is 6 Kms6). Self-Help Groups. This lack of physical and social infrastructure in rural India is a key issue impacting access to formal financial services. However. Most rural customers are likely to sacrifice an entire day’s wage to travel to a bank branch which is open between 10:00am and 5:00pm. there are significant additional challenges in India in the form of unpaved roads and limited access to modern transportation. and Micro Finance Institutions (MFIs) are being used by banks to improve access to credit and savings. and an average rural literacy rate of 59% and secondary school penetration of 12%. While some banking transactions could be done over phone. in their current form.
A second regulatory inhibitor is that new banks planning to establish a branch in a rural area have to receive approval from the Lead Bank and District Collector of that district. particularly agriculture loans. Banks are required via regulatory requirements to open branches in rural areas to provide loans to agriculture and other priority sectors. banks choose not to open new branches in certain areas even when it is profitable to do so because there is no certainty of getting approvals.
. the RBI does not allow banks to post any person other than a security guard at ATMs.There are some regulatory constraints imposed by the Reserve Bank of India (RBI) which may inadvertently contribute further to the lack of formal banking services in rural areas. banks cannot deploy many ATMs in rural areas as many rural customers require in-person support. Hence. For example. Hence. Many banks view the rural market as a regulatory requirement rather than an economic opportunity. Banks have from time to time borne the social cost of lending to the rural economy at rates below their costs. They have also faced capital erosion because of the write-off of loans.
Cash Withdrawal .Offsite ATM installed at a remote Location
. SHGs.MFIs directly lend to the poor and also act as agents for he banks .Third-Party Products
.India because of low: Tele-density Internet-penetration Credit appetite of banks
Source: Reserve Bank of India.Current Rural Banking Channels
Description Branch .NGOs.Almost non-existent in rural .Cards .Kisan Credit Card Provide short-term credit
. Diamond analysis.Cash Withdrawal .Has a high cost-to-serve
.Cheque Book Request .Remittances .Bill Payments
. MFIs and Cooperatives that act as Intermediaries to take financial Services to the rural areas
.Onsite ATM installed at a branch .Money Transfer .Full fledged Branches and
Extension Counters of Scheduled Commercial Banks including Regional Rural Banks Cooperative Banks
.96% of total deposit and 95% of total loans are with scheduled commercial banks with cooperative banks holding the difference .Cheque Book Request .Cash Deposit .Deposit Accounts .Credit Accounts .Negligible presence of this channel in rural areas
Manual Interactive Voice Response .This channel delivers limited services in its current form
.Money Transfer .Cash Deposit .Internet Banking .SHGs borrow from banks and are beneficiaries of loans themselves .
and loan waivers driven by political agendas. The issue is compounded by the dependence of the rural economy on monsoons. NPLs from the agriculture sector are 7. Increasing financial access to rural areas is contingent upon basic conditions such as proper infrastructure and an enabling regulatory framework.5% across nonagriculture sectors8. compared to 3. rather than a regulatory requirement.7%. a combination of these issues must be addressed. In order for banks to view rural India as a growth opportunity. as well as innovative
.REASONS FOR UNPROFITABLE OF RURAL BANKING IN INDIA
High Non-performing Loans (NPL):
Banks have higher non-performing loans in rural areas because rural households have irregular income and expenditure patterns.
which increase the overall transaction cost for their bank. explain only one part of the problem. This is because many rural people are not literate and are not comfortable using technology-driven channels such as ATMs. Considering the small catchments area of a branch in rural areas.
High cost to serve:
Branches are the most used channel in rural areas. whenever they have access to banks.thinking on the part of commercial banks. a branch is an expensive channel for banks (Following Table). On the other hand. In addition.
. Access issues. Usage is an equally important issue for rural customers. This means that banks need more customers per branch or channel to break even. however. phone banking or internet banking.
Low Ticket Size:
The average ticket size of both a deposit transaction and a credit transaction in rural areas is small. generating a customer base with critical mass is challenging. have frequent low ticket and cash-based transactions. rural people.
CGAP.Cost Per Transaction in Indian Banks
60 50 40 30 20 10 0 Branch Phone (Call Centre) ATM Phone (IVR) Internet 25 18 8 4 Series1 48
Source: Reserve Bank of India.
Higher risk of credit:
. World Bank.
with the most frequent reasons being medical or social emergency7.Rural households may have highly irregular and volatile income streams. Irregular wage labor and the sale of agricultural products are the two main sources of income for rural households. The typical expenditure profile of rural households is small. Absence of a Credit Information Bureau also complicates the problem as banks have to rely on informal sources to learn the credit history of rural customers. with daily or irregular expenses incurred through the month. or nonperforming loans.
Since many rural people do not have bank accounts. there is a lack of information on customer behavior in rural India. a majority of households incur at least one unscheduled expenditure per year. the rural customer is generally considered to be a risky one.
. A lack of reliable information can result in either missed opportunities in not approving otherwise eligible loan candidates. Rural households also have irregular expenditure patterns. The poor rural households (landless and marginal farmers) are particularly dependent on irregular wage employment. Furthermore. In short.
who have access to and would otherwise choose to use
. According to a study conducted by the World Bank. even in developed countries. To compound the situation many customers in rural India. spend in cash and do not wish to be burdened by a bank account9. choose not to have a bank account as they do not engage in many financial transactions—they collect wages in cash. there is no guarantee that these services will be used. many households.USAGE ISSUES FOR RURAL CUSTOMERS
Even if access to formal banking is provided to rural customers.
as is usually assumed. A part from agricultural support. and ensure ease of enrolment. rural customers need micro
. therefore. However. In fact. provide doorstep service. These needs facilitate a customer in building capital over the long term. Rural customers need loans not only for productive purposes but also for consumption needs (Following Table). The financial service needs of rural customers are not confined to just savings and credit. Access to savings and investment facilities is critical for the poor. even the savings and credit products currently offered to rural customers do not entirely meet their needs. leaves the rural poor with little option than to transact with the informal banking market. The lack of services.formal financial services. as well as coping with income shocks in the near term. banks do not offer adequate services to address these needs. Their financial needs are linked to their life cycle needs. The two critical needs for the rural poor are microsavings and frequent withdrawals. A study conducted by Micro Save also concludes that the poor transact with the informal sector because it will accept small amounts. do not do so because the product and service mixes do not meet their needs. ranging from savings to credit to insurance to remittances.
In addition. the poor raise these loans through the informal financial system (it is worth noting that these loans taken from the informal system are almost always repaid or renewed12). education and emergencies. Though banks offer purpose free loans (personal loans and credit cards) in urban areas quite liberally. they require excessive which documentation time-consuming processes
discourage customer applications.
Purpose of Borrowing
Rural Household Borrowing
. in rural areas sanction of such loans is significantly restricted.credit for consumption. larger households need occasional high value micro-enterprise loans for small capital investment. Therefore. Though banks offer these and loans.
Other business expenditure Household expenditure Agriculture expenditure
Household expenditure. 52% Agriculture Loan Agriculture Loan. 14% Agriculture expenditure. National Sample Survey Organization (NSSO). Source: AIDIS—2008.
Diamond analysis.Other business expenditure. 36% Other Business Loan
A significant percentage of borrowing is toward consumption and other household expenditure. 48%
Bank Lending to Rural Households
Personel Loans. 12% Personel Loans Other Business Loan. whereas formal financial institutions in rural India provide loans primarily for productive purposes.
This often results in the beneficiary receiving the amount two weeks after it has being transferred. This represents yet another key service which is not provided. life. There are many rural households which depend on weekly or monthly remittances from their family members who have moved to urban areas. of It payout is against to small. they depend on informal channels to remit the money and consequently either risk the loss of money or pay high transaction fees. bribes
. At present. leading the poor to rely on the informal financial system. health. The transaction cost for a rural customer to receive credit primarily constitutes four attributes: the interest rate.Insurance reduces the vulnerability of poor households by replacing the uncertain prospect of large losses with the certainty payments. Banks and insurance firms do not offer these services in many rural areas. Banks do not offer seamless remittance facilities between urban and rural branches as many of the rural branches are not computerized and connected to the main bank’s computer systems. loan amount received as a percentage of amount applied.
management strategy for poor households. livestock) insurance. a regular premium risk and integral comprehensive crop. This includes accident and asset (dwelling.
on the other hand. rural customers still resort to this channel because the waiting time to receive the loan is negligible and there are no indirect costs or commission. the time taken for a loan to be sanctioned is high which increases uncertainty and opportunity cost. As far as savings are concerned. the rural customer must forgo a day’s wage to reach a branch. involve a lower transaction cost. but they are risky and in some cases result
.paid. Though the formal banking system offers loans at interest rates lower than informal banking systems. Therefore. In addition. Informal systems. the cost of opening and operating an account is high. while the interest rates are usurious in the informal financing system. and the lead time to process the loan. Banks also insist on collateral security which many rural poor cannot afford. though the formal banking system provides financial security. The overall cost of transacting with the formal financial system increases for a rural person because of additional costs such as expenses incurred to reach a branch and the opportunity cost of lost wages. Since rural banks are generally not within an accessible area and do not operate at convenient times. the customer needs to pay almost 10% of the loan amount in bribes and eventually receives an amount that is less than what was applied for.
this leaves the rural customer to choose between two unfavorable options. In short. insurance and remittance services are not even available. convenient and cost-efficient service. Similarly. the savings products offered in the current format do not qualify as a flexible.in the loss of one’s entire capital.
. loan products do not meet product and eligibility criteria. In summary. despite lower interest rates. is high because of other indirect costs which make the banking services costinefficient. the services being offered by the formal banking system do not seem to meet the needs of the rural poor. A World Bank study suggests that the poor apply a set of criteria to judge the services being offered by any financial service provider. including: • Products—Are financial services available and tailored to my needs? • Cost—What is the total cost of the service (including opportunity cost)? • Convenience—How easy is it to access and use? • Eligibility—Am I eligible for financial services and can they be accessed repeatedly? As explained earlier. The cost of services. In addition.
however. a rapidly growing urban India is the focus of the banking sector.MARKET OPPORTUNITY OF RURAL BANKING
At present. the rural market is attractive from both a credit and deposit perspective. as they are apprehensive about the total market potential of the rural market and the profitability of rural banking channels. Despite this. the market is highly competitive and over banked.330 billion (based on an estimate by
. as the deposit penetration numbers suggest (Figure 3 & 4). The credit demand in rural areas is approximately Rs 1. Contrary to the widely held notion. however. most banks are still not shifting their focus to the rural opportunity.
204 billion) sides of the business.440 billion and Rs 1.World Bank).
. These estimates clearly suggest that there is sufficient demand in the rural market to encourage banks to think seriously about rural areas as an alternative growth opportunity. leaving a significant opportunity to grow the deposit base. banks need to understand the requirements of the rural customer and customize products and services Accordingly (Following Table). With regard to access.500 billion respectively. There are other studies by the Planning Commission and ICICI Bank which put the figure even higher at Rs 1. Similarly. the challenge for banks is to identify profitable channels that meet the needs of rural customers. on the deposit side. With regard to usage. access and usage are two broad concerns which explain why the potentially bankable are unbanked. At present. a large segment of the rural population does not save with formal banking channels because banks are not accessible and do not provide the appropriate products and service. As we identified earlier. the penetration of banking in rural areas is suboptimal with a large market remaining untapped in both the liability (~ Rs 215 billion) and asset (~ Rs 1.
Proposed Approach to Tap Potentially Bankable Population
Improve Access For Rural Customers
Address Access Needs Of Rural Customers Ensure Channel Profitability
Convert Potentially Bankable Address Usage Needs Of Rural Customers Bank Initiatives To Improve Usage
Encourage Usage of Services
Source: Diamond analysis
IMPROVING ACCESS FOR RURAL BANKING
introduce new channels and identify innovative ways to integrate the two. Though there are 32. ATMs are an effective channel which can deliver many of the services frequently used by a branch customer. ATMs.000 commercial bank branches in India. Though infrastructure sharing may raise concerns over client confidentiality and data leakage. Opening more branches is not necessarily profitable as many pockets of rural areas do not have business enough to justify an expensive branch channel. in the long run banks will only benefit from such collaboration. Therefore. This would not be too dissimilar to the example of the telecom industry sharing network infrastructure or the fast food industry sharing food courts in urban areas. To reduce the costs imposed by branches. they cover less than 7% of total villages. branches are the primary delivery channel in rural areas. to improve access in rural areas.Today. are not suitable for
. in their current form. banks should consider the option of sharing their branch infrastructure .
Modify Existing Channels
Fortunately there are a variety of options available for banks looking to modify their existing channels. However. banks need to modify existing channels.
Centenary Bank in Uganda uses internet and phone banking to provide bill payments. Brazil has money transfers and loan
. repayments.rural areas as the literacy level and transaction ticket amount is too low. given very low tele-density and low internet penetration in rural areas. ATMs can. however. the ability to use these channels to reach the rural customer is low. However. ICICI Bank is working with IIT Chennai to develop an ATM that has a biometric fingerprint login. Combining POS with a smart card is one way to improve access. For example. banks should also hold discussions with the RBI to allow an attendant to be posted at ATMs. phone and internet banking should be considered once infrastructure and literacy levels improve in rural India. This will enhance the usability of ATMs. For example. and lower value denominations. Though phone banking and internet banking are costeffective channels. A business correspondent could then run an e-kiosk to assist customers to transact over these channels. Business correspondents can be provided with point-ofsale (POS) functionality to allow customers to deposit and withdraw cash from their accounts. be designed to meet the needs of rural customers. accepts soiled notes. In addition to modifying the design of the machines.
registered NBFCs not accepting appointed currently public as offered deposits.successfully used banking correspondents who use POS and card readers to provide current accounts. Business by SHGs and Post Offices can be Correspondents. accept bill payments. and MFIs.
Introduce New Channels
The RBI allows banks to appoint to be business used as
intermediaries in providing banking services. loans. Business (i)
Correspondents can provide several services which are not including: identification of borrowers and fitment of activities. (vii) monitoring and handholding of Self Help Groups/Joint
. MFIs. (ii) collection and preliminary processing of loan applications including verification of primary information/data. (iii) creating awareness about savings and other products and education and advice on managing money and debt counseling. (iv) processing and submission of applications to banks. Section 25 companies. and insurance. and perform other transactions. NGOs. Societies. (v) promotion and nurturing Self Help Groups/Joint Liability Groups. (vi) post-sanction monitoring.
Caixa Economica. with 14. In less than 2 years.000 banking correspondents covering all of Brazil’s 5. (x) recovery of principal/collection of interest (xi) collection of small value deposits (xii) sale of micro-insurance/ mutual fund products/ pension products/ other third-party products and (xiii) receipt and delivery of small value remittances/ other payment instruments. Caixa opened about 2. The introduction of Business Correspondents may face some challenges from labor unions. to capture more value from rural
. Diamond believes that there may be some options to address the concerns of the current workforce while using Business Correspondents customers.500 municipalities. However. a state-owned bank in Brazil. Caixa extensively utilizes the Banking Correspondent channel. manages the country’s lottery network and distributes government benefits. To increase the access of its services. (ix) disbursal of small value credit. and (viii) follow-up for recovery.Liability Groups/Credit Groups/others.8 million new accounts and estimates that 40% of its banking transactions are handled through the banking correspondent channel.
Mobile offices extend banking facilities through a well-protected truck or van. In the urban areas. Where banks do not find it economical to open full-fl edged branches of satellite offices. is appropriate in blocks and districts which are densely populated. All types of banking transactions may be conducted at these offices.
. mobile offices may be more appropriate. The mobile unit visits villages on specified days/ hours. however. Similarly. as it can draw personnel from the main branch and can remain open for just two days a week.Satellite
branches. This channel. therefore. This will not be dissimilar to the mobile ATMs implemented by some of the Indian banks in the urban areas. satellite branches can cater to rural areas which do not justify a large branch. and serve areas which have a large concentration of villages. not used this channel actively. most Indian banks opt for an extension counter where the business does not justify a full-fl edged branch. These offices can be established at fixed premises in villages and are controlled and operated from a base branch located at a block headquarters. despite the argument that this channel is relatively less expensive. Banks have. The mobile office would be affiliated with a branch of the bank.
determining the right combination of channels is critical to improving access in profitable ways. • An e-kiosk—Managed by a business correspondent with internet banking. • A low-cost. providing backend support to manage and audit the operations of business correspondents. Banks have to evaluate the trade-offs between those channels that are most convenient to customers and those that are the most profitable.
. An innovative approach to improving access will consider a combination of these channels.Determine the Combination of Channels
There is no one right channel or solution to improve access in rural areas. Therefore. Banks are not comfortable opening new rural branches because many of those that already exist are unprofitable. • A business correspondent—Using manual ledgers or POS/Palmtop to act as deposit collector and remitting agent in smaller rural areas. ATM and POS terminal in relatively large rural areas. custom-made ATM— Managed by a business correspondent to bring down the operating cost and scale the channel. For example: • Branches and Satellite Branches— In addition to providing regular banking operations.
000 to more than 90.While this list is not exhaustive. train and bus stations. and taxi stops). the number of customers jumped from around 30. Capitec has combined convenient branches along transportation routes (for example. it has rolled-out debit cards and automatic teller machines across 200 of these branches to stimulate savings among low-income earners.000. In South Africa.
. In addition. Between February and August 2007. it highlights the need for creative solutions that apply the right channel to the right market and transaction.
to reach this market and subsequently build an inclusive financial system. In addition. and adapt their delivery models to ensure commercial viability of their rural banking operations. and collaboration amongst banks is critical. banks should tailor their product and service mix to meet rural needs.
. This presents a significant opportunity for commercial banks. a partnership between banks and business correspondents.There are 185 million bankable adults in rural India who are unbanked because of access and usage issues. there must be a coordinated and concerted effort by the three key stakeholders: the Government of India. the Reserve Bank of India and the commercial banks. Furthermore. However.
2008. Rutherford Stuart. National Sample Survey Organization (NSSO).rbi. Household Consumer Expenditure in India (2006) 5.in 9. National Sample Survey Organization (NSSO) 2007. Bharat Nirman is a four year business plan of the Government of India to improve rural infrastructure 14. Census 2006 6. RFAS 2008.microsave-africa. World Bank & NCAER 8. “The Poor and their Money. www. Access to and Usage of Financial Services. www. World Bank 2005 10. World Bank 13.cia. World Bank 2008 2. Reserve Bank of India 2008 3. RFAS.” January 2000 11. www.org.com 12. Reserve Bank of India. Access to Financial Services by Stijin Claessens. World Bank 2008 7.
64514 18.240 57. of SHG s Com merci al (Publi c& Privat e 200708 2008% grow th 19.1 2831 374
1147 67.7 1.0 40.43
48.92 3961.5 5.6 847 67.8
.6 1614 9.037
3225.2 5 22.47 69.1
SHGs as on 31 (Rupees)
% Shar e
SGSY No. of SHGs
2378 65. crore) Agen cy Durin Total Bank Loan g the year outstanding against March 2008 Per SHGbank loan Outstanding Out of Total : Bank loan outstanding against SHGs under No.ANNEXURE
Table – 1 : Bank Loan outstanding against SHGs – Agency-wise Position (Amount Rs.
689 9.0 8757 24.362 L 08 200809 % grow th 16.33
.460 72852 392.42 5.00 5.884 91697 8 4816. 0 46.8 31.5 .9 0 100.0 53.85 14.04 23.8 TOTA 2007.8 4151 30 1306 .5 97688 7 21.6 1103 6.711 55504 258.7 5861.72 594 1 100.Secto r) Regio nal Rural 200708 2008% grow th 11.39 5.4 169 99.1 9778 34 5224 .2 16.5 33.4 4224 100.2 16 23.3 51.7 Coop erativ e 200708 2008% grow th 11. 0 18.0 53.10 1332.5 6.2 50.8 7 3713 10. 338 0 2267 100.09 29.8 4421 26.485 22319 1 1508.0 .2 78 9.9 31.428 25889 0 13.62 18.
.2 12 1376.83 1.7 26 NPAs as on 31 March 2009 Outstandi ng Loans against SHGs** 15086.27 Amount of NPAs % of NPAs to Outstandi ng bank loans 2.Table – 2 : Agency-wise NPAs of Bank loans to SHGs ( Amount Rs.79 4.46 177. of Banks reported data on NPAs Commerci al Banks (Public Sector ) Commerci al Banks (Private Sector) Regional Rural Banks (RRBs) 72 4203. crore) Agency Total no.93 23.65 363.
of Banks report ed recove ry Commerci al Banks (Public Sector) Commerci al Banks (Private Sector) Regional Rural Banks
No. of banks based on percentage distribution of recovery performance of bank loans to SHGs as on 31 March 2009 =/> 80-94% 50-79% < 50% 95% 6 12 7 0
Table – 3 : Recovery Performance – Agency-wise (All SHGs) Agency No.00 21561.97 625.Cooperativ 182 e Banks TOTAL 292
19 27 10.Cooperati
58 102 38.2
37 59 22.1
ve Banks TOTAL 267 79 Percentage of 29.