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RETAIL BANKING ASSIGNMENT

A Report on

FINANCIAL INCLUSION-Bank Level Strategies

Submitted by VIKAS PARIHAR Section B, Group-6 Roll no- 2011PGP937

.......... 1 REASONS FOR FINANCIAL EXCLUSION ............................................................................ 4 TECHNOLOGY .........................TABLE OF CONTENTS Introduction ..... The nationalisation of banks in 1969 unfurled a new era of opportunity that lay ahead...................... 2 RBI’S ROLE IN FINANCIAL INCLUSION ..................... 1 ......................................................................................... 2 The Endevour .............................................................................................................. 4 Challenges ...................................................................................... 5 Introduction Financial Inclusion is the term given to the initiative under which the lower income groups and the unprivileged sections of the society are covered under the finance schemes........................................................ 5 Current Status .......................................................... 3 THE FIRST STEP ........................................................................................ 3 THe ROLE OF BC’s ................................

Gauging the need the rural banks were set up in 1975. social exclusion. natural.Introduction of a savings based demand driven sustainable microfinance programme called PATMIR where savings have precedence over credit INDONESIA.The rural population which still constitutes the major chunk of Indian population. Khan Committee Report-Salient features    A Demand side vis-à-vis a credit side view was analysed As per the committee the demand for financial inclusion would be because of the following factors physical.introducing a Self-Help Group (SHG)-Bank Linkage Programme in 1992. human. Some of the measures include creation of State Bank of India in 1955. illiteracy and lack of awareness making 51. International comparisons were made with the following countriesUK.Post Office Card Account (POCA) CANADA-Free encashment of gov cash SOUTH-AFRICA-Mzansi a low cost credit card was introduced that would be available at post offices and other outlets. social and financial.4% of farmer households being excluded from both formal / informal sources Remote & sparsely populated areas with poor infrastructure with difficult physical making access to financial products difficult High transaction costs for marginal savings The Endevour The RBI and the government of India started work on capturing the most of the indian population on the radar as early as 1950’s. Supervision delegated 2 . nationalisation of commercial banks in 1969 and 1980. REASONS FOR FINANCIAL EXCLUSION • Stringent KYC policies at banks– documentary proof of identity/ address making access to Financial products difficult • • • • Easy availability of informal credit through MFI’s at a very high interest rates Low income.There were a few committees set such as Khan Committee and another under K C Chakravarty. establishing Regional Rural Banks (RRBs) in 1975.Institutional restructuring coupled with deregulation of the banking sector andremoval of restrictions on credit and interest rates.initiating the Lead Bank Scheme in 1970. The RBI addressed the issue time to time . MEXICO .

Revolving credit feature was used and further loans were sanctioned based on household cash flows and no security or collateral was required Banks were allowed to use services of MFIs . 25000.000 Banks have been mandated to open at least 25% of the total branches in unbanked rural centers in a year All banks were required to frame a 3year financial inclusion plans (FIP) specifying targets for KCCs.whilebuilding mainline supervisory capacity in Bank of Indonesia. as business facilitators/ correspondents (BC) for extending banking services by performing “cash in-cash out” transactions at BC locations & branchless banking Branch authorization was simplified to reduce the uneven spread of bank branches and scheduled commercial banks were freely opened in Tier 3 to Tier 6 centres with population of less than 50. No of branches and BCs. No frill accounts for unbanked villages • • • • THE FIRST STEP The very first implementation of the scheme was carried out at MANAGALAM. 3 . a small village in Pudducherry in 2005. expanding banking outreach to larger sections of population • • KYC principles were relaxed to open accounts for customers in rural & urban areas GCC was given with a credit limit of up to Rs.NGOs and SHGs. CHAKRAVARTY REPORT-Salient Features OBJECTIVES   To cover 6 lakh villages To cover villages above 2000 population To involve a roadmap which is monitored in 2008 RBI’S ROLE IN FINANCIAL INCLUSION • Banks provided “no frills” accounts with low or minimum balance.

THe ROLE OF BC’s Since the geographical spread of India is huge. For NREGA the center gives the state 6 % as administration cost. Technology led branchless banking is 19% cheaper than conventional banking • Alternate delivery channels to reduce cost of servicing • Wider variety of transactions to increase their volume • Disbursement of loans. application processing and maintaining accounts can be made easy • Real time fund transfer from and to bank accounts. they would not earn the interest income. e-money 4 . The state does not pass some of these to the banks. make remittances and payments at very low cost Some examples of ICT are • • biometric smart card-pos. text based services online lending. mobile phones. The effectiveness of BC model can be found by studying different parts of chain which are as below CENTER/ STATE POLICIES • • NREGA payments should reach the beneficiaries within 15 days Pensions have to be paid in the first four days of the month BANKS • • • The banks were told that they should not charge for payments as money would stay in their accounts and they would earn interest income on it Payments are defined as full withdrawal by the account holder. If all the cash is withdrawn from the account. This lead to the emergence of the BC model under which the bank or the financial institutes would have their Business Correspondents. it would be very difficult for the current branches of banks to cover all the target audience. TECHNOLOGY Technology is the key enabler for a financial inclusion strategy.

Further . encourage NBFCs. hence more social mandate than business emphasis.2011 there are 79 million accounts worth Rs 370 crore .Poverty (low income).20 million Kisan Credit cards and 1 million General credit cards have been issued.2011 is 107604.. and access to greater capital is not available.  Higher debts on people  KYC Issues  Social Issues. 5 . the number of villages covered as on June .Challenges  Regulatory Challenges.Framework inhibits scale and size. Cultural & Psychological barriers Current Status As per the data recorded in June. Ignorance (low levels of financial literacy). Environment (lack of access to financial environment).Most are NGOs / MFIs set up as Societies / Trusts etc.