Untitled

SUMMER PROJECT REPORT ON
“A study to understand the Banking Behavior of the Financially Included rural po

pulation in Madurai district”
Under the Guidance of Smt. Madhavi Sharma General Manager Rural Planning and Cre
dit Department Reserve Bank of India Chennai By Chandrakumar B 25013 (Class of 2
010) April – June 2009
Bharathidasan Institute of Management
(School of Excellence of Bharathidasan University)
Tiruchirapalli 620014
A Study to understand Banking Behaviour of the Financially Included Rural Popula
tion
Contents
ACKNOWLEDGEMENT EXECUTIVE SUMMARY 5 6
INTRODUCTION....................................................................
............................................................7 OBJECTIVES OF THE
RESERVE BANK OF INDIA...........................................................
..........................................8 MAIN FUNCTIONS......................
................................................................................
............................9 CHAPTER 2: RURAL PLANNING AND CREDIT DEPARTMENT 10
INTRODUCTION...................................................................
...........................................................10 BROAD WORK AREAS O
F THE DEPARTMENT................................................................
...................................10 THRUST AREAS..............................
................................................................................
......................11 IMPORTANT ASPECTS RELATING TO PRIORITY SECTOR LENDING B
Y COMMERCIAL BANKS.......................................................11 CHAP
TER 3: FINANCIAL INCLUSION 13 INTRODUCTION......................................
................................................................................
........13 CONCEPTUAL FRAMEWORK.................................................
......................................................................14 FACTORS
AFFECTING ACCESS TO FINANCIAL SERVICES.........................................
.................................................16 INITIATIVES OF FINANCIAL INC
LUSION IN INDIA.................................................................
.................................17 CHAPTER 4: MADURAI DISTRICT PROFILE 22
Summer Placement Programme 2009
CHAPTER 5: RESEARCH METHODOLOGY
24
PROCEDURAL STEPS FOLLOWED FOR THE SURVEY........................................
.................................25 VILLAGES AND BANK BRANCHES VISITED..........
................................................................................
..............26 LIMITATIONS OF THE STUDY.......................................
................................................................................
26 CHAPTER 6: OBSERVATIONS 27 OBSERVATIONS WITH NO-FRILLS ACCOUNT HOLDERS.......
.............................................................27 BANKER’S PERSPEC
TIVE OF FINANCIAL INCLUSION.....................................................
..........................................37 GENERAL OBSERVATIONS...............
................................................................................
..........................39
tion
CHAPTER 7: BUSINESS CORRESPONDENT MODEL
43
OPERATIONS OF A BUSINESS CORRESPONDENT..........................................
...................................44 PICTORIAL REPRESENTATION..................
................................................................................
...................45 CHAPTER 8: RECOMMENDATIONS & CONCLUSION 49 RECOMMENDATIONS
FOR IMPROVEMENT................................................................
....................50 IMPLEMENTATION MODEL.....................................
................................................................................
...52 CONCLUSION................................................................
......................................................................54 ANNEXUR
E-I: QUESTIONNAIRE FOR COMMON MAN 55 ANNEXURE-II: QUESTIONNAIRE FOR BANK BRANCHE
S ANNEXURE-III: NEWS ARTICLE REFERENCES 59 61 62
tion
Acknowledgement
My sincere thanks to Shri. F.R. Joseph, Former Regional Director, Chennai for gi
ving me an opportunity to undertake project in Reserve Bank of India and for gui
ding me in the initial stages of the project by bringing in more clarity to the
topic. A word of thanks to Shri. K. R. Anandha, Regional Director, Chennai for h
is constant support for the project. I also thank my mentor officer Smt. Madhavi
Sharma, General Manager, RPCD who was a constant source of encouragement throug
hout the project. A special mention to my project guide Smt. Chandini Moolchandh
ani, Deputy General Manager, RPCD is the least I can do to acknowledge her incis
ive and meaningful insights, which instilled matchless attributes to my project.
I thank all the officers and staff of RPCD for extending all help and assistanc
e during the project. I also thank the Heads of all the Departments who helped m
e by giving more clarity during project title identification stage. I thank HRD
cell officers for extending their support and making all arrangement during my
project. They have made my stay in RBI a memorable one.
B. Chandrakumar
tion
Executive Summary
The banking system has grown enormously in the last five years keeping pace with
and in some cases leading the country s remarkable economic growth. Simultaneou
sly, the banking system has improved its strength, efficiency and resilience. Th
ere have also been significant improvements in the payments and settlements syst
em and electronic payments and RTGS is now much more in use. At the same time, l
arge number of households continues to be excluded from the formal banking syste
m. The greatest challenge faced by the banking sector and the government is to e
nable an inclusive growth environment in the country. Financial inclusion has to
be an urgent national priority if we are to achieve inclusive growth. In spite
of the measures taken by RBI to provide NoFrills accounts to everybody, it is se
en that the usage level is very low as compared to the expected level. Financial
Inclusion can become a profitable and beneficial programme only if the account
holders practice a healthy banking habit. This objective of this study is to und
erstand the banking behavior of the No-Frills account holders and the banker’s p
erspective on Financial Inclusion. Chapter 1 explains about the objective and fu
nctions of Reserve bank of India and chapter 2 broadly discusses about the Rural
Planning and Credit Department in which the project was undertaken. Chapter 3 d
iscusses on Financial Inclusion and chapter 4 gives a brief note
Objective of the study
1. To understand the banking behaviour of the No-Frills account holders in rural
area 2. To study the banker’s perception on Financial Inclusion
about Madurai district in which the study was conducted. Chapters 5 and Chapter
6 explain the research methodology followed for the study and various quantitati
ve and quantitative observations made during the project. Chapter 7 pictorially
briefs the Business Correspondent model. The report concludes with the recommend
ations and conclusion in chapter 8.
Chapter 1: About Reserve Bank of India
tion
Introduction
The Reserve Bank of India was established on April 1, 1935 in accordance with th
e provisions of the Reserve Bank of India Act, 1934. The Bank began its operatio
ns by taking over from the Government the functions so far being performed by th
e Controller of Currency and from the Imperial Bank of India, the management of
Government accounts and public debt. The Central Office of the Reserve Bank was
initially established in Calcutta but was permanently moved to Mumbai in 1937. T
he Central Office is where the Governor sits and where policies are formulated.
The existing currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lah
ore and Cawnpore (Kanpur) became branches of the Issue Department. Offices of th
e Banking Department were established in Calcutta, Bombay, Madras, Delhi and Ran
goon. Though originally privately owned, since nationalization in 1949, the Rese
rve Bank is fully owned by the Government of India. Burma (Myanmar) seceded from
the Indian Union in 1937 but the Reserve Bank continued to act as the Central B
ank for Burma till Japanese Occupation of Burma and later up to April, 1947. Aft
er the partition of India, the Reserve Bank served as the central bank of Pakist
an up to June 1948 when the State Bank of Pakistan commenced operations. The Ban
k, which was originally set up as a shareholder s bank, was nationalized in 1949
. An interesting feature of the Reserve Bank of India was that at its very incep
tion, the Bank
was seen as playing a special role in the context of development, especially Agr
iculture. When India commenced its plan endeavours, the development role of the
Bank came into focus, especially in the sixties when the Reserve Bank, in many w
ays, pioneered the concept and practise of using finance to catalyze development
. The Bank was also instrumental in institutional development and helped set up
institutions like the Deposit Insurance and Credit Guarantee Corporation of Indi
a, the Unit Trust of India, the Industrial Development Bank of India, the Nation
al Bank of Agriculture and Rural Development, the Discount and Finance House of
India etc. to build the financial infrastructure of the country.
tion
With liberalization, the Bank s focus has shifted back to core central banking f
unctions like Monetary Policy, Bank Supervision and Regulation, and Overseeing t
he Payments System and onto developing the financial markets.
Objectives of the Reserve Bank of India
The Reserve Bank of India Act, 1934 sets out the objectives of the Reserve Bank:
The formulation, framework and institutional architecture of monetary policy in
India have evolved around these objectives – maintaining price stability, ensur
ing adequate flow of credit to sustain the growth momentum, and securing financi
al stability. The responsibility for ensuring financial stability has entailed t
he vesting of extensive powers in and operational objectives for the Reserve Ban
k for regulation and supervision of the financial system and its constituents, t
he money, debt and foreign exchange segments of the financial markets in India a
nd the payment and settlement system. The endeavor of the Reserve Bank has been
to develop a robust, efficient and diversified financial system so as to anchor
financial stability and to facilitate effective transmission of monetary policy.
In addition, the Reserve Bank pursues operational objectives in the context of
its core function of issuance of bank notes and currency management as well as i
ts agency functions such as banker to
...to regulate the issue of Bank notes and the keeping of reserves with a view
to securing monetary stability in India and generally to operate the currency an
d credit system of the country to its advantage.
Government (Centre and States) and management of public debt; banker to the bank
ing system including regulation of bank reserves and the lender of the last reso
rt. The specific features of the Indian economy, including its socio-economic ch
aracteristics, make it necessary for the Reserve Bank to operate with multiple o
bjectives. Regulation, supervision and development of the financial system remai
n within the legitimate ambit of monetary policy broadly interpreted in India. T
he role of communication policy, therefore, lies in articulating the hierarchy o
f objectives in a given context in a transparent manner, emphasizing a consultat
ive approach as well as autonomy in policy operations and harmony with other ele
ments of macroeconomic policies.
tion
Main Functions
1. Monetary Authority: Formulates, implements and monitors the monetary policy
. Objective: maintaining price stability and ensuring adequate flow of credit
to productive sectors. 2. Regulator and supervisor of the financial system: Pr
escribes broad parameters of banking operations within which the country s banki
ng and financial system functions. Objective: maintain public confidence in th
e system, protect depositors interest and provide cost-effective banking servic
es to the public. 3. Manager of Foreign Exchange Manages the Foreign Exchange
Management Act, 1999. Objective: to facilitate external trade and payment and
promote orderly development and maintenance of foreign exchange market in India.
4. Issuer of currency: Issues and exchanges or destroys currency and coins no
t fit for circulation. Objective: to give the public adequate quantity of supp
lies of currency notes and
coins and in good quality. 5. Developmental role Performs a wide range of prom
otional functions to support national objectives. 6. Related Functions Banker
to the Government: performs merchant banking function for the central and the st
ate governments; also acts as their banker. Banker to banks: maintains banking
accounts of all scheduled banks.
tion
Chapter 2: Rural Planning and Credit Department
Introduction
The Rural Planning and Credit Department formulates policies relating to rural c
redit and monitors timely and adequate flow of credit to the rural population fo
r agricultural activities and rural employment programmes. It also formulates po
licies relating to the priority sector which includes agriculture, small-scale i
ndustries, tiny and village industries, artisans and retail traders, professiona
l and self-employed persons, state sponsored organisations for Scheduled Castes
and Scheduled Tribes and Government Sponsored credit-linked programmes like Swar
njayanti Gram Swarojgar Yojana (SGSY), Prime Ministers Rojgar Yojana (PMRY) etc.
It implements and monitors the Lead Bank Scheme which is aimed at forging a coo
rdinated approach for providing bank credit to achieve overall development of ru
ral areas in the country. The department also oversees implementation of the Ban
king Ombudsman Scheme.
Broad Work Areas of the Department
Monitoring and facilitating flow of credit to rural, agricultural and small scal
e industries sectors. Framing policies on priority sector lending. Making alloc
ations for contribution to Rural Infrastructure Development Fund (RIDF) amongst
scheduled commercial banks. Implementing and monitoring Lead Bank Scheme which a
ims at forging a coordinated approach for providing bank credit to achieve overa
ll rural development. Giving financial and policy support to NABARD. Acting as r
egulators for Regional Rural Banks and State/Central Co-operative Banks. Monitor
ing implementation of Government-sponsored poverty alleviation schemes. Implemen
tation of Banking Ombudsman Scheme: A scheme set up by the Reserve Bank of India
to give members of public an easy and inexpensive forum for redressal of their
grievances against banks.

tion
Thrust Areas
Credit delivery innovations • • Micro finance initiatives Kissan credit cards
Restructuring co-operatives Framing guidelines for rehabilitation of sick SS
Is
Important aspects relating to priority sector lending by commercial banks
I. Targets/Sub-Targets
The targets and sub-targets set under priority sector lending for domestic and f
oreign banks operating in India are:
Category of advances Domestic banks Foreign banks in India
Aggregate advances to 40 per cent of net bank 32 per cent of net bank priority s
ector credit credit Advances to agriculture Advances sections
18 per cent of net bank No target credit
to
weaker 10 per cent of net bank No target credit No target 10 per cent of net ban
k credit
Advances to SSI Export Finance
Export finance does not 12 per cent of net bank form part of priority sector cre
dit for domestic banks
tion
II.
Activities
Broadly, the activities/ purposes financed by banks included in priority sector
are:
a. Agriculture b. Small scale industry c. Small road and water transport operato
rs d. Retail traders and small business operators e. Professional and self-emplo
yed persons f. State-sponsored organisations for Scheduled Caste/Scheduled Tribe
, studies abroad. h. Housing up to Rs. 1.5 million in all areas for acquisition
by individual. Rs. 0.1 million in rural/semi urban areas and Rs. 0.2 million in
urban/metropolitan areas for repairing of existing unit) i. j. l. Consumption lo
ans for weaker sections, Self Help Groups/ Non Governmental Organisations, Food
and agro based processing sector g. Educational loans, up to Rs. 0.75 million fo
r studies within the country and Rs. 1.5 million for
k. Software industry (having credit limits up to Rs 10 million from the banking
system)
III.
Weaker Sections
The categories of borrowers included under weaker sections are:
i.
Small and marginal farmers with land holdings of five acres and less, landless l
abourers, tenant farmers and sharecroppers; Artisans, village and cottage indust
ries where individual credit requirements do not exceed Rs. 50,000 ; Beneficiari
es of Swarnjayanti Gram Swarozgar Yojana (SGSY), Swarna Jayanti Shahari Rozgar Y
ojana (SJSRY) and Scheme for Liberation and Rehabilitation of Scavangers (SLRS);
Scheduled castes and scheduled tribes; Beneficiaries under the Differential Rat
e of Interest (DRI) scheme; Self Help Groups
ii. iii. iv. v. vi.
tion
Chapter 3: Financial Inclusion
Introduction
Access to safe, easy and affordable credit and other financial services by the p
oor and vulnerable groups, disadvantaged areas and lagging sectors is recognised
as a pre-condition for accelerating growth and reducing income disparities and
poverty. Access to a wellfunctioning financial system, by creating equal opportu
nities, enables economically and socially excluded people to integrate better in
to the economy and actively contribute to development and protects themselves ag
ainst economic shocks. Despite the broad international consensus regarding the i
mportance of access to finance as a crucial poverty alleviation tool, it is esti
mated that globally over two billion people are currently excluded from access t
o financial services (United Nations, 2006a). In most developing countries, a la
rge segment of society, particularly low-income people, has very little access t
o financial services, both formal and semi-formal. As a consequence, many of the
m have to necessarily depend either on their own or informal sources of finance
and generally at an unreasonably high cost. The situation is worse in most least
developed countries (LDCs), where more than 90 per cent of the population is ex
cluded from access to the formal financial system (United Nations, 2006a). Theor
ies of development advocate that financial development creates enabling conditio
ns
for growth through either a ‘supply-leading’ (financial development spurs growth
) or a ‘demand-following’ (growth generates demand for financial products) chann
el. Earlier theories of development hypothesised that a rise in inequality was i
nevitable in the early stages of development. The early literature on the subjec
t focussed on the need to develop an extensive financial system that could tap s
avings and then channel the funds so generated to a wide spectrum of activities.
The modern development theory perceives the lack of access to finance as a crit
ical factor responsible for persistent income inequality as well as slower growt
h. A large body of empirical literature suggests that developing the financial s
ector and improving access to finance may accelerate economic growth along with
a reduction in income inequality and poverty. Without an inclusive financial sys
tem, poor
tion
individuals and small enterprises have to rely on their own limited savings and
earnings to invest in their education and entrepreneurship to take advantage of
growth opportunities (World Bank, 2008). In India, growth with equity has been t
he central objective right from the inception of the planning process. According
ly, over the years, initiatives have been taken continuously by the Government a
nd the Reserve Bank to address the issue of inclusive growth. Notwithstanding th
e rapid increase in overall GDP and per capita income in recent years, a signifi
cant proportion of the population in both rural and urban areas still experience
s difficulties in accessing the formal financial system. Recent concerns have ar
isen from an inadequate reduction in poverty levels, sectoral divergences in gro
wth and employment opportunities and tardy improvement in other social indicator
s, despite higher economic growth. The Eleventh Five Year Plan, therefore, re-em
phasised the need for a more inclusive growth in order to ensure that the per ca
pita income growth is more broad-based. The farming, micro, small and medium ent
erprises have immense potential to play a critical role in achieving the objecti
ve of faster and more inclusive growth as these sectors contributes to output an
d employment generation in a significant way with capacity to expand regionally
diversified production and generating widely dispersed off-farm employment.
Conceptual Framework
Definitions of financial exclusion in the literature vary depending on the dimen
sions such as ‘breadth’, ‘focus’ and ‘degree’ of exclusion. The ‘breadth’ dime
nsion is the broadest of all definitions linking financial exclusion to social e
xclusion which defines financial exclusion as the processes that prevent poor an
d disadvantaged social groups from gaining access to the financial system (Leysh
on and Thrift, 1995). The ‘focus’ dimension is in the middle of the spectrum t
hat links financial exclusion to other dimensions of exclusion. It defines finan
cial exclusion as the potential difficulties faced by some segments of populatio
n in accessing mainstream financial services such as bank accounts/home insuranc
e (Meadows et al., 2004). The
tion
definitions laying emphasis on the ‘focus’ also vary significantly to include va
rious segments of population such as individuals, households, communities, and b
usinesses. The ‘degree’ dimension, which is the narrowest of all definitions o
f financial exclusion, defines financial exclusion as exclusion from particular
sources of credit and other financial services including insurance, bill-payment
services and accessible and appropriate deposit accounts (Rogaly, 1999). Finall
y, definitions of financial exclusion vary considerably according to the dimensi
ons such as the concept of relativity, i.e., financial exclusion defined relativ
e to some standard (i.e., inclusion). This line of thinking defines the problem
of financial exclusion as that emanating from increased inclusion, leaving a min
ority of individuals and households behind (Kempson et al., 2000). Thus, there e
xists duality of hyper inclusion with some having access to a range of financial
products and at the same time a minority lacking even the basic banking service
s. This phenomenon is observed mostly in developed countries with high degree of
financial development.
tion
Over the years, several definitions of financial inclusion/exclusion have evolve
d. Listed below are few definitions of financial inclusion.
Author Stephen P. Sinclair (2001) Definition Financial exclusion means the inabi
lity to access necessary financial services in an appropriate form. Exclusion ca
n come about as a result of problems with access, conditions, prices, marketing
or self-exclusion in response to negative United Nations (2006 b) experiences or
perceptions. A financial sector that provides ‘access’ to credit for all ‘banka
ble’ people and firms, to insurance for all insurable people and firms and to sa
vings and payments services for everyone. Inclusive finance does not require tha
t everyone who is eligible use each of the services, but they should be Report o
f the Committee on Financial Inclusion in India (Chairman: C.Rangarajan) (2008)
able to choose to use them if desired. The process of ensuring access to financi
al services and timely and adequate credit where needed by vulnerable groups suc
h as weaker sections and low income groups at an affordable cost.
Factors Affecting Access to Financial Services
Gender issues: Access to credit is often limited for women who do not have, or
cannot hold title to assets such as land and property or must seek male guarante
es
to borrow.
Age factor: Financial service providers usually target the middle of the econo
mically
active population, often overlooking the design of appropriate products for olde
r or younger potential customers.
Legal identity: Lack of legal identities like identity cards, birth certificat
es or written
records often exclude women, ethnic minorities, economic and political refugees
and migrant workers from accessing financial services.
Limited literacy: Limited literacy, particularly financial literacy, i.e., bas
ic
mathematics, business finance skills as well as lack of understanding often cons
trains demand for financial services.
tion
Place of living: Although effective distance is as much about transportation
infrastructure as physical distance, factors like density of population, rural a
nd remote areas, mobility of the population (i.e., highly mobile people with no
fixed or formal address), insurgency in a location, etc., also affect access to
financial services.
Psychological and cultural barriers: The feeling that banks are not interested
to look
into their cause has led to self-exclusion for many of the low income groups. Ho
wever, cultural and religious barriers to banking have also been observed in som
e of the countries.
Social security payments: In those countries where the social security payment
system is not linked to the banking system, banking exclusion has been higher.
Bank charges: In most of the countries, transaction is free as long as the acc
ount has
sufficient funds to cover the cost of transactions made. However, there are a ra
nge of other charges that have a disproportionate effect on people with low inco
me.
Terms and conditions: Terms and conditions attached to products such as minimu
m
balance requirements and conditions relating to the use of accounts often dissua
de people from using such products/services.
Level of income: Financial status of people is always important in gaining acc
ess to
financial services. Extremely poor people find it difficult to access financial
services even when the services are tailored for them. Perception barriers and i
ncome discrimination among potential members in group-lending programmes may exc
lude the poorer members of the community.
Type of occupation: Many banks have not developed the capacity to evaluate loa
n
applications of small borrowers and unorganised enterprises and hence tend to de
ny such loan requests.
Attractiveness of the product: Both the financial services/products (savings
accounts, credit products, payment services and insurance) and how their availab
ility is marketed are crucial in financial inclusion
Initiatives of Financial Inclusion in India
tion
Financial inclusion in the Indian context implies the provision of affordable fi
nancial services, viz., access to payments and remittance facilities, savings, l
oans and insurance services by the formal financial system to those who tend to
be excluded. In order to expand the credit and financial services to the wider s
ections of the population, a wide network of financial institutions has been est
ablished over the years. The organised financial system comprising commercial ba
nks, regional rural banks (RRBs), urban cooperative banks (UCBs), primary agricu
ltural credit societies (PACS) and post offices caters to the needs of financial
services of the people. Besides, MFIs, self-help groups (SHGs) also meet the fi
nancial service requirements of the poorer segments. Furthermore, development of
the institutional framework in recent years has focussed on new models of expan
ding financial services involving credit dispensation using multiple channels su
ch as civil society organisations (CSOs), nongovernment organisations (NGOs), po
st offices, farmers’ clubs, and panchayats as business facilitators/corresponden
ts. Specific financial instruments/products were also developed in order to prom
ote financial inclusion. The broad strategy for financial inclusion in India in
recent years comprises the following elements: a. encouraging penetration into u
nbanked and backward areas and encouraging agents and intermediaries such as NGO
s, MFIs, CSOs and business correspondents (BCs) b. focussing on a decentralised
strategy by using existing arrangements such as State Level Bankers’ Committee (
SLBC) and district consultative committee (DCC) and
strengthening local institutions such as co-operatives and RRBs c. using technol
ogy for furthering financial inclusion d. advising banks to open a basic banking
‘no frills’ account e. emphasis on financial literacy and credit counselling f.
creating synergies between the formal and informal segments The objective of br
inging financially excluded people within the fold of the banking sector receive
d renewed emphasis in 2005-06 as the term ‘financial inclusion’ was explicitly u
sed for the first time in the Annual Policy Statement for 2005-06. It observed t
hat there were legitimate concerns in regard to the banking practices that tende
d to exclude rather than
tion
attract vast sections of population, in particular pensioners, self-employed and
those employed in the unorganised sector The process of financial inclusion rec
eived further impetus in November 2005, when banks were advised to make availabl
e a basic banking ‘No Frills’ account with low or nil minimum balances as well a
s charges to expand the outreach of such accounts to vast sections of the popula
tion. The low cost or free of cost account is internationally considered to be h
elpful in expanding the access of banking services, particularly to the low inco
me groups.
Category Public Sector Banks Private Sector Banks Foreign banks Total
End-March End-March2 End-December 2006 2007 2007 3,32,878 58,65,419 1,10,26,619
1,56,388 231 4,89,497 8,56,495 2,753 67,24,667 15,60,518 30,260 1,26,17,397
No-Frills accounts: As a proactive measure, the RBI in its Annual Policy Stateme
nt for the year 2005-06, while recognising the concerns in regard to the banking
practices that tend to exclude rather than attract vast sections of population,
urged banks to review their existing practices to align them with the objective
of financial inclusion. In the Mid Term Review of the Policy (200506), the RBI
exhorted the banks, with a view to achieving greater financial inclusion, to mak
e available a basic banking ‘no frills’ account either with nil or very minimum
balances as well
as charges that would make such accounts accessible to vast sections of the popu
lation. The nature and number of transactions in such accounts would be restrict
ed and made known to customers in advance in a transparent manner. All banks hav
e been urged to give wide publicity to the facility of such ‘no frills’ account.
A number of banks have since come out with schemes for such ‘no frills’ account
facility.
Relaxation of KYC norms:
tion
In order to ensure that persons belonging to low income groups, both in urban an
d rural areas do not encounter difficulties in opening bank accounts, the know y
our customer (KYC) procedure for opening accounts was simplified for those accou
nts with balances not exceeding Rs.50,000 and credit limits not exceeding Rs.100
,000 in a year. The simplified procedure allowed introduction by a customer on w
hom the full KYC drill had already been done. General Purpose Credit Card: In ur
ban areas, credit cards enable households to manage to get their credit needs me
t by the banking system, with not only the ability to make purchases on credit b
ut also facility to draw cash against card. In the rural areas, there are no poi
nts of sale or outlets where plastic cards can be used. Banks have been recently
advised by RBI to provide a General purpose Credit Card (GCC) facility at their
rural and semi urban braches. The credit facility extended under the Scheme wil
l be in the nature of revolving credit. The GCC-holder will be entitled to draw
cash from the specified branch of bank up to the limit sanctioned. Banks would h
ave flexibility in fixing the limit based on the assessment of income and cash f
low of the entire household. However, the total credit facility under GCC for an
individual should not exceed Rs.25,000. Interest rate on the facility may be ch
arged as considered appropriate and reasonable. The borrowers would be eligible
for availing the credit facilities provided under GCC, as per their requirement,
without any insistence on security and the purpose or end-use of the credit. Fi
fty per cent of credit outstanding under GCC up to Rs.25,000 will be eligible fo
r being treated as indirect agricultural financing coming under the ambit of pri
ority
sector lending norms. The eligibility criteria will be subject to review. It is
not necessary that GCC should be linked to purchases and GCC may not necessarily
be in the form of a card. GCC can be issued in the form of a Pass Book, if the
holder of GCC desires to operate cash withdrawals from bank branches. It is expe
cted that banks will come out with their own schemes to popularise this product
amongst the rural clientele. Based on assessment of household cash flows, the li
mits are sanctioned. Interest rate on the facility is completely deregulated. Fi
fty per cent of GCC loans are treated as priority sector lending. Business Corre
spondent: In January 2006, the Reserve Bank, permitted banks to utilise the serv
ices of NGOs/ SHGs, MFIs (other than NBFCs) and other civil society organisation
s as intermediaries for providing
tion
financial and banking services through the use of business facilitator (BF) and
business correspondent (BC) models. In April 2008, banks were permitted to engag
e retired bank employees, ex-servicemen and government employees as BCs, subject
to appropriate due diligence. The BC model allows banks to do ‘cash in - cash o
ut’ transactions at a location much closer to the rural population, thus, addres
sing the last mile problem. Banks are also entering into agreements with Indian
Postal authorities for using the enormous network of post offices as BCs, thereb
y increasing their outreach. In order to provide social security to vulnerable g
roups, in some cases banks have provided, in association with insurance companie
s, innovative insurance products at affordable cost, covering life disability an
d health cover. SHGs and MFIs are also being used extensively for financial incl
usion on the credit side. One of the major differences between the business faci
litator and business correspondent is business facilitators will not be involved
in any financial activity while they will be involved in survey, counselling an
d account opening. While business correspondents act as an intermediary and proc
ess any transaction between bank and the customer. They involve in all financial
activities in granting loans and collecting deposits and giving it to banks. Ro
le of Foreign Banks and Private Banks: The foreign banks and private sector bank
s have approached the access issue through either setting up relatively lower co
st non bank companies for providing small value retail loans or have partnered w
ith micro finance institutions that provide financial services to the
relatively higher risk segments of the population. Microfinance has drawn attent
ion to an entire sector of borrowers who had been previously poorly served by th
e formal financial sector - and MF has demonstrated how to make lending to this
sector a viable proposition. However the rates of interest charged are quite hig
h, typically 24 to 30 percent, mainly on account of the high transaction cost fo
r the average loan size that can be quite small. Compared to the informal sector
, perhaps the rates are lower, but issues are raised whether these rates are aff
ordable - in the sense whether they would leave any surplus in the hands of the
borrowers and lead to higher levels of living. IT Solutions for Financial Inclus
ion:
tion
The use of IT solutions for providing banking facilities at doorstep holds the p
otential for scalability of the FI initiatives. Pilot projects have been initiat
ed using smart cards for opening bank accounts with biometric identification. Li
nk to mobile or hand held connectivity devices ensure that the transactions are
recorded in the bank’s books on real time basis. Some State Governments are rout
ing social security payments and also payments under the National Rural Employme
nt Guarantee Scheme through such smart cards. The same delivery channel can be u
sed to provide other financial services like low cost remittances and insurance.
The use of IT also enables banks to handle the enormous increase in the volume
of transactions for millions of households for processing, credit scoring, credi
t record and follow up. In order to have a better understanding of the Financial
Inclusion and to study why the usage of No-Frills accounts is too low, Madurai
District was identified for the study.
Chapter 4: Madurai District Profile
tion
The Geographical extent of Madurai District is 3741.73 sq.km. accounting for 2
.9% of the geographical area of Tamilnadu state There are two revenue
divisions and 13 blocks in the district. There are 596 villages and 252 bank bra
nches in the district The about males total population 25.62 and 12.67 is
Lakhs Lakhs
comprising of 12.95 Lakhs females as per 2001 census The district has well lai
d out roads and railway lines connecting all major towns within and outside the
state Madurai District is classified into 6 sub-zones (Southern Plateau and hi
ll region) under zone x among 13 agro-climatic zones in the country. Normally su
b-tropical climate prevails over the district without any sharp variation. The d
istrict possess very good communication network The average rainfall of the di
strict is 835.3 mm. There are four distinct season viz., South-West Monsoon, Nor
th-East Monsoon, winter and summer. Vaigai is a major
river in the district originating in the Western Ghats. The major sources of irr
igation are by canals and wells. The types of soil available in the district a
re thin red, deep red, red sterile, black and red sandy. As regards mineral reso
urces, lime stone deposits, granite etc is available in the district The distr
ict is basically agrarian based and also offers scope in the field of textiles,
readymade garments, dairying, floriculture, coir units, bakery units, brick klin
, toy making etc.
tion
Chapter 5: Research Methodology
In order to understand the banking behaviour of financially included rural popul
ation, Madurai district was identified as the region of study. The methodology f
ollowed was primary data collection through questionnaire survey and in-depth in
terview technique Two questionnaires were prepared for the study. Questionnair
e for the bank branches Questionnaire for the No-Frills account holders The qu
estionnaire for No-Frill account holders contains 23 questions and was designed
in order to get the details related to the financial habit, banking behaviour an
d credit planning. The questionnaire also contains open questions in order to re
cord their views on low usage of bank accounts. The questionnaire was designed w
ith multiple choice and dichotomous questions. The questionnaire for the Bank Ma
nagers contains 15 questions and it majorly focussed on the strategies followed
by banks in order to encourage people to open No-Frills accounts and the steps t
aken by them to motivate frequent bank account usage. This questionnaire majorly
contains open questions in order to obtain a descriptive opinion of the Manager
s.
tion
Procedural Steps followed for the Survey
The procedural steps followed for the research is schematically represented belo
w.
Step 1: After the questionnaire1 was designed, the next step was to identify the
bank branches in the Madurai District that could be taken for the study. Under
the guidance of the Lead District Officer of Madurai, six bank branches were sel
ected so as to geographically cover all the blocks in the District. Step 2: The
identified six branches were visited and the questionnaire was administered to
the Bank Managers. This questionnaire majorly contained open questions in order
to obtain a descriptive opinion of the Managers Step 3: With the help of the res
pective Bank Managers, 2 or 3 villages in the service area of the bank was selec
ted for study. Step 4: Totally 9 villages were visited and 102 respondents were
interviewed. The questionnaire was explained to them in the local language and t
heir answers were recorded in an interview format.
1
Annexure I & II
tion
Villages and Bank Branches visited
Following are the details of the Bank Branches and the villages visited for the
survey, S. No Bank Name Block No. Of Villages covered by the bank 11 16 10 11 Vi
llages visited for the survey Veeraperumalpuram Therkutheru Sembur Velliyamkundr
am Karupayurani Andarkottaram L. Poolangulam Vellayampatti Chokkanthevanpatti
1 Canara Bank, Kallikudi 2 State Bank of India, Therkutheru 3 Indian Overseas Ba
nk, Appantirupathi 4 Indian Bank, Karupayurani 5 State Bank of India, Palamedu 6
State Bank of India, Valandur
Kallikudi Melur Madurai East Madurai East Alanganallur Chellampatti
22 7
Limitations of the study
Following are the limitations of the study Project was to be completed in a pe
riod of 2 months The study was restricted to Madurai District Not many of th
e No-Frills account respondents were ready to share information about their poss
ession of Gold or House
Only two stake holders of the Financial Inclusion (Account holders & Bankers)
were interviewed as a part of the project. Interview with all the stake holders
could have given a complete picture of the implementation of Financial Inclusion
tion
Chapter 6: Observations
Observations with No-Frills account holders
A total of 102 respondents were randomly selected from 9 different villages for
the survey. Only the primary data collected through the interview was used for
the analysis
The sample composed of 69% male and 31% female respondents. The sample conta
ins more female than male because in majority of the household women showed more
interest to open a bank account for saving compared to the male member. Moreove
r more female registered themselves with the NREGS and
hence possessed Bank passbooks.
Education
level:
tion
About 57% of the respondents did not have proper schooling
13% of them had education till 5th Grade and 28% of the respondents had school
ing
till 12th grade It was also seen that 1% of the respondents were graduates and
completed technical studies like welding, tailoring, teacher training etc., Occ
upation of the respondents:
tion
A majority of the respondents (60%) were agricultural and non-agricultural lab
ours who were also registered for the NREGS. They have opened the bank account a
fter it was made mandatory for the NREGS jobs. 13% of them were farmers who ow
ned cultivatable land. Around 11% of them worked in public/private sectors and
these set of people were involved in active savings through the saving schemes
sponsored by the organisation they work in. About 8% of them were Housewives,
4% of them were traders and 1% of the sample were unemployed. Income level:
Around 71% of the respondents lead their life with a monthly income of less than
Rs. 1500 and 25% of them had savings in the range of Rs. 1500 to Rs. 3000 per m
onth. Around 4% of the respondents had monthly earnings in the range of Rs. 3000
to Rs. 5000.
tion
Frequency of usage of Account holders:
The district administration and the banks have taken efforts to make sure the di
strict is 100% financially included primarily driving through the NREGS by makin
g it mandatory for the job card holders to possess a bank account. But it was fo
und that around 65% of the account holders haven’t done any bank transaction and
their passbooks appear blank. 19% of the respondents have made 1 to 3 bank tran
sactions and they were found to possess a sum of around Rs. 200. A total of 9% o
f the respondents have made 4 to 10 bank transactions while 7% of them have made
more than 10 transactions. Reason for opening No-Frills account:
tion
Majority of the respondents (62%) answered that they have opened the account i
n order to receive payments through Government schemes This was majorly attrib
uted to the fact that Bank account opening was made mandatory for the NREGS 15
% of the respondents had the desire to avail loan from bank and it was observed
that these respondents were effectively utilising the jewel loan Only 14% of t
he respondents have expressed the interest to use bank account for savings Dep
ositing cheques/DD was the reason for 6% of the respondents to open a bank accou
nt and 3% of them felt that the bank account was offered at their doorsteps Reas
ons for poor usage of Bank account:
A total of 90 respondents whose bank account usage was minimum were interviewe
d the reason for poor usage Bank’s location was the reason constraint for the
majority of the respondents (28 respondents)
tion
Equally contributing is that people have the perception that small amounts can
not be saved in banks. Even among the respondents the practise was to save small
amount in their house and depositing the saved money in the bank once in a mont
h. In this process, they tend to spend the saved money for consumption needs 1
3 respondents felt that the complex process involved in the transaction was the
reason for their poor usage In few villages, it was observed that even after t
he No-Frills accounts were opened, they were not provided with the Bank passbook
s. As they have no means of connection with the bank, they tend to be detached f
rom the bank. Seven respondents felt that they have no awareness about the ban
king services. Banks officials response for queries and the Bank’s functioning
time were other reasons for the poor usage Savings habit of the respondents:
It was interesting to note that 96% of the respondents had the savings habit. Th
ough only a few of them used Bank accounts for saving purpose, rest had the prac
tise of saving through other informal means like keeping it safe in the house, g
iving it to the relatives etc., Some of them felt that they did not have enough
money to save, which is one of the reasons for the lack of savings habit.
tion
Savings is also found to be done through Diwali fund which is operated by the pe
tty shops. The individual has to pay Rs. 10 per week which would be redeemed in
the form of groceries and other items from the shop during Diwali. What is the p
urpose of saving?
A majority of the respondents (approx 38%) were observed to be doing savings f
or fulfilling their consumption needs. They do small savings like Rs. 5 per day
which would be mostly spent for groceries and other items depending on the need
One fourth of the respondents were doing savings which would be spent entirely
on social functions like daughter’s wedding. Apart from the savings, they also
resort to
Money Lenders to fill the gaps of the financial needs. Around 17% of them are
doing savings in order to provide education to their children and 12% of respond
ents who were basically agriculture labours aspired to start a small business/pe
tty shop of their own Purchasing/Repairing the house, Agriculture needs were o
ther reasons for savings of the individuals What is the preferrable source of sa
vings:
tion
Around half of the respondents (52 of 98) said that they have been doing savin
gs by keeping it in their house. The inference of this habit is that the people
lack in financial literacy and they are ignorant about other means of doing savi
ngs Self Help Groups play a major role in imbibing savings habit in the people
11 respondents said that Post Office was their preferable source because they
were located within their village premises LIC/Insurance was said to be the p
referable source of saving by 11 respondents. The main reason was that the LIC a
gent who usually used to be a relative or friend of the individual goes to the d
oorsteps to collect the premium amount
Cooperative societies were found be the preferable source of saving for 7 resp
ondents mainly due to their accessibility Only 4 respondents (approx 4%) were
doing savings through banks Some factories have also given a provision to save
a few amount of money in their own savings scheme. This has got a positive resp
onse because the workers in the factory can save a small amount of their wages f
rom the place where they get the wages.
tion
Reason for saving through sources other than banks:
About one third of the respondents who do not have savings habit through banks
said that they cannot withdraw the saved money at the time of emergency About
31% of the respondents felt that banks were not accessible while the other sour
ces were readily available at their doorsteps Approximately One-fourth of the
respondents said that they were unaware of other means of savings Around 13% o
f thm felt that the bank transactions were not easy and convinient to
perform
Source of Borrowing:
tion
Majority of the respondents (approx 65%) possess the habit of borrowing from t
he moneylenders A few of them (approx 12%) borrow from their relatives and fri
ends when the need is small and usually they repay it on the next day Borrowin
g from Self Help groups have benefitted 11% of the respondents and generally it
is seen that defaulting is very minimal due to the peer pressure in the group
Totally 7% of the population have borrowed from the Cooperative societies and 5%
of them through banks. Bank borrowing generally happens throught the Jewel loan
and it has benefitted the people as they possess some form of Gold with them
People who borrow from the banks face the problem of partial payment for the p
roject and they do not get the full amount required. This situation naturally dr
ives them to borrow from the Money lender for meeting the needs
Reason for borrowing from Money Lender:
tion
In spite of the fact that the Money lenders charge a higher interst rate, a larg
e population prefers to borrow from them. Respondents who borrowed from the Mone
y lenders were asked the reason for borrowing from Money lenders. Majority of th
e people (46% of the respondents) depend on Money lenders because they have no o
ther means of getting credit. Lesser procedure and documention involved is anoth
er attraction for availing the Money lenders service. A Money lender typically d
oes a Spot payment with Zero documentation. Availability of cash at the time of
emergency is the reason for the choice of
12% of the respondents. Mostly when the cash needs arise out of medical emergenc
y, it is met only by the Money lenders as they ask for no documents or surelty a
nd gives the cash in hand. Location criteria and anytime access of cash are othe
r reasons for borrowing from Money lenders
Banker’s perspective of Financial Inclusion
“Cattle grows along with the interest” It is been a practise in some villages th
at when a housewife borrows money from a Money Lender, she also buys a goat. Aft
er a year, she sells the well grown cattle to repay the money to the lender.
All the
tion
banks have relaxed the KYC norms for account opening. They open the account for
a person if he/she is identified by the Makkal Nala Paniyalargal2 Local NGOs a
nd the Makkal Nala Paniyalargal have played a major role in communicating the vi
llage people about the account opening and for coordinating them to the banks. T
hey have also volunteered in account opening work Door to door campaign has be
en used by the bank in order to communicate and create publicity about opening b
ank account. Pre survey was also used as a chance to meet people in the village
and communicate the need for opening bank account
Murasu3 announcement were made in the streets of the village to communicate th
e
gathering point for account opening formalities. These announcements are made ei
ther in the evening or in the early morning when the people are available in the
ir house Banks have opened account opening centres at common places on Sunday
where people gather at the aforesaid time which helped the banks to do a bulk pr
ocessing of account opening Bank Managers felt that the bank account opening d
rive has gained momentum after making it mandatory for NREGS jobs. In some banks
, the number of No-Frills account were calculated based on the number of NREGS j
ob cards issued in their service area
Makkal Nala Paniyalargal have played a vital role in coordinating the efforts of
bringing people to the banks for account opening and assisting them in document
ation clarifications
As of now, funds of Government schemes are not credited directly into the indi
vidual’s account. They are either paid in the form of cash or as a crossed chequ
e. People step into bank mainly for availing services like Gold loan and for col
lection of issued by Government schemes Benefits that the banks enjoy after th
e Financial Inclusion drive, •
2
Increase in customer base and higher foot falls in the banks
Makkal Nala Paniyalargal are the panchayat functionaries Is a type of Percussion
instrument
3
tion
• • •
Increase in the floating deposit base Variety in the portfolio of the bank’s cre
dit Greater utilisation of the Gold Loan facility
Private bank’s participation in the Financial Inclusion is found to be very le
ss Banks have not taken any initiative to impart financial literacy. They help
out the people who enter the bank by assisting them in filling up the forms and
guiding them to the right place
General Observations
Most of the people felt that the bank account is opened only for the NREGS pur
pose and they do not associate saving habit with the bank. This is mainly becaus
e of the fear that small amount cannot be saved in bank and also they cannot aff
ord to spend a day’s work for depositing the money Education on long term fina
ncial planning is very much required for the people Short term financial needs
are generally met by the money that they keep safe in the house The farmer re
spondents expressed that they have opened a bank account for availing agricultur
e loan
Generally traders have a very small working capital and they work on rotation
of money and they are found to be having a good savings habit primarily through
nearest post office Insurance is perceived to be a comfortable saving medium a
s they were persuaded by their relative or friend who works as an insurance agen
t to start a policy. The insurance agent comes to the door-step to collect the p
remium amount. The financial Inclusion drive has gained momentum in this distr
ict after the bank account opening was made mandatory for the NREGS beneficiarie
s. The village
tion
panchayat has taken the initiative to coordinate the account opening process for
the villages.
Makkal Nala Paniyalargal collects the required details, photographs from all t
he
individuals who have the NREGS job card and submits the filled in application fo
rms to the bank. Once the account opening procedure is completed, the Bank Manag
ers give the account numbers to them, which is then informed to the individuals
In some villages, Bank Pass books are not distributed to the individuals throu
gh the Makkal Nala Paniyalargal but they are issued to the Individual itself whe
n they step into the bank for any transaction o Bank Managers feel that if the p
erson steps into the bank for collecting the pass book it would be a chance of a
cquaintance and moreover they feel that it is not worth giving the passbook to a
person who would not use the bank account o On the other hand, the account open
ers feel that they may have to forgo a day’s work if they go to the bank for jus
t collecting the passbook. So they keep postponing this work until they have a N
EED to use the bank account In some villages even after the banks have issued
the pass books in bulk, they haven’t reached the respective account holders. The
y were collected and kept in the Panchayat office. It was informed that they wou
ld be issued to the respective account holders when they have a need to use the
pass book
Makkal Nala Paniyalargal have been greatly helping the bank branches in gather
ing
and coordinating the people for account opening but their remuneration is too lo
w compared to the volume of work performed by them. Increasing the remuneration/
incentives to these workers will help in increasing the pace of financial inclus
ion. Wages are disbursed on a weekly basis and the amount of wages to be paid
to each beneficiary is calculated on the number of days he/she was present for t
he work. The technical and qualitative aspects of the work are inspected and the
tion
compensation is decided accordingly, which is then divided among the number of p
ersons who have been present for the work. Weekly wages funds are released to
the Gram Panchayat by way of cheque which the Gram Panchayat gets credited into
its bank account specifically opened for the purpose of NREGS. The amount is wit
hdrawn from this account and the actual wages is disbursed in cash to the benefi
ciaries. Though NREGS has a provision to credit the wages directly into the be
neficiary’s accounts, it is not followed yet As of now, the bank accounts are
opened because the weekly wages has to be credited into the account of the benef
iciary if he/she is not available on the day of salary. But this method is not p
ractised yet. In some villages it was observed that people get Rs. 72 as a dai
ly wage under NREGS. The reason for this wage cut is that the work has not been
performed to the TARGET LIMIT. The actual wage a person has to get is Rs. 80 per
day Infrastructure and the man power requirements are the major challenges fr
om the bank’s side if the NREGS wage is directly credited into the individual’s
account A large section of people have a perception that the government is iss
uing them bank pass books free of cost and if they get an account now they need
not run for opening an account when they receive any cheques from government sch
emes or
insurance. Savings doesn’t seem to the primary objective of opening an account.
In Indian Overseas Bank, Appantirupathi it was observed that jewel loan was no
t provided to the No-Frills account holders because the system does not allow en
tering a loan transaction for a No-frills account In some cases it is seen tha
t the No-frills account pass book is blank with no transactions. But the same pe
rson has done a considerable amount of savings in the SHG account. They use thei
r No-Frills account for availing loan or for passing cheques but they don’t have
any individual savings as such
tion
Veeraperumalpuram is a village located 12 kms from the nearest bank branch – C
anara Bank, Kalligudi. For any transaction, a person has to travel by two buses
to reach the bank. In this village people have a healthy savings habit through t
he Post office which is located within the village. People in this village can b
enefit a lot if the bank comes to the door steps of the people As of now, Busi
ness Correspondence has not been used in any bank branches. There is a huge savi
ngs potential which could be tapped if the bank’s services are made available in
the door steps of the customers Banks have not extended the Overdraft facilit
y to the No-Frills account and the people are not even aware of such a facility
A communication letter was sent from SBI to the Individual households informin
g their account number and other details. Entire communication is done in Englis
h language (Refer picture). This type of first correspondence from the bank ment
ally alienates the customer from the bank
“I am doing small savings in my house which is generally spent for repaying the
Money Lenders” A quote by a villager
Money Lenders play a major role in catering to the finance needs of the rural
people
by providing them the financial assistance at the times of emergency, at their d
oorsteps with no collateral or guarantor but charging a high interest rate. Th
e Money lending business typically works like – when there is a need for Rs. 10,
000, the Money Lender enters the borrowed amount in his books but gives only Rs.
8,500 in hand. From the next day, the borrower has to pay Rs. 100 per day for 1
00 days to repay the debt. This type of loan is generally given for productive a
ctivities like running a petty shop or for fulfilling the last few days cash req
uirement for Agriculture
tion
This example exemplifies the potential of a person to give Rs. 100 to a Money
lender and these people pay them promptly with the fear that the unpaid interest
would be added to the principal amount in case of default Banks have the prov
ision to issue debit cards for the No-Frill account holders but the bankers feel
that the debit card could also be used as a property to be mortgaged as it is b
een followed with the old age pension pass books.
Chapter 7: Business Correspondent Model
tion
After the study in the Madurai District, a one-day visit was made to Nanmangalam
village located in Chennai where Business Correspondent Model was implemented a
nd is executed successfully. Uma Maheswari works as the Business Correspondent (
BC) in this village and she started operating from February 2007. She was identi
fied through the Head Master of the school located in the village after which a
short training was given on operating the Electronic Data Capture Machine. She w
as also given training in basic accounts book handling which she already had exp
erience by handling few SHGs.
Operations of a Business Correspondent
1. The BC’s first task is was to campaign the need for opening a bank account an
d explain the people about the ease and convenience of operating a bank account
through the machine from their door steps 2. The necessary details of the applic
ants are captured along with their photograph and fingerprint with the help of t
he FINO operatives 3. The collected data is transferred to the bank’s Core Banki
ng System for the purpose of opening No-Frills account. At the same time the dat
a required for preparation of smart cards is used by FINO
4. Smart cards are issued to the account holders through the BC. A Master card i
s also
issued to each BC/CSP4 who acts as an agent to the bank offering the banking ser
vices to the account holders 5. Each day, BC has to ‘sign-in’ using the land-lin
e phone conncetion to the bank’s database, in order to be able to carry out bank
ing transactions during the day, the BC has to ‘sign-off’ 6. The BC starts at 4p
m daily and she reaches all the households in her village with the FINO machine
and cash that may be required for a day’s transaction
4
Customer Service Point
tion
7. In order to deposit/withdraw cash, the account holder has to present the smar
t card to the BC which is scanned in the machine 8. The smart card is inserted i
nto the slot available and the identity is verified using the finger print scann
ing device. The machine allows the transaction only after the authentication of
the finger print stored in the card 9. Once the authentication is successful, th
e account holder is allowed to deposit or withdraw cash to the stipulated limit
10. The BC enters the amount of cash to be deposited or withdrawal, this is conf
irmed by the account holder once again through finger print authentication 11. I
t was observed that some people deposit amount as low as Rs. 5 into the account
which is withdrawn after a period of 3 months and paid for insurance (Premium of
Rs. 450) 12. The transaction details are immediately printed from the printing
device, in duplicate, and one copy is handed over to the account holder while th
e other is retained by the BC. The account balance in the smart card is also upd
ated immediately 13. The machine also has an to option print a mini-statement of
last 10 transactions performed and to update the pass book, it has to be presen
ted to the bank branch
Pictorial Representation
tion
In order to have a better understanding of the BC model and functioning, it is p
ictorially represented below,
Pic1: Smart card that stores the account information and Finger print details
Pic2: FINO Machine and the smart card inserted into the slot
Pic3: Sign Board that is placed in front of the residence of the BC
tion
Pic4: BC reaches all the households in the village
Pic5: Initial authenticated of the Account holder by inserting the card and fing
er print
authentication
Pic6: Amount
to be deposited
tion
Pic7: Finger print authentication for deposit
Pic8: Deposit Slip Generation
tion
Pic9: Copy of Deposit Receipt given to the account holder
Chapter 8: Recommendations & Conclusion
tion
Recommendations for improvement
Following recommendations may be made in order to see further improvements in th
e execution of the Financial Inclusion project It was observed that there is l
ot of potential for implementing the Business Correspondent as there is lot of w
illingness shown by the people to save. Implementation of this model benefits th
e account holders as well as the bankers to a greater extent In order to purch
ase the Electronic Data Capture Machine, Smart cards all the banks in the distri
ct can place a bulk order to a vendor. This can help the banks to reduce the cos
t of purchase and to negotiate terms and services with the vendor Special Awar
eness and outreach activities should be conducted to ensure that all concerned l
abourers, including women are educated on the various aspects of personal financ
e planning and about using the bank account. As soon as the account is opened,
passbooks have to be issued to the account holders. In some cases it was observ
ed that either passbooks were not issued or the issued passbooks did not reach t
he beneficiaries Many account holders were not even aware of the purpose of op
ening the bank account and having passbook. They were under the impression that
holding a bank passbook might entail them to have some assistance through Govern
ment schemes or result in getting loans in the later stage. Banks have to take n
ecessary action on
this perception by constantly reaching out to the villages and stress upon the n
eed for saving Any letter communication from the banks should be addressed in
the local language or the language of their preference Routing the Government
Scheme funds is one of the efficient ways to control the leakage of funds throug
h intermediaries as the funds reach the beneficiaries directly. But before imple
menting the direct crediting of money into the beneficiaries’
tion
accounts it is very important to make sure everybody in the district possess ban
k account As majority of the population feel that banks are located far from t
heir residence, it is very important to take the banking services to their doors
teps. It has to be clearly understood that this is a “Push Market” and the banks
have to reach out to them to initialize the banking habits in them
Though the present active account users are very low, they can be effectively
used to
propaganda the need for saving. “Word of Mouth” will be an effective medium to c
ommunicate this message Banks have to work in the convenient hours for laboure
rs as most of them go to work early in the morning and come back at around 6pm.
Banks have to allocate a specific time in the evening especially to meet the nee
ds of the labourers Banks should leverage technology to the maximum to induce
the new account holders to use and transact the accounts more and save more Be
st practises followed by a bank for some specific problem has to be documented a
nd shared among other banks within the district on a periodic basis External A
gencies may be employed to make a post implementation survey in the region and t
he feedback on the situation at the ground level may be shared District Admini
stration and Lead Bank has to take necessary steps to conduct
workshops to sensitise the banks, NGOs, BC/BFs and other parties involved on the
need for effective utilisation of bank accounts Bank Branches have to be fina
ncially helped in upgrading the infrastructure requirements and to meet the man
power shortage. The banks that are performing better in Financial Inclusion may
be incentivised through infrastructure support from RBI Bankers have to make a
field visit to their service area to have a better understanding of the custome
r’s needs. This also enables the Bankers to sensitise the financial situation of
the people
tion
Implementation Model
Following is the proposed 9-stage implementation model for the Financial Inclusi
on project,
After studying the current implementation strategy of the Financial Inclusion pr
oject, a modified model is recommended.
Stage1 – Household Survey: Based on the village profile particulars, the individ
ual bank branches have to form teams of bank officials and SHGs. The team has to
be formed in the village level so that each village in the block assembles its
own team. The team shall visit the individual households; fill the survey form t
hat contains particulars of the households and their willingness in opening acco
unt. The particulars also should contain details of existing account holders of
the household. Stage2 – Generating Public Awareness/Publicity for account openin
g: In order to promote this Financial Inclusion Project, Banks can plan to condu
ct special camps and advertise using Door to Door Campaign, Murasu, newspapers a
nd local channels. TV ads
tion
could be an effective medium of communicating as the State Government of Tamilna
du has issued colour television to all households at free of cost. Small exhibit
s of Comics in the Weekly Market can also be an effective channel of communicati
on. Stage3 – No-Frills account opening: For the willing people, accounts are to
be opened in the household itself, by taking photograph and filling the account
opening form. In order to make the account opening process easier, the banks has
to conduct account opening camps by gathering people of the village in a common
place. Simplified KYC norms shall be followed. The photograph charges shall be
bared by the bank itself. Also as a token of having accepted the opening of the
account, the officials have to issue an acknowledgement slip. Account opening ca
mps shall be conducted on weekends so that it is easier for the people to assemb
le for the session. Bank employees from other blocks, NGOs, SHG volunteers can b
e trained and used to assist the documentation process. Stage4 – Financial Liter
acy session: The success of Financial Inclusion does not ends with opening a No-
Frills account, it can reach its full momentum only if there is a constant conne
ct between the bank and the customers in the initial stages of account opening.
Financial Literacy programmes can be conducted at a public gathering and it has
to cover the basic aspects of bank account like credit, debit, interest rate etc
., in a dramatic manner. Comic posters and books in the local language could be
used. RBI shall pitch in at this stage and drive through the process. Stage5 – F
ollow-up camps: Follow-up camps are to be conducted for two purposed. First
reason is to have a constant connection with the customers. Second reason is to
follow-up on the bank passbook issue and resolving other discrepancies in the pr
ocess. The objective of a follow-up camp is to make sure everybody is supplied w
ith the bank passbooks. Stage6 – Sanction of Overdraft & GCC/KCC: Based on the h
ousehold requirements and eligibility Ods, GCCs and KCCs shall be provided to th
em. Usually during initial stages Over Draft of Rs.500 is given and on successfu
l repayment of it, the amount is increased up to maximum of Rs.5000. This will b
e a great opportunity to grocery shop owners and small traders who work out of a
small working capital and invest the money in productive activities.
tion
Stage7 – Peer Review: After the implementation of the project, a report shall be
prepared by the respective Bank Branches on the status of the Financial Inclusi
on project in their service area. After this, a peer review committee shall be c
onstituted for each bloc comprising of a banker, NGO member and a panchayat offi
cial. This team would survey villages in another block randomly and collect deta
ils regarding the reach of the Financial Inclusion, issue of passbooks, sanction
of OD, GCC/KCC, local problems of account usage pertaining to that block and sh
all submit the report to the LDM. A similar team from another block shall do the
same survey cyclically. Peer review will help the System in the following ways,
Gives a third party perspective of the system Enables knowledge sharing bet
ween the blocks and sharing of best practises that may be followed in different
blocks for a particular issue Effective scrutiny of the system Stage8 – Routin
g Government scheme funds: Financial Inclusion drive can be paced up by disbursi
ng the Government Benefit payment directly into the beneficiaries account. This
not only provides a distinct advantage to the Governments in ensuring accurate a
nd timely payments to the beneficiaries but also minimizes the instances of leak
ages, frauds and role of intermediaries. Stage9 – Periodic monitoring of the Imp
lementation: Any reform initiative can be successful only if it is flexible enou
gh to accommodate changes for the betterment of the
system. The No-Frills account functioning should be constantly monitored and nec
essary assistance shall be given to the customers, Banks and also to other parti
es that are involved in the system.
Conclusion
tion
“Economic viability and Social acceptability are the two pillars for the sustain
ability of a system” The willingness shown by nearly 96% of the respondents to s
ave exhibits the fact that there is a lot of untapped market potential in the ru
ral market for banking. This can be termed as “Opportunity in the Bottom of the
Pyramid”. Many Bank Managers feel that Financial Inclusion is a social responsib
ility cast on them to help poor but they must understand the fact that the banki
ng services need to be “marketed” to connect with large population segments. It
is a win-win situation for the bankers and the account holders. District adminis
tration should enable an environment conducive for the execution of the project
via roads and digital connectivity. Establishing Credit counselling centres and
financial literacy cells is the need of the hour as majority of the people find
no other means of getting credit and get trapped with the Money Lenders. To sum
up, execution of Financial Inclusion does not end with opening No-Frills account
s. It can be considered successful only if they start utilising the banking serv
ices. It is a collaborative effort that must be taken by all the stake holders l
ike Bankers, District Administration, NGOs and others. Banks have to redesign th
eir business strategies to incorporate specific plans specific plans to promote
Financial Inclusion of low income group treating it both a business opportunity
and social responsibility.
Annexure-I: Questionnaire for common man
tion
No- Frills account holders - Questionnaire
District Madurai Village Bank Branch
1) 2) 3)
Name of the respondent: ______________________________ Gender Education Level a)
Below 5th Std. d) Technical Studies b) Below 12th e) No Education c) Graduate &
Above : Male/Female
Age : _________
4)
Occupation a) Farmer d) Agricultural Labour g) Unemployed b) Self Employed e) Tr
ader h) Hose wife : a) <1500 b) 1500 – 3000 c) Public /Private Sector f) Non –Ag
ricultural labour i) Others, Specify:____________ c) 3000 – 5000 d) >5000
5) 6) 7) 8)
Monthly income (Rs.)
Total Number of Adult members _________ of which having _________ bank account W
hen was your Bank account opened? __________________ Distance of the bank from y
our residence: a) <1 Km b) 1-3 Kms c) 3-5 Kms d) >5 Kms
9)
How many transactions were made after opening your account? a) Zero b) 1 to 3 c)
4 to 10 d) >10
10) If you are not using Bank account, what is the reason?
a) Lack of awareness of banking services c) Banks not functioning in the conveni
ent time e) Feeling that small amount cannot be saved in banks g) Othes, Specify
__________ 11) What is the reason for opening “No-Frills Account”? a) For doing
savings c) Receiving payments from Govt schemes e) To deposit Cheques/DD doorst
eps e) Others, Specify_________
b) Banks located far away d) Complex process involved transactions f) Banks offi
cials not polite to guide us
b) For availing loans d) Compulsion by bank officials f) Bank account was offere
d at my
tion
12) Do you have a regular savings habit : Yes/No
(Questions 13, 14 & 15 to be answered only if the participant has a savings habi
t) 13) What is the purpose of savings? a) Education of children d) Social functi
ons b) Small Trade / Petty Shop e) Consumption needs c) Purchasing a house f) ot
hers, Specify __________
14) What is your most preferable source of saving? a) Keeping safe in home d) Po
st Office b) SHG e) Chit funds c) Bank f) Co-operative Societies
f) Others, Specify____________ 15) What is the reason for choosing the channel f
or saving other than banks? a) Ease & Convenience of transaction c) Door Step av
ailability e) Available at the time of emergency 16) In case of a need, from whe
re do you usually borrow? a) Bank d) Money Lenders b) Cooperative Societies e) F
riends/ Relatives/Pawn Brokers c) SHG f) Others, Specify __________ b) High Inte
rest rate d) Lack of Awareness of other means f) Others, Specify _______________
_
(If the answer for above question is (d) or (e) then answer Q: 17 & 18) 17) What
is the reason for borrowing from the above source? a) Located nearby c) Cash av
ailable at emergency
b) Lesser procedures/documentation d) Lack of credit from other means f) Others,
Specify __________ Yes/No Yes/No/No idea Yes/No
e) Any time access of cash
18) Has any of your property been mortgaged with money lenders? 19) Are you awar
e of the OD, GCC facility in your “No-Frills account”? 20) If yes, have you util
ised the Overdraft facility in your bank? 21) What is the reason for not using t
he Overdraft facility? a) No financial need c) Fear of more interest 22) Do you
have any investments in gold/house/ vehicle?
b) Poor response from banks officials d) Fear of hidden charges Yes/No
23) What are various facilities that you would be requiring from the bank for ef
fective usage of the bank services?
tion
Annexure-II: Questionnaire for Bank Branches
Bank Branches - Questionnaire
Name of the Bank Area of Operation Location No of villages/Blocks
1.
Details on Financial Inclusion: S. No 1 2 3 4 5 Particulars Number of households
in the area Number of households covered No. Of No-Frills account opened No. Of
operative accounts No. Of non operative accounts Details
2. 3.
Has any survey been conducted to measure the reach of Financial Inclusion Initia
tive? Yes/No What are the offers made to open an account?
4.
What are the various channels used for creating awareness and publicity among pe
ople? Also, Rank the various channels used for publicity. (1 being the most effe
ctive channel) a) News paper ads d) Door to door campaign ( ) ( ) b) Television
Ads e) Banners ( ) ( ) c) Radio Ads ( ) d) Others, Specify
5.
Have you used Business Correspondent/Business Facilitator? using?
(Yes/No) If No, What is the reason for not
(If YES for previous question, answer Q:6) 6. What are the profiles of people us
ed as Business Correspondents and Facilitators?
7.
Have you relaxed the KYC norms for No-Frills accounts?
Yes/No
8.
How many accounts are getting the funds through government schemes like NREGA et
c? And what is the usage pattern of those accounts? (Frequency of usage, deposit
etc)
9.
Have you followed any promotional strategy for ensuring the continuous usage of
“No-Frills Account”?
10. Have you provided any micro credit facility for any account holders? (Yes/No
). If yes, what are the various schemes of micro finance provided?
11. Do you have any programme/initiatives for the financial literacy of the acco
unt holders?
12. What are the benefits obtained by the bank after opening No-Frills account?
13. What are the difficulties faced by you in making the account holders use the
banking services?
14. What are the various measures taken by you to overcome the difficulties?
15. What are the support would you require from RBI for the effective functionin
g of the No-Frills account?
Annexure-III: News article
Important findings of the study were presented at the District Level Bankers Rev
iew Committee Meeting held in Madurai on 25th of July 2009, which was published
in the daily newspaper “The Hindu”.
References
1. Report on Currency and Finance, 2006-2008
2. Speech by Smt. Usha Thorat, Deputy Governor of the Reserve Bank of India at t
he 4 th
Programme on Human Development and State Finances jointly organised by College o
f Agricultural Banking, Reserve Bank of India, UNDP and the Planning Commission,
at CAB, Pune on January 16, 2006 3. Article by Shri. V. LEELADHAR, , Deputy Gov
ernor of the Reserve Bank of India in Reserve Bank of India Bulletin, January 20
06 edition on the topic of “Taking Banking Services to the Common Man -Financial
Inclusion*” 4. Speech delivered by Smt. Usha Thorat, Deputy Governor, Reserve B
ank of India at the HMT-DFID Financial Inclusion Conference 2007 on June 19, 200
7 at Whitehall Place, London, UK

Untitled

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Untitled

Uploaded by

Copyright:

Available Formats

SUMMER PROJECT REPORT ON

“A study to understand the Banking Behavior of the Financially Included rural po

Summer Placement Programme 2009

You might also like