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CHAPTER 3

FINANCIAL INCLUSION INITIATIVES IN INDIA

3.1 Financial Inclusion – International experience

The problem of financial exclusion is worldwide and exists in developed and

developing countries. The exclusion scenario depicted in Table 3.1 refelects the number of

households having access to bank account holding.

Table-3.1: Global snapshot of financially excluded households (2005)

Country/Region No. of households (million) China 263

Africa 230

India 135

Indonesia 30

Latin America (Ex-Brazil) 28

Middle East 20

Central and Eastern Europe 19

Western Europe 18

United States 17

Brazil 14

Commonwealth of Independent States 14 Source: Boston Consulting Group, 2007

The developed countries like United Kingdom, United States of America, France,

Australia, Belgium, Canada has framed specific policy norms for enhancing banking habit.

In some countries the practices are voluntary, whereas in some it is legislation-backed, and

in some others the accounts are subsidized. Access to bank accounts as a fundamental right

exists in France whereas in UK Free face-to-face money advice is provided for greater

financial inclusion. Table 3.2 depicts the financial inclusion initiatives in different

countries.

In Canada, financial institutions are required to open personal bank accounts as

well as encash government cheques at no charge (even to non-customers) for any

individual that meets basic requirements. In Sweden, banks cannot refuse to open a saving

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or deposit account under Section 2 of the Banking Business Act of 1987. In Philippines,

two cell phone companies – Smart and Globe Telecoms – have innovated cell phone based

facilities, known as electronic wallet, for various financial transactions like money transfer,

pay bills, and make payments for purchases from stores etc.

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Table-3.2: Financial Inclusion Initiatives in Different Countries-A Glance Country Legislation/Instrument/

Policy Scheme Objectives

1.United Kingdom

Social Exclusion Unit (SEU), 1997

To reduce social exclusion, of which financial inclusion is an integral part.

Policy Action Teams (PATs) To look in an integrated way at the problems of poor neighborhoods.

Office of Fair Trading 1. To enforce consumer protection law and competition law. 2. To review proposed mergers and conduct market studies.

Financial Inclusion Task Force

1. Access to banking, access to affordable credit. 2. Access to free face-to-face money advice.

Financial Inclusion Fund 1. Access to banking services. 2. Access to affordable credit. 3. Access to money advice.

2. United States of America

The Community Reinvestment Act 1977

1. Prohibits discrimination by banks against low and moderate income neighborhoods. 2. To make mortgage loans to lower income households. 3. Banks are rated every three years on their efforts in meeting community credit needs.

Matched Savings Scheme (MSS) 1997

1. Personal savings in Individual Development Accounts (IDAs) are matched by local and national funds. 2. Matching money has to be spent on one of a range of prescribed users such as education, business or home purchases.

3. France Banking Act 1984 1. Any person with French nationality has the right to open an account with any bank. 2. If refused, the aggrieved person can apply to the Banque de France to designate a bank that should open an account.

French Bankers’ Association (Basic Banking Services Charter of 1992)

Committed to providing 4. Affordable account 5. Cash Card 6. Free access to a cash machine 7. Distance payment facilities 8. Bank statement 9. Negotiable number of cheques

Law on Exclusion 1996 1. Reiterated the Banking Act of 1984. 2. Extended right to transaction account to those banned due to bad credit history. 3. Allowed bounced cheques, an extra month for correction.

4. Australia Australian Bankers’ (ABA) Code of practice 1995

1. Generic account was introduced in 2002. 2. Staff to give information about suitable accounts to low income customers. 3. Face-to-face banking services even after branch closure through alternative means such as franchising. 4. Three months written notice to customers before closing any branch.

Rural Transformation Centre Programme (RTCP)

1. To provide banking and other transaction services to communities without banking facilities. 2. Using existing stores and post offices or stand alone centers. 3. Install Electronic Point of Sale (EPOS) equipment in post offices.

5. Belgium Charter on Basic Banking Services 1996

1. Provide a basic bank account with no minimum balance and without overdraft facilities. 2. Credit transfers, direct debits and deposit and withdrawal facilities. 3. If refused, customer must be informed the reasons, i.e., laundering, bad credit history, etc.

Basic Banking Act, 2003 Sanction if principles of Charter on Basic Banking Services, 1996 are not applied.

6. Canada Access to Basic Banking Services Regulations, 2003

1. Personal bank accounts to all Canadians regardless of employment or credit history and with minimum identification requirements. 2. Banks/ Financial Institutions to encash government cheques at no charge.

Financial Consumer Agency of Canada (FCAC) 2001

1. Supervising provisions on consumers under Canada’s Bank Act 2. Access to basic banking. 3. Consumer protection measures and expanding consumer education. 4. Rural banking, i.e. it requires bank to give four months notice of branch closures and six months notice if it is the only branch in a range of 10 km.

Source: RBI, 2008a, Report on Currency and Finance; 04 September

In February 2005, the Rural Bankers Association of the Philippines Microenterprise

Access to Banking Services (RBAP-MABS) started a project called Text-A-Payment

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(TAP), an innovative mobile technology product utilizing the SMS technology of Globe

Telecom (powered by G-Cash) to pay for micro finance loan payments of borrowers, to

take deposits, cash withdrawal, international and domestic remittances, purchases and bills

payment. TAP urges to bring in modern and low cost technology to bring efficiency and

enhance the outreach. In South Korea, LG Telecom partnered with Kookmin Bank to

provide their Mobile Banking Services in 2004.

The country wise status and initiatives of some developed and developing nations

are briefly highlighted below:

Developed Nations:

3.1.1 Australia

Australian literature reveals that inappropriate bank policies are causing financial

exclusion which includes expensive nature of financial products and services,

discrimination in issuance of credit cards and targeting only the wealthy customers.

Further, unemployment, casual work history, financial illiteracy and poor financial habits

are the other major reasons for financial exclusion in Australia. The most affected

categories are indigenous people and some ethnic groups; disabled people and poor; those

on social security benefits; sole parents, especially unemployed single mothers; school

dropouts and people with low income or low savings. However, the pattern of exclusion is

quite different in Australia as around 90 percent of the adults in Australia had transaction

account whereas only 0.8 percent of the Australian adult population (and 0.7 percent of

decision makers in the home) owned no financial products. Further, only 18 percent had

Life Insurance and 14 percent had access to Personal & investment loans. Usage of Post

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office GIRO facility, internet banking, phone banking, bank advisor was also low (Chant

Link & Associates, Australia, 2004). To fight financial exclusion problem, community and

corporate sectors partnered in Australia which includes the first Australian matched

savings program Saver Plus (initiated by the Brotherhood of St Laurence/ANZ),

microloans such as Step Up (Good Shepherd Youth and Family Service/ NAB) and

Progress Loans (Brotherhood of St Laurence/ANZ), and the no-interest loans scheme,

introduced by the Good Shepherd Youth and Family Service. Australian Government has

allocated $33 million for the development of existing microfinance initiatives and for

furthering financial inclusion efforts but as financial inclusion per se has not been adopted

as a central basis for public policy and hence financial inclusion is still not in the desired

stage in the country (Arashiro, 2010).

3.1.2 United Kingdom

The UK government has been addressing the issue of financial exclusion since 1997.

Constitution of Financial Inclusion Task Force and establishment of Financial Inclusion

Fund along with the policy of paying social security benefits and state pensions directly

into a bank account and introduction of post office card account, Saving Gateway and

Community Finance Learning Initiatives and the basic bank account has contributed in

reducing the proportion of unbanked low-income UK households from 20–25 per cent in

the mid-1990s to 6 per cent in 2005–06 (Mitton, 2008). Further, a policy framework was

announced in 2007 by UK government as a continuing strategy for financial inclusion –

Financial inclusion: the way forward (TWF) for 2008-11 (HM Treasury, 2007).

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3.1.3 United States

The financial exclusion scenario of USA reveals that more than 22 million people in

the country do not have access to formal bank account. Further, estimates suggest that

unbanked families spend approximately five percent of their annual incomes on managing

their basic finances and the cost of financial services borne by the poor is more than the

average American even though the quality of those services in not good (Sosa, 2010). In

this regard several initiatives have been undertaken in USA of which Community

Reinvestment Act (CRA), a civil rights law is most prominent that has led to significant

improvements in financial inclusion and community investment in the USA (Marshall,

2004). CRA aims at greater financial inclusion and prohibit discrimination by banks

against families with low and moderate incomes (Rangarajan, 2008).

3.1.4 France

In France, the right to a banking account is enshrined in law. Cooperative banks in

France are the main financial service providers particularly for low income households

who were under the clutches of moneylenders until the start of co-operative banks in the

second half of 19th century. Around 1 percent of the population or around 500000 people in

France still do not have a bank account despite the fact that having a bank account is in

existence as a fundamental right since 1984. In the last 10 years for furthering financial

inclusion two major initiatives have been undertaken which includes development of

structures dedicated to help people to manage their financial difficulties and promotion of

personal microcreditxxix (Gloukoviezoff, 2010).

xxix“Personal microcredits are loans between 300 and 3 000 Euro with an interest rate between 4 percent (Caisse d’épargne) and 13%

(ADIE) and which are accessible to borrowers refused by mainstream lenders. These loans are granted by a lender (retail bank or credit

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3.1.5 Germany

Despite the efforts since 1995 (after the recommendations of the Central Credit

Committee) there is no legal entitlement to a current account even after the German

Federal Government has presented four reports on the implementation of the

recommendation regarding a Current Account for everyone. However, emphasis is given

on financial education (http://www.fininc.eu).

Developing and under developed nations:

3.1.6 South Africa

South Africa gained independence in nineties and started the work of providing

equal opportunities to all. In a country of less than 45 million people, around 13 million

individuals don’t have a bank account. Further, the Survey Highlights of FinScope South

Africa 2006 revealed that 51 percent of the adult population in South Africa is formally

included and 16 percent is informally served whereas 33 percent do not have access to

financial services. A National Bank Account was created in 2002 by Banking Council

which was named as MZANSI account, a common brand of bank accounts for the poor.

These are cheap and somewhat informal accounts which can be opened simply by

presenting an identity card. Transactions in these accounts are restricted to deposits,

card provider) in partnership with a structure (charitable association, dedicated associations, social workers, etc.) who is in charge of the

evaluation of the request and of the support during the reimbursement if needed. These microcredits differ from professional

microcredits as they cannot be used to finance the set up of a business. However, the emphasis is still on professional purposes such as

keeping a job by repairing a car needed for work or acquiring employment as a result of obtaining a driving licence or participating in

trainings. Nevertheless professional purposes are not the only ones. Personal microcredits can also be used to improve or protect the

quality of everyday life (housing, health, social or family life, etc.)”. Source: Gloukoviezoff, Georges, 2010, Do French financial

cooperatives still have a role regarding financial inclusion?, ICA Research Conference « Les contributions des coopératives à une

économie plurielle » 2-4 September 2010 – Lyon – France; p13

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withdrawals, transfers and credit card payments with an average balance of US$ 50.

MZANSI accounts serves as a link to connect financially excluded people to formal

banking system. Another financial inclusion initiative in South Africa was the introduction

of the MTN banking and WIZZIT Bank in 2005. Both are virtual banks which have

agreements with mobile phone operators and major banks in South Africa. WIZZIT and

MTN use mobile telephone technology and its network to provide financial services, such

as savings and money transfer, without the use of ATMs or bank branches. This low cost

service is geographically accessible throughout the country, allowing poor and rural

populations to take a first step in the formal financial system. This system is less expensive

to MZANSI accounts also and provides greater accessibility. Mobile banking shows much

potential and growth and since its inception in 2005, WIZZIT bank has attracted 50,000

customers (Ludwig, 2008).

3.1.7 Kenya

The financial inclusion scenario is grim in Kenya as only one in five of the adult

population is formally banked and 50 percent of the population in Kenya is using informal

financial services (www.microlinks.org). The mobile money transfer service is facilitating

expansion of financial inclusion in Kenya. Introducing Agent Banking by amending the

Banking Act in 2009 is one of the national policies in Kenya since its operation in May

2010, 2 banks have contracted over 5,800 agents. Certain industry level policy initiatives

include collaboration amongst Telcos and banks to provide technology driven financial

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servicesxxx which have contributed in enhancing the level of access to affordable financial

services in Kenya (Ouma, 2011).

3.1.8 Bangladesh

In Bangladesh microfinance movement which was started in 1980s functions as the

key weapon for combating the problem of financial exclusion. Despite the efforts of the

Grameen Bank and boom in the microfinance sector in the country, gaps still persist as

microfinance is narrow whereas financial inclusion is a broader concept. Financial

Inclusion includes a variety of financial services in its kitty. Bangladesh Bank (BB) and the

Government of Bangladesh (GOB) have undertaken several initiatives to bridge these

gaps. BB provides refinance facility to banks against their loans to Small and Medium

Enterprises (SMEs); multilateral development partners such as the IDA and ADB are

supplementing BB’s refinance programs with their co-financing arrangement. Further, BB

has been urging banks and financial institutions to commit to financial inclusion as a

Corporate Social Responsibility (CSR) obligation. The GOB has been extending the

national annual budgets lending resources to MFIs for rural on- and off-farm self-

employment micro and SME credit; with some gender bias towards empowerment of

women. Financing lines from government budget are also available against loans to rural

poor for construction of their basic shelter housing, in a number of schemes like Grihayan,

Ashrayan, Returning Home, and One home-One farm (Rahman, 2009).

xxx These are namely M-Pesa (Mobile money transfer platform for Safaricom); M-kesho (Money transfer & Agent banking platform for

Equity Bank provided by Safaricom); Iko Pesa (Money transfer & Agent banking platform for Equity Bank provided by Orange Telecom); Obo Pay (Money transfer & Agent banking platform for Equity Bank provided by Essar (YU) Telcom); KCB Connect (Money transfer platform for KCB); Pesa Pap (Mobile money transfer platform for Family Bank).

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3.1.9 Pakistan

Merely 2 percent of the poor in Pakistan have access to microfinance services. The

banking sector caters to the needs of only around six million borrowers (3.6 percent of the

population), compared to 25 million depositors (15 percent of the population). Only around

one in four Pakistani households hold bank accounts and other accessible accounts and on

average there is only one bank branch to serve 20,000 people. Only 14 percent of the rural

population is banked whereas 67 percent of the total population resides in the rural areas.

Several initiatives have been undertaken by State Bank of Pakistan which includes- Tax

holidays for five years newly established Microfinance Banks (MFBs), flexible regulatory

regime for MFBs, mobile phone-based banking services, development of Islamic Banks,

promotion of Small Enterprises financing through products and credit scoring systems,

credit schemes for agricultural finance (http://www.sbp.org.pk).

3.1.10 Nepal

The financial institutions working for financial inclusion within the provisionsxxxi

includes commercial banks (CBs), development banks (DBs), finance companies (FCs),

microfinance development banks (MDBs), financial intermediary NGOs (FI-NGOs) and

financial cooperatives. As of May 2011, there were 31 CBs, 89 DBs, 88 FCs, 20 MDBs, 43

FI-NGOs and over 8,000 financial cooperatives and over 230 small farmers cooperatives

limited (SFCLs). There are thousands of savings and credit groups promoted by various

community based initiatives implemented by the government and non-government sector.

However, access to financial services has not been uniformly encouraging in Nepal. The

xxxi Financial inclusion in Nepal is directed by the deprived sector lending provisions for banks and financial institutions in the annual

monetary policy, Microfinance Policy 2008, Bank and Finance Institutions Act 2006, Act for NGOs involved in Financial Intermediation 1999 and Co-operative Act 1992.

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focus of financial inclusion in Nepal is presently on providing access to basic bank account

without frills (Dhakal, 2011).

3.1.11 Afghanistan

Long term financing is not available from commercial banks in Afghanistan and

most offer term loans of a year or less with maximum tenure of three years because of

political and social unrest. Further, the number of non-bank financial institutions is also

few with 15 micro-finance institutions, one credit union and one leasing company catering

to only a small fraction of credit needs (Da Afghanistan Bank & Central bank of

Afghanistan, 2009). In May 2011, the Central Bank of Afghanistan announced issue of

Afghanistan’s first electronic money institution license to M-Paisa. M-Paisa was

introduced by Roshan, a telecommunications service provider in the country which is

providing service to 97 percent of the unbanked population in the country. It offers safe,

secure, and fast access to a range of financial services, including salary disbursements,

merchant payments, receipt and payment of microfinance loans, airtime purchase, and

peer-to-peer money transfer (http://mobilemoneyafrica.com).

3.2 Financial Inclusion: Indian Experience

The outreach of India’s financial services is quite low as compared to the

developed world as evidenced by the survey conducted by British Bankers’ Association.

The survey revealed that around 94 per cent of the population of United Kingdom (UK)

has either current or savings bank accounts (ICTD, 2009) which is comparatively very

high compared to developing countries like India where a large proportion of population

depends on the informal and exploitative sources of credit. In India, about 20 percent of the

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unbanked population has access to credit, but 60 percent of the borrowing is done through

moneylenders (McKinsey and company, 2010). However, merely having a bank account is

not regarded as financial inclusion in UK and it is only one of the several parameters used

to measure the extent of inclusion/ exclusion. Whereas in India having a bank account as a

ratio to the adult population is a common measure and also makes a difference between

people financially included or excluded. Provision for other services like affordable credit,

insurance, payment and remittance and financial advice all are taken individually.

In India, ensuring access to financial services and timely and adequate credit for

vulnerable groups at an affordable cost is recognized as an urgent need. It concerns not

only with delivering financial services to the unbanked population, but also emphasized on

innovative delivery systems and channels to expand banking reach into unbanked interior

parts (Ramakrishnan, 2007). In this backdrop, RBI started focusing on financial inclusion

since 2005 and undertook a number of initiatives for bringing the larger population within

the ambit of structured and organized financial system (Mohan, 2006). (The details of the

initiatives are outlined in subsequent pages).

Despite all the initiatives in India around 65 percent of the adult population is

outside the purview of formal financial system as revealed by World Bank study. The

gender gap in accessing the formal financial institutions is quite evident as around only 26

percent of adult females in India as against around 46 percent worldwide have access to

formal institutions. Whereas for male adults the figure stands at around 44 percent in India

compared to 55 percent worldwide have access to formal institutions. Further, usage of the

formal accounts in India for business purposes, to receive wages and government payments

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and to receive or send remittances is also low compared to global statistic. In the year 2011

only 12 percent of the adults in India as against 22 percent worldwide saved and 8 percent

as against 9 percent worldwide accessed loan from a formal financial institution. Thus, the

savings and credit scenario is gloomy even worldwide. Again, the insurance penetration is

abysmally low as only around 17 percent of the adults globally and around 7 percent in

India paid personally for health insurance. The scenario is particularly gloom in developing

economies with around 5 percent adults personally paying for health insurance (Demirguc-

Kunt, Asli and Leora Klapper, 2012).

An Indian study shows that more than 40 percent of India’s working population

earns but have no savingsxxxii. Vast expansion of banking network and transportation

facilities in the country has reduced the problem of “geographical exclusion” (absences of

brick and mortar branches). Income level of the people has become the key factor in access

to financial services as for those in higher income group; the access to banking facilities in

rural areas is not vastly different from access in urban areas. While India has recorded

impressive growth rates in excess of 7 percent over the last couple of years, what has

become more apparent is the dualistic nature of the Indian economy. Economic gaps are

indeed widening across various sections of society and regions. According to NSSO’s 61st

Round poor people constitute 27.5 per cent of the country’s total population. It should be

noted that income and bank accounts has cause and effect relationship. It is agreed that the

influence of geographical location on financial inclusion has declined with recent

xxxiiApproximately three-fourths of the total working population, or 321 million people in 2006, earn cash incomes (the rest are primarily unpaid family workers). Of those only 193 million or 60 per cent reported having any financial savings in formal and informal instruments. Source: Rajan, 2009, “A Hundred Small Steps” Report of the Committee on Financial Sector Reforms, Government of India, Planning Commission New Delhi.

initiatives of RBI and increased emphasis on branchless banking and other

appointment of BC/BF and technology enabled smart card/bio

Statistics shows that as the average annual income increases, percent of population with

bank account also increases. This is more so with the individuals

level of income (Rajan, 2009) (Table

Source: Planning Commission, Government of India, 2009,

Source: Planning Commission, Government of

Table -3.3: Link between Annual Income and Bank Accounts by Occupation Group

Occupation Group

Agricultural wage labour

Wage labour-non-agriculture

Own account worker

Street vendor

Other self-employed workers

Self-empolyed in primary production

Part time earner

Shopkeeper

Private salaried workers

Government salaried workers

Self-empolyed professionals

Bussinessman

initiatives of RBI and increased emphasis on branchless banking and other initiatives like

appointment of BC/BF and technology enabled smart card/bio-metric card facilities.

Statistics shows that as the average annual income increases, percent of population with

bank account also increases. This is more so with the individuals having reasonably higher

level of income (Rajan, 2009) (Table-3.3 and Figure-3.1).

, Government of India, 2009, Report on Financial Sector Reforms

: Planning Commission, Government of India, 2009, Report on Financial Sector Reforms

3.3: Link between Annual Income and Bank Accounts by Occupation Group

Average Annual Income(Rs) Percent With Bank Account

21295 14

31676 25

33100 25

37300 39

59687 50

60078 45

64507 49

100044 67

105670 68

140001 90

319555 86

478985 95

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initiatives like

metric card facilities.

Statistics shows that as the average annual income increases, percent of population with

having reasonably higher

India, 2009, Report on Financial Sector Reforms

Percent With Bank Account

78

In India, majority of the poor population lives in the seven states-Bihar,

Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh. According

to the Planning Commission 1999-2000 figures, India’s five ‘poorest’ states were Orissa

(47.15 percent), Bihar (42.60 percent), Madhya Pradesh (37.43 percent), Sikkim (36.55

percent) and Assam (36.09 percent) (Arunachalam, 2008). The UNDP conducted its

country programme (2008-12) in these states and financial inclusion of the excluded group

was an important aspect of the programme. Ensuring access to financial services and

timely and adequate credit for vulnerable groups such as weaker sections and low income

groups at an affordable cost is recognized as an urgent need.

3.2.1 Financial Inclusion Initiatives in India: Contribution of Supply Side Institutions

in the Value Chain

In India, there are different institutions in the value chain for providing financial

services to the poor and disadvantaged section of society. Broadly, there are four layers of

institutions working for making financial services accessible and available on sustainable

basis to all without any barriers. In the first strata there is GOI which lays down its broad

objectives through five year plans for the socio-economic development of the country like

Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), Swarnajayanti

Gram Swarojgar Yojana (SGSY), Indira Awas Yojana (IAY) etc. The Unique

Identification Projectxxxiii (UID) of GOI which was launched in July, 2009 under the

chairmanship of N.M. Nilekani aims at providing unique national ID number with

biometric identification to every individual which can be used as the basis for efficient

xxxiiiThe goal of the Unique ID project is to issue a unique identity number to every resident in the country. The Unique Identification number (UID) will be linked to the resident’s basic demographic and biometric details, and stored in the UIDAI central database.

delivery of welfare servicesxxxiv

norms in case of disadvantaged groups while opening bank accounts

The second layer consists of financial regulators RBI and NABARD. These

institutions are engaged in chalking out plans for achieving broad objective of Government

bifurcating it in to small objectives which comes in the ambit of its regulatory framework.

RBI being the financial regulator has to device the strategies and issue directives for

making these goals a success. RBI is at the helm of policy making and directing banks and

other financial institutions like commercial banks, RRBs, NBFCs, MFIs, BCs, BFs

NABARD also provides its regulatory and participatory support to the intermediaries

working for providing access to finance in rural sector.

xxxiv Providing a unique identity to masses, particularly the poor, would ensure easy access for residents to services and resourcehealth, education and welfare programs, as well as banking and insurance. The biometric attributes are easy and coand authenticate, for all ages and income groups, in order to ensure that UID enrolment and authentication is inclusive of thSource: http://uidai.gov.in/documents/UID_and_iris_paper_final.pdf

Figure- 3.2: Value Chain of Financial Services in India: Supply Side Institutions

xxxivand will solve the problem of Know Your Customer (KYC)

norms in case of disadvantaged groups while opening bank accounts (http://uidai.gov.in).

The second layer consists of financial regulators RBI and NABARD. These

institutions are engaged in chalking out plans for achieving broad objective of Government

bifurcating it in to small objectives which comes in the ambit of its regulatory framework.

BI being the financial regulator has to device the strategies and issue directives for

making these goals a success. RBI is at the helm of policy making and directing banks and

other financial institutions like commercial banks, RRBs, NBFCs, MFIs, BCs, BFs

NABARD also provides its regulatory and participatory support to the intermediaries

working for providing access to finance in rural sector.

Providing a unique identity to masses, particularly the poor, would ensure easy access for residents to services and resourcehealth, education and welfare programs, as well as banking and insurance. The biometric attributes are easy and costand authenticate, for all ages and income groups, in order to ensure that UID enrolment and authentication is inclusive of thSource: http://uidai.gov.in/documents/UID_and_iris_paper_final.pdf

3.2: Value Chain of Financial Services in India: Supply Side Institutions

79

and will solve the problem of Know Your Customer (KYC)

(http://uidai.gov.in).

The second layer consists of financial regulators RBI and NABARD. These

institutions are engaged in chalking out plans for achieving broad objective of Government

bifurcating it in to small objectives which comes in the ambit of its regulatory framework.

BI being the financial regulator has to device the strategies and issue directives for

making these goals a success. RBI is at the helm of policy making and directing banks and

other financial institutions like commercial banks, RRBs, NBFCs, MFIs, BCs, BFs etc.

NABARD also provides its regulatory and participatory support to the intermediaries

Providing a unique identity to masses, particularly the poor, would ensure easy access for residents to services and resources such as st-effective to collect

and authenticate, for all ages and income groups, in order to ensure that UID enrolment and authentication is inclusive of the poor.

3.2: Value Chain of Financial Services in India: Supply Side Institutions

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The third layer involves the intermediaries like CBs, RRBs and other

Technological Partners which serves as implementing agencies.

The fourth layer consists of institution and agencies like -NGOs, MFIs, Non

Banking Financial Companies (NBFCs), BCs, BFs and SHGs which are the ultimate

executing agencies and directly deal with the beneficiaries at the grass root level. Thus,

providing access to finance involves three categories of financial institutions:

A. Apex Institutions like RBI and NABARD

B. Commercial Banks, RRBs & other Technological Partners

C. NGOs, MFIs, NBFCs, BCs and BFs

Over the years several initiatives have been taken by these institutions and agencies for

increasing the outreach of financial services in India which are hereby discussed below:

3.2.1.1 RBI and Financial Inclusion

Financial regulation is must for financial inclusion as it facilitates having sound and

reliable financial system enabling the financial institutions to cater to the needs of society

on an equitable basis. RBI regulates and directs various banks and financial institutions by

issuing directives, guidelines and circulars from time to time for enhancing financial

inclusion in the country. Government and RBI have been aggressively fostering the goal of

achieving financial inclusion since independence in one way or the other. It started with

building the rural cooperative structure in the 1950s, social conrol with banks in the 1960s.

During 1969 to 1991, RBI took certain initiatives for increasing the financial outreach in

the country which includes expansion of branch network which helped in reducing the

average population per branch. The other initiatives were liberalisation/ opening of

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economy, financial sector reforms, deregulation, increased competition, strengthening of

banks through recapitalization and different prudential measures. All these have

contributed in making the Indian banking industry more robust and banking environment

more conducive for financial inclusion.

In the Annual Policy Statement 2004-05, RBI advised “Banks should be obliged to

provide banking services to all segments of population on equitable basis”. Some other

important steps of RBI for enhancing financial inclusion in the country include formulation

of the Kisan Credit Card (KCC) scheme in 2001. RBI used the term ‘financial inclusion’ in

its Annual Policy Statement of 2005-06 for the first time and introduced ‘no-frills’ account

in November 2005. It issued General Credit Cards (GCCs) (akin to KCCs) to provide

hassle free credit in December 2005 and simplified KYC norms to facilitate opening of

bank accounts by poor and disadvantaged. On April, 2006, RBI advised the convenor

banks of the State Level/Union Territory Level Bankers’ Committees (SLBC/UTLBC) in

all States/ Union Territories to identify at least one suitable district in each State/Union

Territory for achieving 100 per cent financial inclusion by providing a no-frills account

and issue of GCCxxxv. They were also advised that on the basis of experience gained, the

scope for providing 100 per cent financial inclusion may be extended to cover other

areas/districts. The SLBCs/ UTLBCs were further advised to allocate villages to the

various banks operating in the State for ensuring 100 per cent financial inclusion and also

to monitor the progress under financial inclusion in the meetings of the SLBC/ UTLBC

xxxv For providing an incentive to banks for issuing the GCCs, fifty per cent of credit outstanding under GCC up to Rs.25, 000 has been

made eligible for being treated as indirect agricultural finance under the priority sector lending as per the directions of RBI. Further, RBI directed banks in May 2008 to classify 100 percent of the credit outstanding under GCCs as indirect finance to agriculture sector under the priority sector with immediate effect (RBI, Annual Report 2007-08)

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from September 2006 onwards (RBI, 2008b). It directed banks to make available all

printed material used by retail customers in English, Hindi and the concerned regional

languages. In January 2006 guidelines were issued by RBI to banks to enhance their

outreach by utilizing the services of civil society organizations, farmers’ clubs, NGOs, post

offices etc. as BCs and BFs to cover the unbanked areas. For relieving the poor of debt

burden RBI directed banks for One-Time Settlement (OTS) for overdue loans up to Rs.

25000. Banks were specifically advised that borrowers with loans settled under the one

time settlement scheme will be eligible to re-access the formal financial system for fresh

credit. Further, Customer Service Department was constituted in RBI to serve as interface

between customers and banks.

Some of the important initiatives undertaken by RBI in 2007-08 includes launch of

a multilingual website in 13 Indian languages on all matters concerning banking and the

common person in June 2007, revision of the guidelines on lending to the priority sectors

by RBI and issuance of new guidelines for strengthening of the rural cooperatives and

restructuring of RRBs along with simplification of the procedures and processes for

lending to the agriculture and micro, small and medium enterprises (MSME) sectors.

Further, RBI emphasized on scaling up use of information and communication technology

(ICT) solutions like smart cards, mobile banking, electronic benefit transfer (EBTxxxvi) to

achieve greater outreach and reduce the transaction cost in May 2007 and a ‘Financial

xxxviLinking of the financial inclusion drive with social security schemes (such as National Rural Employment Guarantee Programme (NREGA) will facilitate governments to make payment of wages into the bank accounts of beneficiaries through the ‘Electric Benefit Transfer’ (EBT) method. This will minimize transaction costs including leakages. In parts of the country where such EBT has already taken off, the results are impressive and the experience of both payers and recipients extremely satisfying

83

Education’ site link on the RBI’s website was launched on November 14, 2007xxxvii. To

boost the services of BCs, in addition to the entities already permitted, banks were allowed

to engage retired bank employees, ex-servicemen and retired government employees as

BCs with effect from April 24, 2008. Furthermore, SCBs, including RRBs and local area

banks (LABs) were advised on August 27, 2008 that they could engage companies

registered under Section 25 of the Companies Act, 1956, as BCs provided those companies

were stand-alone entities or not more than 10 per cent of their equity was held by NBFCs,

banks, telecom companies and other corporate entities or their holding companies. RBI

advised banks (on June 4, 2008) to ensure that all the banking facilities are invariably

offered to the visually challenged without any discrimination. To boost its efforts for

enhancing banking services RBI constituted Working Groups on Improvement of Banking

Services in different States/ Union Territories. To give a fresh impetus for setting up of

banking facilities particularly in NER where perceived necessary as per public policy ‘The

Special Task Force on North-Eastern Region’ (Chairperson: Smt. Usha Thorat) was

constituted in May 2008 (RBI, 2008c).

The initiatives undertaken by RBI in 2008-09 greatly emphasized on strengthening

the services of BCs. The Union Budget for 2009-10 had a proposal to set aside a one-time

grant-in-aid of Rs.100 crore to ensure provision of at least one centre/ Point of Sales (POS)

for banking services in each of the unbanked blocks in the country. In addition the

biometric access/ smart card based EBT scheme which was initially launched in Andhra

Pradesh for one year (from July 1, 2008 to June 30, 2009) was extended to entire nation up

xxxvii Further, a concept paper on Financial Literacy and Credit Counseling Centres was prepared and placed on the RBI’s website on April 3, 2008 for public feedback in order to take the initiative forward.

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to June 30, 2010. RBI agreed to partially reimburse the banks, for a limited period, the cost

of opening accounts with bio-metric access/ smart cards at the rate of Rs.50 per account

through which payment of social security benefits, MNREGA and payments under other

government benefit programmes would be routed. Further, in August 2008, RBI advised

SCBs, including RRBs and LABs that they could engage companies registered under

Section 25 of Companies Act, 1956, as BCs stipulating some conditions. Besides, RBI

advised that if their duly appointed BCs want to appoint sub-agents at the grass-root level

to deliver the services of a BC, they have to ensure fulfillment of certain stipulated

guidelines such as (i) the sub-agents of BCs fulfils all required criteria stipulated for BCs

in terms of the Reserve Bank’s existing guidelines (ii) the BC appointed by them carries

out proper due diligence in respect of the sub-agent to take care of the reputational and

other risks involved and (iii) the distance criterion of 15 km/5 km, as applicable, from the

base branch should invariably be fulfilled in the case of all subagents. Further, in April

2009, the maximum distance criteria for the operation of a BC for rural, semi-urban and

urban areas were increased by RBI from the existing 15 kms to 30 kms. Further, banks

were also advised that where individuals under the permitted categories have been

appointed as BCs, they cannot in turn appoint sub-agents. RBI constituted a Working

Group to review the BC Model in the Annual Policy 2009-10 to enlarge the category of

entities eligible to function as BC. The committee has submitted its report suggesting the

necessary measures.

For enhancing financial literacy in the country RBI initiatives includes conducting

essay/quiz/inter-school debate competitions for school children on topics related to

85

banking and financial inclusion, distributing materials such as comic books, pamphlets and

posters on financial literacy free-of-cost, participating in fairs/ exhibitions to disseminate

information. RBI has undertaken a project for setting up a permanent exhibition centre on

financial education in Mumbai. For providing free financial literacy/education and credit

counseling, a Model Scheme for ‘Financial Literacy and Counseling Centres’ has been

formulated by RBI and communicated to banks in February 2009. Banks have reported

setting up 148 credit counseling centres in various states of the country up to March 2009.

Keeping in view the interest of poor and disadvantaged, in addition to the capital

subsidy at an increased rate, it was proposed to extend interest subsidy to poor households

for loans up to Rs.1 lakh from banks. In August 2009, RBI advised all PSBs excluding

RRBs that the individual loans up to Rs.1 lakh and group loans up to Rs.10 lakh under the

scheme would receive the exemption of secondary collateral security. Moreover, the

corpus of ‘The Rashtriya Mahila Kosh’ was proposed to be raised to Rs.500 crore over the

next few years in view of its importance in providing credit support or micro finance to

poor women. RBI advised banks in April 2008 that borrowers with annual family income

of Rs.18000 in rural areas and Rs.24000 in urban areas would be eligible to avail of the

facility as against the earlier annual income criteria of Rs.6400 in rural areas and Rs.7,200

in urban areas. In August 2008, the RBI clarified that the revised eligibility income criteria

of Rs.24000 for urban areas is also applicable for the semi-urban areas. The target for

lending under the DRI scheme was maintained at one per cent of the previous year’s total

advances. RBI instructed the banks to complete the implementation of the Self

Employment Scheme for Rehabilitation of Manual Scavengers by September 30, 2009.

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The scheme has the provision of loans for projects costing up to Rs.5 lakh (RBI, 2008-

09a).

During the year 2009-10 RBI advised all banks to draw a roadmap to extend

banking facilities to every village having a population of over 2,000 by March 2012, not

necessarily through a brick and mortar branch but through any of the various forms of ICT-

based models including through BCs. Around 73,000 villages were allocated to various

banks for the provision of banking facilities in villages having population of more than

2000, as at end June 2010. In this regard, in January 2010, RBI advised domestic

commercial banks both in the public and private sectors to draw up specific Board

approved Financial Inclusion Plans (FIPs) for rolling them out over the next three years.

Banks were advised to devise FIPs matching with their business strategy and to include the

FIPs as an integral part of their corporate plans. No uniform model is imposed and each

bank is allowed to build its own strategy in line with its business model and comparative

advantage. RBI permitted banks to engage ‘for profit’ companies as BCs excluding

NBFCs, in addition to the individuals/entities permitted earlier. Also the Primary

Agricultural Credit Societies (PACS) have been permitted to function as BC of

Commercial Banks and RRBs (not of co-operative banks). Given the strategic positioning

of RRBs, RBI directed their sponsor banks to implement Core Banking Solutions in all

RRBs speedily and fully by September 2011 and allowed all RRBs (without making any

difference between standalone and amalgamated RRBs), to open one Regional Office for

every 50 branches. RRBs having up to 50 branches will be controlled directly by Head

Office, without any intermediate tier (RBI, 2009-10a). RBI has issued a number of

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guidelines/instructions to banks on micro credit from time to time. To make available the

instructions at one place for the banks, a Master Circular incorporating the existing

guidelines/instructions on the subject was updated and enclosed on the subject up to

January 31, 2011 (RBI, 2011a). On the same lines, a consolidated Master Circular on

lending to Priority Sector was issued which consolidates all the circulars/mail box

clarifications issued by Reserve Bank on the subject up to June 30, 2011 (RBI, 2011b). In

the Union Budget for the year 2010-11, the corpus of already existing Financial Inclusion

& Promotion Fund (FIF) and Financial Inclusion Technology Fund (FITF) was increased

by another 100 crore. It is worth mentioning here that as on March 2010, 50,255 villages

were covered under financial inclusion through FIF and FITF.

3.2.1.2 NABARD and Financial Inclusion

NABARD’s financial inclusion initiatives are specifically directed for the

upliftment of the rural masses. As a development bank NABARD has a mandate for

providing and regulating credit and other facilities for the promotion and development of

agriculture, small scale industries, cottage and village industries, handicrafts and other

rural crafts. It also has the mandate to support all other allied economic activities in rural

areas, promote integrated and sustainable rural development and secure prosperity of rural

areas. The agriculture credit functions of the RBI and refinance functions of the then

Agricultural Refinance and Development Corporation were transferred to NABARD on its

formation.

During 2009-10, NABARD continued to provide grant support to NGOs, RRBs,

DCCBs, Farmer Clubs (FCs) and Individual Rural Volunteers (IRVs) for the support and

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development of quality SHGs. In this regard new Self-Help Promoting Institutions (SHPIs)

were identified even while supporting the existing ones. Further, during 2009-10 Indian

Bank Association (IBA) and NABARD directed all scheduled commercial banks and

RRBs to attain a target of opening bank accounts of 250 rural household every year, at

each of their rural and semi urban branches (NABARD, 2010).The financial inclusion

initiatives of NABARD can be described under the following heads:

i. Constitution of FIF & FITF:

On the recommendation of the committee constituted under the chairmanship of

Rangarajan in June 2006 two funds namely ‘Financial Inclusion Fund’ meant for meeting

the cost of developmental and promotional interventions of financial inclusion and

‘Financial Inclusion Technology Fund’, meant for meeting the cost of technology

adoption, were constituted by NABARD. Each Fund consists of an overall corpus of

Rs.500 crore which is to be shared by the GOI, RBI and NABARD in the ratio of 40:40:20

in a phased manner over five years, depending upon use of fundsxxxviii(NABARD, 2011).

During 2010-11 support is being made available from FIF for financial literacy, 100

percent financial assistance to all banks from FIF and FITF for the projects outlay for

eligible activities in the North Eastern Region, Andaman & Nicobar Islands, Chhattisgarh,

Himachal Pradesh, Jammu & Kashmir, Jharkhand, Sikkim and Uttarakhand. These funds

should be routed through CBs/ RRBs/ Cooperatives. The fund utilization status of the FIF

and FITF funds as on March 31, 2011 revealed that an amount of 19 crore under FIF and

xxxviii

As on 31 March 2011, the contribution to FIF and FITF by GOI stood at 30 crore in each fund and NABARD’s contribution stood

at Rs. 30 crore in FIF and Rs. 40 crore in FITF. RBI has decided to contribute to these Funds on a reimbursement basis. During the year 2010-11, RBI contributed 3.46 crore (3.05 crore towards FIF and 0.41 crore towards FITF), being its share of expenditure incurred upto July 2009. Source: NABARD, 2011, Annual Report 2010-11, p 28

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101.10 crore under FITF were sanctioned towards financial inclusion during the year. As

against the targets of 22 crore and 28 crore to be disbursed, respectively under FIF and

FITF during 2010-11, 9.21 crore and 54 crore were disbursed under the funds (Table 3.4).

The cumulative sanction as on 31 March 2011, was 38.66 crore for 150 projects under FIF

and 122.41 crore for 55 projects under FITF.

It is worth mentioning that NABARD has discontinued its support to Commercial

Banks under FITF with effect from August 2011 and a circular (circular No. 151/FI-

11/2011 dt 11 August 2011) has been issued to all commercial banks

(http://www.nabard.org).

Table -3.4: Funds Utilisation - FIF and FITF (1stApril 2010 to 31

stMarch 2011)

Name of the Fund

Target for 2010-11

Commercial Banks

RRB Cooperative Banks

Others Total

D S D S D S D S D S D

FIF 22.00 0.15 0.70 2.31 1.52 0.22 0.24 16.32 6.75 19.00 9.21

FITF 28.00 2.72 0.41 97.75 52.27 0.09 1.24 0.54 0.08 101.10 54.00

Total 50.00 2.87 1.11 100.06 53.79 0.31 1.48 16.86 6.83 120.10 63.21

S: Sanctioned D: Disbursed

Source: NABARD, Annual Report 2010-11, p 29

ii. Capacity Building:

Capacity building of the entities involved in financial inclusion is an important

function of NABARD. To benefit the NABARD officials, bankers and officials from other

organizations, workshops and seminars on financial inclusion were organised at reputed

training institutes. Awareness creation and capacity building programmes were also

organised for SHG members in association with identified resource NGOs. The training

was provided to participants for inculcating skills for managing thrift and credit. During

2009-10, a total of 1991 such programmes were conducted and the number of participants

stood at 83,131.

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Table 3.5: Training Programmes conducted by NABARD during 2009-10

Sr. No.

Programme Particulars / categories No. of Programmes conducted

No. of Participants

1 Awareness creation and capacity building programmesorganised for SHG members in association with identified resource NGOs, covering participants to inculcate skills for managing thrift and credit

1991 83131

2 Awareness-cum-refresher programmes conducted for NGOs, including CEOs

1130 35648

3 Training programmes conducted for bankers covering officials of Commercial banks, RRBs and Co-operative Banks

462 14945

4 Exposure visits for bank officials / NGOs to agencies pioneering in Microfinance (MF) initiatives

14 387

5 Field visits of Block Level Bankers' Committee (BLBC) members to nearby SHGs

227 5880

6 Programmes for the elected members of Panchayati Raj Institutions (PRIs) to create awareness among them about the MF initiatives

80 2799

7 Training & exposure programmes for government officials 79 3385

8 Other training programmes for microfinance sector 1181 65029

9 Micro Enterprises Development Programme (MEDP) 1530 38313

10 Micro Enterprise Promotional Agency 36 1000

11 Meetings and Seminars (Bankers, NGO officials, etc.) 74 3351

Total

Source: Status of Microfinance in India 2009-10, NABARD, p xiii

Further, 14 exposure visits were made for bank officials/ NGOs to agencies

pioneering in microfinance initiatives. In addition, 227 field visits of Block Level Bankers'

Committee (BLBC) members to nearby SHGs were conducted (Table-3.5). Further,

financial support of Rs. 3,000 per BC or Customer Service Provider for three-days training

at Rs. 1,000 per day through Financial Information Network & Operations Ltd. (FINO)-

Fintech Foundation was made available by NABARD during 2010-11.

iii. Farmers’ Technology Transfer Fund (FTTF):

FTTF which was constituted with an initial fund of Rs. 25 crore started operating

from 1 April 2008. It was increased to Rs.50 crore from 1st April 2009. The Fund is to be

utilized for the promotion of transfer of technology for increasing production and

productivity in agriculture and allied activities. During the year 2009-10, 151 diverse and

innovative proposals in 22 states for transfer of technologies were sanctioned. Under

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Village Development Programme (which was started in 2007), support was extended under

FTTF to 953 villages and 437 districts across 25 states during 2010-11. The villagers were

extended better road connectivity, good infrastructure in the form of school buildings and

health centers, clean drinking water, good sanitation and cleaner environment.

iv. Farmers’ Club Programme:

NABARD in its efforts towards development through credit inclusion encourages

banks to promote Farmers' Clubs in rural areas under the Farmers’ Club Programmexxxix.

It is based on five principles which are efficient use of credit by adopting the most

appropriate methods of science and technology; adoption of best skills to increase

production and productivity; the terms and conditions of credit must be fully respected;

and a part of the additional income created by credit must be saved; and loan installments

must be repaid timely and regularly so as to recycle credit (www.nabard.org). During the

year 2009-10, 16,590 clubs were launched taking the total number of clubs to 54,805

covering 1,04,648 villages in 587 districts and as on 31st March 2010, Farmers Clubs

formed 14858 SHGs out of which 7986 SHGs were bank linked and grant assistance

extended to these SHGs by NABARD was Rs. 61.96 lakhs (NABARD, 2010).

v.United Nations Development Program (UNDP)–NABARD Financial Inclusion

Fund:

NABARD in collaboration with UNDP have started working for financial inclusion

in seven focus states, viz., Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa,

Rajasthan and Uttar Pradesh. This collaboration is part of the Country Programme Action

xxxix Earlier known as “Vikas Volunteer Vahini (VVV) Programme” launched in November 1982 (rechristened as “Farmers’ Club

Programme” in 2005)

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Plan (CPAP) signed between GOI and UNDP. A fund for the collaboration, viz., ‘UNDP –

NABARD Financial Inclusion Fund’ has been created in NABARD with UNDP support.

The overall target of the collaboration is to extend better access to financial products and

services to reduce risks and improve livelihoods for the poor in at least two states,

targeting mainly women and men from SC and ST groups, minorities and the displaced

(NABARD, 2010). The utilization under the UNDP-NABARD financial inclusion

collaboration during 2010-11 stands at Rs.173.22 lakh for activities conducted by

NABARD in seven focus states (NABARD, 2011).

vi.NABARD and Microfinance:

Self Help Groups (SHGs) - bank linkage Programme (SBLP) was developed in

India by NABARD in 1992 as the central scheme to link the poor with formal financial

system in line with the Grameen model in Bangladesh. The scheme was to form SHGsxl of

the poor and disadvantaged and to encourage them to pool their savings regularly and

utilize the same to make small interest bearing loans to members and in the itinerary

learning the significance of financial discipline. Bank credit was extended to these SHGs.

The promotion and bank linking of SHGs was viewed by NABARD not only as a credit

programme but also as a crucial tool to provide financial services to the poor and

disadvantaged on a sustainable basis for empowerment of the members of these SHGs

(Kropp, Suran, 2002). This programme is also the main contributor towards the financial

inclusion programme in the country. As on 31 March 2010, there are more than 69 lakh

saving-linked and more than 48 lakh credit linked SHGs and around 9.7 crore families are

xl

SHGs have become the common tool of development process, converging all development programmes and is fundamentally the

largest micro finance programme in terms of outreach in the world and many other countries are eager to implement this model.

93

covered under the SHGs bank linkage programme upto 31 March 2010 (NABARD, 2009-

10). Microfinance has come a long way since its inception in India. It has become a

buzzword due to its uniqueness to meet the financial needs of the poor. The process of

development of microfinance is largely through the formation of SHGs and most of the

development programmes are extended through the SHGs. SHG–Bank Linkage

Programme (SBLP) was introduced by NABARD in 1992 synthesising formal financial

system and informal sector. SBLP has taken the form of a movement throughout the

nation. It is regarded as the largest microfinance programme in the world in terms of

outreach and many other countries are interested to adopt this model. This programme is

being carried out by a large number of SHPIs, all the banking agencies and MFIs for

bringing the poor and marginalized to the mainstream of the society. Further, RBI has also

recognized it as an important driver for the growth and development of the marginalized

section of society. It has linked microfinance to priority sector advances and within the

purview of normal banking business. It has removed the interest rate cap for the ultimate

beneficiaries under the micro finance investment.

Data about the progress of the microfinance programme in India during 2008 to

2010 reveal that the number of saving linked SHGs increased from around 50 lakh in 2008

to around 70 lakh in 2010 registering a 40 percent increase over the period of three years.

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Table 3.6: Progress of the Micro-Finance Programme (As on 31 March) ( crore)

Particulars Self-Help Groups

2008 2009 2010

No. Amount No. Amount No. Amount

Loan Disbursed during the year

12,27,770 (2,46,649)

8,849.26 (1,857.74)

16,09,586 (2,64,653)

12,253.51 (2,015.22)

15,86,822 (2,67,403)

14,453.30 (2,198.00)

Loans

Outstanding

36,25,941 (9,16,978)

16,999.90 (4,816.87)

42,24,338 (9,76,887)

22,679.84 (5,861.73)

48,51,356 (12,45,394)

28,038.28 (6,251.08)

Savings Accounts with Banks

50,09,794 (12,03,070)

3,785.39 (809.51)

61,21,147 (15,05,581)

5,545.62 (1,563.39)

69,53,250 (16,93,910)

6,198.71 (1,292.62)

Micro-Finance Institutions (MFI)*

Loan Disbursed during the year

518 1970.15 581 3732.33 779 [88]

10728.49 [2665.75]

Loans

Outstanding

1109 2748.84 1915 5009.09 1659 [146]

13955.74

[3808.20]

Savings Accounts with Banks

- - - - - -

Figures in parentheses indicate the share of SHG covered under SGSY * : Actual Number of MFI provided with bank loans would be lower, as several MFI availed loans from more than one bank #: Figures in parentheses indicate the assistance of SIDBI to MFI

Source: Compiled from NABARD Annual Reports, 2009-10 & 2010-11

The cumulative number of SHGs availing loan increased from around 12 lakh in

2008 to around 15 lakh in 2010 (growth by 25 percent over the same period). The

cumulative amount of loan disbursed to SHGs also registered a growth by around 63

percent from Rs. 8,849.26 crore in 2008 to Rs. 14,453.30 in 2010. Further, the number of

SHGs having loan outstanding also increased from around 36 lakhs in 2008 to around 48

lakhs in 2010. Data relating to MFIs shows that the number of MFIs provided with Bank

Loan increased from 518 in 2008 to 779 in 2010 and the amount of loan outstanding

increased enormously from around Rs. 2748 crore in 2008 to around Rs. 13955 crore in

2010.

For enhancing the outreach of microfinance sector in backward regions of the

country NABARD has undertaken certain special initiatives like-Rajiv Gandhi Mahila

Vikas Pariyojana (RGMVP), Priyadarshini Project. In addition, NABARD has been

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providing support to Activity Based Groups (ABG), financing of Joint Liability Groups,

granting Assistance to SHPIs and providing Technology Support to NGOs for

Strengthening Management Information System (MIS) of SHGsxli.

3.2.1.3 Banks and Financial Inclusion

As per the directives of RBI banks in India are contributing towards greater

financial inclusion in the country. The outreaches of different initiatives are discussed in

the following pages:

i. Kisan Credit Card

The KCC Scheme was introduced in 1998-99 to facilitate the access to short term

credit to enable farmers to purchase agricultural inputs and draw cash for their production

needs in a hassle free and cost effective manner and is being implemented across India by

all public sector commercial banks, RRBs and co-operative banks. KCC also covers

consumption needs of the farmers if need arises. Government of India from time to time

formulates new policies so as to provide credit to the agricultural sectors and as a result

NABARD broadens the scope of KCC from time to time. In recent times defaulter farmers,

oral lessees, tenant farmers and share croppers were also included into the fold of KCC by

banks as advised by NABARD and it also asked the banks to identify new farmers and to

provide crop loans only through KCC. The scheme is being further expanded to include

borrowers of long-term cooperative credit structure (RBI, 2008c).

xli One important initiative for creating information base of the NGOs working as microfinance organisations (MFOs)in 13 priority states is the NABARD – GTZ Rural Finance Institutions Programme (RFIP).

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Source: NABARD

The total number of KCCs issued by banks was only 7.8 lakhs in the year 1998-99,

which subsequently increased to 96.8 lakhs in the year 2004-2005 over a period of six

years. In the year 2005-06 there was a decrease in the number of KCCs as only 80.1 lakhs

cards were issued and in the year 2009-10 there were around 90 lakhs cards that were

issued by the banks (Table-3.7).

Agency-wise analysis reveals that as on March 31, 2010, the highest numbers of KCCs

were issued by Commercial banks (45.3percent), followed by Co-operative banks (40.4

percent), and RRBs (14.4 percent). During the initial years from 1998-99 to 2003-04 the

number of cards issued by co-operative banks were higher than commercial banks but the

scenario changed from 2004-05 onwards and commercial banks took the lead in issuing the

Table-3.7: Number of Kisan Credit Cards Issued: Agency-wise and Year-wise (As on March 31,

2010) (Numbers in lakhs) (Amount in Rs. crore)

Year

Co-operative

Banks

RRBs

Commercial Banks

Total Banks

No. of

Cards

Amount No. of

Cards

Amount No. of

Cards

Amount No. of

Cards

Amount

1998-99 1.6 826 1 11 6.2 1,473 7.8 2,310

1999-00 35.9 3,606 1.7 405 13.7 3,537 51.3 7,548

2000-01 56.1 9,412 6.5 1400 23.9 5,615 86.5 16,427

2001-02 54.4 15,952 8.3 2382 30.7 7,524 93.4 25,858

2002-03 45.8 15,841 9.6 2,955 27.0 7,481 82.4 26,277

2003-04 48.8 9,855 12.7 2,599 30.9 9,331 92.5 21,785

2004-05 35.6 15,597 17.3 3,833 44.0 14,756 96.8 34,186

2005-06 26 20,339 12.5 8,483 41.6 18,779 80.1 47,601

2006-07 23.0 13,141 14.1 7,373 48.1 26,215 85.1 46,729

2007-08 20.9 19,991 17.7 8,743 46 59,530 84.6 88,264

2008-09 13.4 8,428 14.1 5,648 58.3 39,009 85.9 53,085

2009-10 17.4 7,606 19.5 10,132 53.1 39,940 90.1 57,678

Total 378.9 1,40,594 134.2 53,964 423.6 2,33,190 936.7 4,27,748

Share in

Total

(per cent)

40.4 32.9 14.4 12.6 45.3 54.5 100.0 100.0

Note: Term loan financing under KCC introduced in August 2004.

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cards and share of commercial banks increased compared to co-operative banks (Table-

3.7).

ii. General Credit Cards (GCC)

In order to make the rural folk free from the clutches of exploitative money lenders

and to provide them with easy credit with all flexibility suitable to their socio-economic

and cultural milieu and to offer other related financial services, RBI asked all scheduled

commercial banks, including RRBs, in December 2005 to launch a scheme for issuing

GCC to their constituents in both rural and semi-urban areas. GCC are issued on the basis

of the assessment of income and cash flow of the household similar to that existing under a

normal credit card (RBI, 2008b)xlii. The GCCs offered by banks at their rural and semi-

urban braches are in the nature of revolving credit, entitling the holder to withdraw up to

the limit sanctioned (Rs. 25,000). By March 2010, banks had provided credit aggregating

Rs. 635 crore in 3.5 million GCC accounts (RBI, 2009-10b).

iii. No-Frills Accounts

To achieve the objective of greater financial inclusion and to make banking

services accessible to vast sections of society, RBI in the year 2005 advised all banks to

make available a basic banking 'no-frills' account either with ‘zero’ or ‘very low’ minimum

balances as well as charges. However, banks may limit the nature and number of

transactions in such accounts and the same has to be disclosed to the customer in advance

in a transparent manner. All banks are advised to create awareness regarding the

availability of such 'no-frills' account (RBI, 2005). Further, RBI advised in May 2008 to

xliiRBI also directed banks to categorize fifty per cent of the credit outstanding under loans for general purposes under GCC, as indirect finance to agriculture under priority sector. RBI further advised banks in May 2008 to classify 100 percent of the credit outstanding under GCCs as indirect finance to agriculture sector under the priority sector with immediate effect. Source: RBI, 2008 Annual Report 2007-08 pp 196,197.

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classify overdrafts up to Rs.25000 (per account) granted against ‘No-frills’ accounts in

rural and semi-urban areas as indirect finance to the agriculture sector. RBI advised the

convener banks of the State/ Union Territory Level Bankers’ Committees (SLBC/

UTLBC) on April 28, 2006, to identify at least one appropriate district in each State/ Union

Territory for attaining 100 percent financial inclusion by providing a “No-frills” account

and issue of GCC. Accordingly 340 districts have been identified for 100 percent financial

inclusion and the target has reportedly been attained in 153 districts in 19 States and six

Union Territories. Remarkably all districts of Haryana, Himachal Pradesh, Karnataka,

Kerala, Uttarakhand, Puducherry, Daman & Diu, Dadra & Nagar Haveli, Goa and

Lakshdweep have reported accomplishing 100 percent financial inclusion (RBI, 2008b).

In order to examine the progress of the initiatives made for 100 percent financial

inclusion, RBI carried out a few studies in 26 districts that had reported 100 percent

financial inclusion, through external agencies. The states in which the study was carried

out were Gujarat, Karnataka, Orissa, Himachal Pradesh, West Bengal, Andhra Pradesh,

Punjab and Rajasthan. The studies revealed that although the SLBCs have declared several

districts as 100 percent financially included, the actual usage of these accounts is very low

in the Ganjam district (Orissa), Rajsamand district (Rajasthan), Hooghly district (West

Bengal), Srikakulam District (Andhra Pradesh), Bagalkot, Chamrajnagar, Davangere,

Gulbaraga, Haveri, Kodagu and Koppal (seven districts of Karnataka), and Gandhinagar

district (Gujarat).Various reasons for the low usage of the accounts are lengthy procedures,

distance from the bank branch, illiteracy, lack of interest, non-availability of pass books,

reluctance of the banking staff in opening the accounts etc. However, majority of the

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respondents in twelve districts of Chamba, Bilaspur, Hamirpur, Kangra, Kinnaur, Kullu,

Lahaul & Spiti, Mandi, Shimla, Sirmaur, Solan and Una (Himachal Pradesh) and in two

districts of Gurdaspur and Mansa (Punjab) were satisfied with different aspects of quality

of services in terms of opening and closing timings of bank branches, ease in use of

banking services and convenient location of bank branches (RBI, 2009a).The study

revealed that most of the accounts opened under financial inclusion drive were lying

dormant. Thus, merely opening the accounts doesn’t lead to complete financial inclusion,

rather usage is also important.

Since its beginning in November 2005, 50.6 million ‘no frills accounts’ have been

opened by banks in India as on March 2010, with outstanding balance of Rs. 5,386 crore.

In 2009-10, banks were advised to provide small overdrafts in such accounts. By March

2010, banks had provided 0.18 million overdrafts amounting to Rs. 28 crore (RBI, 2009-

10b).

A greater solution for access to the No-frills savings account is advocated by

many economic thinkers. To make a No-frills account work objectively rather than to leave

it as an ideal tool for financial inclusion, a multiple product access platform supported by

formal education and easy-to-use technology, well-spread self-service kiosks and a model

backed with micro finance institutions and SHGs are necessary to formulate (Frost and

Sullivan 2009). Selection of technology and technology partner plays a vital role. Portable

Point-of-Sale devices, Cell phones/ mobiles can play an important role in transaction and

capturing the unbanked sections (Ghate, 2007).

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iv. Priority Sector Lending

RBI has emphasized access to banking services for all sections of the society and

all regions from time to time, which is reflected in the guidelines on priority sector lending.

The two most important objectives of these guidelines are to channel the resources to the

areas of national priorities and to enhance financial inclusionxliii. To increase the credit

flow and to facilitate credit delivery to the weaker sections of the society the Government

of India in the year 2007-08 announced the Agriculture Debt Waiver Scheme, 2008

(farmers whose loans are written off by lending institutions under the scheme, become

eligible for fresh finance from the lending institutions). The other major policy initiatives

during the year 2007-08 includes removal of the necessity of ‘no dues’ certificates from

small/ marginal farmers, sharecroppers and the like for loans up to Rs.50000; accepting

affidavits submitted by landless labourers, share croppers and oral lessees giving

occupational status for crop loans up to Rs.50,000; introduction, on a pilot basis, of a

cyclical credit product to finance crop production and announcing relief measures for the

bird-flu affected poultry industry (RBI, 2008c). The flow of institutional credit to

agriculture sector was unharmed even during the global financial crisis. Further, RBI has

directed both public and private sector domestic SCBs who failed to achieve the priority

sector and/or agriculture lending targets to deposit into the Rural Infrastructure

Development Fund (RIDF) such amounts as may be assigned by RBI (RBI, 2008-09b).

The RaghuramRajan Committee on Financial Sector Reforms had, inter alia,

recommended introduction of “priority sector lending certificates (PSLCs)” to be

xliiiThe priority sector is one of the best-run credit delivery programme devised by the Government (through the RBI) to ensure adequate flow of bank credit to those sectors of the society/ economy that impact large segments of the population and weaker sections. The priority sector broadly comprises of agriculture, MSEs, retail trade, micro credit, education and housing subject to certain limits. India’s directive priority sector lending policies has helped in imparting strength to the agricultural sector.

101

purchased by the commercial banks which failed to achieve the priority sector lending

target/sub-targets. A Working Group under the Chairmanship of Shri V.K. Sharma was

constituted to evaluate the issues relating to the introduction of PSLCs and make

recommendations if any (RBI, 2009-2010b).

Table-3.8: Priority Sector Advances in India (Amount in Rupees crore)

As on Last Reporting Friday of March Public Sector Banks

Private Sector Banks

Foreign Banks

2002 1,71,484 (43.5)

24,184 (38.4)

9,936 (34.6)

2003 1,99,786 (41.2)

36,648 (44.1)

14,555 (33.1)

2004 2,44,456 (43.6)

48,920 (47.3)

17,960 (34.1)

2005 3,07,046 (42.8)

69,886 (43.6)

23,843 (35.3)

2006 4,09,748 (40.3)

1,06,586 (42.8)

30,439 (34.4)

2007 5,21,376 (39.7)

1,44,549 (42.9)

37,831 (33.4)

2008 6,10,450 (44.7)

1,64,068 (47.8)

50,254 (39.5)

2009 7,20,083 (42.5)

1,90,207 (46.8)

55,483 (34.2)

2010 8,64,564 (41.7)

2,15,552 (46.0)

60,290 (35.1)

Note: 1. Figures in brackets are percentages to ANBC or credit equivalent of OBE, whichever are higher, in the respective groups. 2. The target for aggregate advances to the priority sector is 40 per cent of the net bank credit for domestic banks and 32 per cent of net bank credit for the foreign banks. The targets have been linked to ANBC or credit equivalent of OBE, whichever is higher, with effect from April 30, 2007.

Source: RBI Annual Report 2007-2008, 2008-09 & 2009-10

The outreach of Priority sectorxliv advances by public sector banks increased by

404.1 percent; private sector banks by 791.3 percent and foreign banks by 506.7 percent,

during the last eight years from 2002 to 2010 due to RBI’s initiatives to provide adequate

and timely bank finance at reasonable rates and to bring the underserved sectors/ sections

xliv The concept of priority sector dates back to bank nationalization in 1969 and has been touted as one of the best-run credit delivery systems. This is a programme devised by the Government to ensure adequate flow of bank credit to those sectors of the society/economy that impact large segments of the population and weaker sections. The priority sector broadly comprises agriculture, MSEs, retail trade, micro credit, education and housing subject to certain limits.

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of society within the banking fold. Total Priority Sector Advances in India is Rs. 1140406

crore as on March 2010 (Table-3.8).

Although different categories of banks had achieved the overall target for priority

sector lending as on March 2010, three out of 27 public sector banks, two out of 22 private

sector banks and four out of 28 foreign banks had not achieved the priority sector lending

targets of 40 per cent and 32 per cent, respectively (RBI, 2009-10b).

v. Business Correspondents (BCs) and Business facilitators (BFs) Model

The idea of BCs originated in Brazil where retail vendors, lottery outlets and post

offices work as bank branches for customers. An estimated $1 billion in transactions were

processed through 90,000 agents in 2005 and about 12 million accounts were opened in

only three years. Agents process transactions with POS devices such as biometric or smart

cards, barcode scanners, mobile phones and personal computers that connect with the bank

server using dial-up or other data connection means. The idea has spread to several Latin

American and Asian countries (Ghate, 2008)

As an endeavor of ensuring greater financial inclusion and increasing the banking

outreach, RBI issued guidelines in January 2006xlv to banks to enable them to utilize the

services of civil society organizations, farmers’ clubs, non-government organizations

(NGOs), post offices etc. as intermediaries in extending financial and banking services

through the adoption of Business Facilitator and Correspondent modelsxlvi. Further, in

xlv

RBI/2005-06/288 DBOD.No.BL.BC. 58/22.01.001/2005-2006 xlvi

Under the Business Facilitator (BF) model, intermediaries such as NGOs, Farmers’ club, co-operatives, community based

organizations, IT enabled rural outlets of corporate entity, post offices, insurance agents, panchayats, village knowledge centres, krishi vigyan kendras, agri clinics and KVIC units are engaged for providing facilitation services. Facilitation services includes(i) identification of borrowers and fitment of activities,(ii) collection and preliminary processing of loan application 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;(v)promotion and nurturing self help groups/joint liabilities

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November 2009, RBI issued circularxlvii broadening the category of persons that can act as

BCs as recommended by the “Report of the Working Group to Review the Business

Correspondent Model”xlviii. Banks are now permitted to appoint some more entities such

as individual kirana/medical /fair price shop owners, Public Call Office operators, agents

of small savings schemes of GOI/insurance companies, petrol pump owners, retired

teachers and authorized functionaries of well run SHGs linked to banks (RBI, 2009-10c).

Many banks (both in public and private sector) and MFIs/ NGOs/ civil society

organizations came forward and started taking part in the financial inclusion movement

through these models. The Andhra bank pioneered a pilot project of achieving 100 percent

financial inclusion by providing No-frills A/c’s in Srikakulam District, Andhra Pradesh.

The Axis Bank, within a short span of 3-4 years, disbursed to the tune of Rs.37.47 crores

towards SHG Linkages. They pioneered in participating towards disbursement of wages/

allowances for the people working under Andhra Pradesh Rural Employment Guarantee

Scheme and for pensioners under Social Security Scheme along with five other public

sector banks by issuing Biometric Smart Cardsxlix. Account holders were serviced by

Business Correspondents. They served more than 24 villages and approximately they

served 8900 beneficiaries under both the schemes in the financial year 2007-2008. ICICI

groups;(vi)post-sanction monitoring; (vii)monitoring and handholding of self help groups/joint liability group/credit groups/others ;and (viii) follow up for recovery (RBI/2005-06/288,January25,2006)

Under the Business Correspondent model banks use NGOs/ MFIs set up under Societies/ Trust Acts, societies registered under Mutually Aided Co-operative Societies Acts of States, section 25 companies, registered NBFCs not accepting public deposit and post offices to extend a few of banking services to the unbanked and financially excluded areas. In addition to facilitation activities under the business facilitator model, the scope of activities to be undertaken by the business correspondents includes small value cash receipts and payments, disbursal of small value credit, recovery of principal/ collection of interest, deposit collection, sale of micro insurance/ mutual fund products/ pension products/ other third party products. Business correspondence model works in the line of a bank, as an intermediary, but not from the banks premises, representing the entity’s name (or brand name if any). Both facilitator and correspondents are well paid off for these services. xlviiRBI/2009-10/238 DBOD.No.BL.BC. 63 /22.01.009/2009-10 xlviiisubmitted in August, 2009 under the chairmanship P. VijayaBhaskar xlix This Biometric card is capable of storing Biometric Information about the a/c holder along with photograph and personal details and also serves as an electronic passbook. The project also involves special POS(Point of Service) Machines equipped with a smart card reader as well as finger print reader which is capable of recording the transactions in online as well as offline mode.

104

Bank joined hands with NGOs like KAS Foundation, the Banyan etc for the Business

Correspondent Model. They served 1, 17,000 (One Lakh and Seventeen thousand) clients

enrolled in different districts of Orissa to avail saving services. Under their model, they

posed a limit on the total transaction for the Savings account opened by BC’s if it exceeds

the limit then the account is to be treated as normal savings account of the base branch.

The Union Bank of India initiated the concept of Village Knowledge Centresl (Das &

Tiwari, 2010). SBI also started running pilots of BC model in several places like Aizawl

(Mizoram), Medak and Warrangal (Andhra Pradesh), Pithoragar (Uttarakhand) and at West

Garo Hills (Meghalaya). SBI declared that at least 1 percent of total lending to the SHGs

should be for the promotion of Micro Enterprises. SBI partnered with post office network

nationwide for the BC model. They planned to operate in 198 selected branches of post

offices throughout India. Punjab National Bank ventured with Bharat Integrated Social

Welfare Agency (BISWA) as Business Correspondent in Orissa. Their first BC project at

Kandhalpur District of Orissa proved to be successful. They started Financial Education

and Credit Counseling Centre at Chandigarh as a part of their efforts for financial

inclusion. Further, Vijaya bank has launched the IT-enabled “Vijay Vikas Smart card”

project through BC Model with Smart card/ Hand Held Machine on a Pilot basis in

Mandya district, one of its lead districts in Karnataka. Similarly, UBI has successfully

launched pilot project for financial inclusion at Habra, in 24 Parganas (North) District in

West Bengal on Biometric Smart Card based solutions. Bank has adopted three villages

lVillage Knowledge Centres are small units attached to rural branches of the bank. Each centre is equipped with a computer with internet facility. An official of the bank acts as a relationship manager to the local population. This village knowledge Centre helps the farmers to know the climatic conditions, Crop varieties, new pesticides available. Etc. Simultaneously the relationship manager explores the credit/banking needs of the customer.

105

under the project and issued 2000 cards to the villagers who do not had any bank account.

The project was implemented on BC model by engaging ZMF as BC.

Progress of BC Model till 2009

The total BCs appointed by public sector banks and private sector banks in India is

85 and 44 respectively. The total accounts opened by these BCs are around 80 lakhs in

public sector and around 8 lakhs in private sector. Despite being a private sector bank

ICICI Bank Ltd has appointed highest number of BCs (38) in India among both public and

private sector banks, followed by SBI (24) and Punjab National Bank (14). Amongst the

banks (both public and private) Punjab National Bank has opened highest number of

accounts through appointment of BCs (around 2.7 lakhs) followed by State Bank of India

(SBI) (around 2.6 lakhs) and Union Bank (around 1.7). Amongst the 22 private sector

banks, ICICI Bank Ltd (1.4 lakh) has opened highest number of accounts through BCs

(Table-3.9).

Thus, the top eight banks in terms of outreach through the BC model include PNB,

SBI, UBI, Corporation Bank, Andhra bank and BOI in public sector and ICICI bank and

Axis Bank in the private sector (RBI, 2009b).

106

Table-3.9: Details regarding number of BCs appointed and accounts opened by banks in India

Sr. No. Banks No. of BCs appointed No.of accounts opened

PUBLIC SECTOR BANKS 1 Allahabad Bank NIL NIL

2 Andhra Bank 3 405000

3 Bank of Baroda 3 33827

4 Bank of India 10 71000

5 Bank of Maharashtra NR NR

6 Canara Bank 1 1603

7 Central Bank 1 1210

8 Corpn Bank 3 456655

9 Dena Bank 1 14146

10 Indian Bank 2 23000

11 I O B 3 1131

12 O B C 3 21433

13 P N B 14 2704345

14 P & S Bank NIL NIL

15 S B I 24 2574139

16 S B B J NIL NIL

17 S B HYD 1 16057

18 S B Indore 1 61632

19 S B Mysore 2 2159

20 S B Patiala 1 1140

21 S B Saurashtra NIL NIL

22 S B Travancore 1 699

23 Syndicate Bank 5 695

24 Union Bank 3 1654464

25 United Bank 1 998

26 UCO Bank 1 1048

27 Vijaya Bank 1 626

Total 85 8047007

PRIVATE SECTOR BANKS

1 Bank of Rajasthan Ltd NIL NIL

2 Catholic Syrian Bank Ltd NR NR

3 City Union Bank Ltd NR NR

4 Development Credit Bank Ltd NR NR

5 Dhanalakshmi Bank Ltd NR NR

6 The Federal Bank Ltd 2 68

7 Yes Bank Ltd NIL NIL

8 HDFC Bank Ltd NR NR

9 ICICI Bank Ltd 38 136659

10 IndusInd Bank Ltd NR NR

11 ING Vysya Bank Ltd NIL NIL

12 Jammu & Kashmir Bank Ltd NR NR

13 Karnataka Bank Ltd NIL NIL

14 KarurVysya Bank Ltd NIL NIL

15 Kotak Mahindra Bank Ltd NR NR

16 Lakshmi Vilas Bank Ltd NIL NIL

17 Nainital Bank Ltd 1 532

18 Ratnakar Bank Ltd NR NR

19 SBI Comm. & Inter. Bank Ltd NIL NIL

20 The South Indian Bank Ltd NIL NIL

21 Tamilnad Mercantile Bank Ltd NIL NIL

22 Axis Bank Ltd 3 67600

Total 44 813259

Note: NR-Not reported, Source: RBI, 2009, Report of The Working Group To Review The Business Correspondent Model, August

107

Progress of BC Model post 2009

An analysis of the progress made after 2009 reveals that the number of BCs

appointed by PNB increased to 18 in the year 2010. UBI have appointed 1694 CSPs till

July 2012 and Corporation Bank have set up 2500 corporation Vikas Kendras so far. BOI

engaged 1708 BCs/BC-subagents and formed 2728 Farmers Clubs by Mar 2011. In

private sector Axis Bank till April 2011covered 5944 villages with population less than

2000 and 814 villages with population more than 2000 through BC model covering

population of over 33 lakhs in 25 districts in different states. 25 BCs were appointed for

the purpose. Another private sector bank ICICI has also appointed 28 BCs in 9 different

states of India till December 2012 (Table-3.10).

108

Sources: 1. RBI, 2009, Report of The Working Group To Review The Business Correspondent Model , August 2. https://www.pnbindia.in/en/ui/Content.aspx?Id=26, Retrieved as on 20th Feb 2013 3. http://www.unitedbankofindia.com/pdfs/6-UnitedBankCSPList-FinancialInclusion.pdf; Retrieved as

on 20th Feb 2013 4. http://www.icicibank.com; Retrieved as on 20th Feb 2013 5. http://www.axisbank.com/agri-rural/financial-inclusion/business-correspondents/business-

correspondents.aspx; Retrieved as on 20th Feb 2013 6. http://www.bankofindia.co.in/FI-BOI/FI.html; Retrieved as on 20th Feb 2013

Thus, banks both in public and private sector are increasing their outreach for

greater financial inclusion through the BC model. However, the entity acting as BCs and

mechanism of their appointment varies from bank to bank.

Further, RBI data regarding the progress of SCBs in FIP through BCs reveals

that the number of BCs or BC agents deployed has increased by around 90 percent from

March 2010 to March 2012. Noticeable progress has also been registered in total number

of banking outlets in villages thorough BC mode. Further, around 5.2 crore ICT Based

Accounts have been opened through BCs (Table-3.11).

Table-3.10: Top Eight Banks increasing the financial outreach through BC Model in India

Financial inclusion status in 2009 (Report of The Working Group To Review The Business Correspondent Model)

Progress so far: Status after 2009

S.No.

Banks No. of BCs appointed

No. of accounts opened

Banks

1 P N B 14 2704345 18 BCs appointed till March 2010

2 S B I 24 2574139 NA

3 UBI 3 1654464 1694 CSPs appointed till July 2012

4 Corporation Bank 3 456655 2500 corporation Vikas Kendras have been set up

5 Andhra Bank 3 405000 NA

6 ICICI Bank Ltd 38 136659 28 BCs till December 2012

7 BOI 10 71000 Engaged 1708 BCs/BC-subagents and formed 2728 Farmers Clubs by Mar 2011

8 Axis Bank Ltd 3 67600

Covered 5944 villages with population less than 2000 and 814 villages with population more than 2000 through BC model till April 2011 covering population

of over 33 lakhs in 25 districts in different states. 25 BCs were appointed for the purpose

Note: NA=Not available in website

109

Again, under the FIP roadmap to provide banking services in every village with

population above 2000 by March 31, 2012, RBI data about the outreach and progress of

BCs reveals that banks have covered 74,199 (99.7 percent) out of 74,414 such villages

(RBI 2011-12b).

Table-3.11: Progress of SCBs in Financial Inclusion Plan (excluding RRBs) through

BCs (Amount in Rs. billion) Particulars

March 2010

March 2011

March 2012

Variation March 2012 over March 2010

Number of BCs/BC Agents Deployed 33,042 57,329 95,767 62,725

anking outlets in villages with population above 2,000

27,353 54,246 82,300 54,947

Number of banking outlets in villages with population less than 2,000

26,905 45,937 65,234 38,329

Total number of banking outlets in villages 54,258 1,00,183 1,47,534 93,276

Of which

a) Through branches 21,475 22,662 24,701 3,226

b) Through BCs 32,684 77,138 1,20,355 87,671

c) Through Other Modes 99 383 2,478 2,379

Urban Locations covered through BCs

433 3,757 5,875 5,442

No-Frill accounts

Number (millions) 50.3 75.4 105.5 55.2

Amount (Rs. billions) 42.6 57.0 93.3 50.7

ICT Based Accounts through BCs

Number of Accounts ( millions) 12.6 29.6 52.1 39.5

Number of transactions during the year (millions) 18.7 64.6 119.3 183.9

Source: RBI, 2011-12a, Annual Report, p 89

3.3 Conclusion & suggestion

The outreach of India’s financial services is quite low as compared to the

developed world. As per the World Bank study, in India around 65 percent of the adult

population is outside the purview of formal financial system (Demirguc-Kunt, Asli and

Leora Klapper, 2012). In this backdrop RBI has been taking a number of initiatives

focusing on financial inclusion since 2005. Apex financial institutions such as RBI and

NABARD through Commercial Banks and RRBs which in turn in collaboration with few

110

Technological vendors through NGOs, MFIs, BCs and BFs etc. has been discharging an

important role for promoting financial inclusion in the country. In this regard several

initiatives have been undertaken by the institutions engaged in furthering financial

inclusion in the county which includes provision of no-frills account, issue of KCC, GCC,

promotion of financial literacy, use of ICT for facilitating financial inclusion, initiatives

towards Branchless banking through BC/ BF Model, introduction of SBLP as the central

scheme, constitution of FIF and FITF, Capacity building of the entities involved in

financial inclusion, Farmers’ Club Programme. Enormous growth has been observed in

issue of KCC and GCC, opening of no-frill accounts, priority sector lending, and

enrollment of BCs / BFs by banks in both public and private sector, adoption of unbanked

villages under FIP etc. However, despite these initiatives, the financial inclusion in India is

yet to take off. Studies conducted in Orissa, Rajasthan, West Bengal, Andhra Pradesh,

Karnataka, Gujarat, Himachal Pradesh and Punjab depict a very disappointing picture of

financial inclusion initiatives in terms of the extension of facilities like Overdraft, GCCs,

No-frills accounts and KCCs. Most of the accounts that has been opened as a part of

financial inclusion drive have remained inoperative due to various reasons such as distance

from the branch, non-availability of pass book, illiteracy, lack of interest etc (RBI, 2009).

The role of technology, in expanding the financial services is very crucial and has already

started playing a visible role in a few Asian countries. Apart from greater use of ATMs

including mobile ATMs, debit and credit cards; more user friendly and easily accessible

technology like smart cards, mobile payments, biometric readers for carrying out banking

business from non-branch locations are required to be put in place properly in India.

111

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