Role of State-owned Banks in Financial Inclusion Presentation by Dr H K Bhanwala, Chairman, NABARD Asia Microfinance Forum Sanghai, China 04 – 08 August 2014

India, briefly 192 million households 400 million, 70% rural 1.21 billion, 69% rural, density: 382 persons/sq km 105 million cultivators, 65 million agricultural labourers 30% (355 million) poor, 10% unemployed 192 million households Low per capita income @ US $ 1527

Banking Structure in India Reserve Bank of India Commercial Banks Nationalized (28) Private (17) Foreign (12) Development Banks Agricultural (NABARD) Industrial (SIDBI) EXIM Cooperative Banks Regional Rural Banks

Banking with the Poor- Few Landmarks Year Event 1904 Cooperative Movement 1991 Indian Economy Liberalized 1935 Reserve Bank of India established 1992 SHG Pilot Launched by NABARD 1969 Bank Nationalization 2000s New Age Banks came into being 1975 Formation of Regional Rural Banks 2006 RBI allows Agency Model (BC Model) 1982 NABARD established 2008 Government announces Financial Inclusion Plan

Enabling Environment in India Financial Inclusion in India Outsource (Agency) Model Bank-led Model Technology driven Banks, incl. SoBs & incl RRBs allocated villages CBS, PoS, Micro ATM, Smart Cards (RuPay), Biometric BC Model All social benefits, wages of employment generation programmes, student scholarships to be credited directly to the accounts Offer small value savings, credit, deposit, micro insurance, micro pension & remittance

Financial Inclusion and Public Subsidies BC Bank Branch Customers Two funds created by Govt of India & housed in NABARD Commission based (not subsidy oriented) As per RBI directive, SoBs are expected to take financial inclusion as a business opportunity FIF FITF For strengthening demand side thru financial literacy, capacity building etc. Supporting ICT solutions in banks (RRBs & Coop Banks, not SoBs)

NABARD & Group Approach Self Help Groups (SHGs) Joint Liability Groups (JLGs) Experimented by NABARD in 1992 A savings first, credit later model Norm: Credit Discipline & Social Collateral Solved the twin problems faced by banks: low recovery & high transaction costs 7.3 million SHGs (81% exclusive women groups), covering 95 million households of which 4.5 million availed credit of INR 394 billion Comprises share croppers, oral lessees 529000 such groups INR 46 billion availed as loan

Collaboration with other players In India, MFIs have been receiving support from SoBs for increasing their credit outreach Bank Loan provided to MFIs – as on 31 March 2013 Banks No Amount (INR Billion) SoBs 1497 84 Private Banks 268 40 Foreign Banks 4 1.31 RRBs 153 0.71 Coop Banks 18 0.068 Other FIs 102 18.80 Total 2042 144 The experience with MFIs are mixed ones – profit motive & high rate of interest have gone against their reputation The Central Bank (RBI) had to step in to curb their profit instincts MFIs have their limitations under Indian law - they can’t open bank accounts, can’t provide savings and remittance products though they can deliver other financial products like insurance, pension etc. Nevertheless, Bandhan, an MFI with 5.4 million as its rural customers bagged the banking license in a stiff competition

Using Technology for Financial Inclusion Requires initial CAPEX investment Creates Customer Segmentation But is cheaper in the long run Secular (Customer Neutral) 904.5 million out of 1221 million (74%) mobile phone users in India Technology has always been at the core of Financial Inclusion – it has been ‘the’ driving force India is going M Banking way viz. Mobile Wallet (a la M-PESA, Airtel Money etc.)

Thanks www.nabard.org chairman@nabard.org