Financial Inclusion : The Task Financial Inclusion Programme started in 2010 by RBI and has completed so far 3 years of successful implementation. Banks have been asked to draw plan for 2013-16 which should be disaggregated to branch level. Gourav Kumar Vani

Financial Inclusion - Definition Delivery of financial services at an affordable cost to vast sections of disadvantaged and low income groups

“The process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.”

Scope Of FINANCIAL INCLUSION

Extending basic banking facilities to unbanked & marginally banked Adopting both Branch and Branchless Banking Providing Financial Literacy for gainful utilization of services “ Need” creation among the target group Extending a combination of banking product No Frill Savings Account Micro Credit Micro Insurance Remittance Overdraft Spreading Financial Literacy Village Knowledge Centers Financial Literacy and Credit Counseling Centers

No frills account? An account with ‘zero 'or minimum balance with maximum balance of Rs 50,000/-at any given point in time and total credit in a year not exceeding Rs 1,00,000/-.

Benefits of Greater FI For the common man–escape from the clutches of money lenders; sending / receiving remittances; no need to hold savings in cash etc. For the banks–achieving access to a large untapped pool of customers. For the Govt.-ensuring flow of aid / grants to the targeted beneficiary. (DBT Scheme ) For the RBI -spread of banking culture and extension of the reach of formal financial system. Direct Benefit Transfer Scheme for transferring the money directly to the beneficiaries account. It started on January 1 2013 in its first phase in 43 districts of India. This DBT is Aadhar Enabled payment with Electronic Benefit Transfer mode.

Continued……… To achieve the growth with equity. Get rid of poverty. To attract global market players to our country. To increase the employment and business opportunity. To baring more transparency in the system.

A few statistics Account Penetration

Account Penetration in India by Individual Characteristics

Summary of Bank Branch Scenario as on June 2010 Particular Highest Lowest India Karnataka Bank offices per 1000 persons Goa (24) Manipur (2) 5 6 Bank office per 1 lakh sq km Punjab (142) Arunachal Pradesh and Jammu & Kashmir (1) 18 21 Total no. of bank office UP (6773) Mizoram (33) 59107 3971

Global Findex Database Only 35% of adults in the country have an account at a formal financial institution. About 50% of adults in Andhra Pradesh and the New Delhi, 40% in Gujarat, Kerala and Maharashtra report having a formal account.

While < than 30% do so in Bihar, Orissa and Rajasthan. Only 8% of adults in India have debit card which comes to be 23% of account holders. The same is 41% in other BRICK economies. Only 6% report accessing their account primarily over the counter at a retail store or through some other person associated with their bank.

31 % of account holders report having saved at a formal financial institution. 24% report having used their account to receive wages or payments for work or from selling goods. The same is 37 % in developing world. About 13% of account holders in india report using their account for business purposes. Only 7% of account holders reported having used their account to send or receive However, the progress is far from satisfactory as evidenced by the World Bank Findex Survey (2012). According to the survey findings, only 35% of Indian adults had access to a formal bank account and 8% borrowed formally in the last 12 months. Only 2% of adults used an account to receive money from a family member living in another area and 4% used an account to receive payment from the Government.

Why Financial Inclusion ? High transactions costs of borrowers High transactions costs of savers High transactions costs of banks High risk cost Inappropriate products

Who are excluded ? Marginal Farmers Landless Farmers Self Employed Urban slum developers Migrants Minorities Social excluded groups Senior citizens Women

Measures for promoting financial inclusion Products No frill account KYC norms simplified Introduction of GCC OTS (one time settlement) for overdue loans up to Rs.25,000/- KCC Relaxed KYC norms • Know Your Customer (KYC) requirements have been simplified to such an extent that small accounts can be opened with self certification in the presence of bank officials. • RBI has allowed ‘Aadhaar’ to be used as one of the eligible documents for meeting the KYC requirement for opening a bank account. Roadmap for Banking Services in unbanked Villages • In the first phase, banks were advised to draw up a roadmap for providing banking services in every village having a population of over 2,000 by March 2010. Banks have successfully met this target and have covered 74,398 unbanked villages. • In the second phase, Roadmap has been prepared for covering remaining unbanked villages i.e. with population less than 2000 in a time bound manner. About 4,90,000 unbanked villages with less than 2000 population across the country have been identified and allotted to various banks. The idea behind allocating villages to banks was to ensure availability of at least one banking outlet in each village. General Credit Card (GCC) Scheme 1. The Scheme The Scheme shall cover general credit needs of bank constituents in rural and semi-urban areas and shall be referred to as the 'General Credit Card (GCC) Scheme'. 2. Objectives The objective of the scheme is to provide hassle-free credit to banks’ customers based on the assessment of cash flow without insistence on security, purpose or end-use of the credit. This is in the nature of overdraft or cash-credit with no end-use stipulations. 3. Participating banks The Scheme may be implemented by all Scheduled Commercial Banks and RRBs at any of their branches. 4. Nature of financial accommodation: Cash withdrawal The credit facility extended under the Scheme will be in the nature of revolving credit. The GCC-holder will be entitled to draw cash from the specified branch of bank up to the limit sanctioned and in fact, this may be the only feasible mechanism in many cases. 5. Quantum of limit Banks would have flexibility in fixing the limit based on the assessment of income and cash flow of the entire household. However, the total credit facility under GCC for an individual should not exceed Rs.25,000/- 6. Interest rate Interest rate on the facility may be charged, as considered appropriate and reasonable. 7. Flexibility in use of credit The borrowers would be eligible for availment of the credit facilities provided under GCC, as per their requirement, without any insistence on security and the purpose or end-use of the credit. 8. Priority sector lending status Fifty per cent of credit outstanding under GCC up to Rs.25,000/- will be eligible for being treated as indirect agricultural financing. The eligibility criteria will be subject to review. 9. Form of GCC It is not necessary that GCC should be linked to purchase and GCC may not necessarily be in the form of a card. GCC can be issued in the form of a Pass Book, if the holder of GCC desires to operate cash withdrawals from bank-branch. 10. Flexibility Banks may consider appropriate modification provided the essential features of the scheme are maintained and prior approval of the Reserve Bank obtained.

Measures for promoting financial inclusion Use of intermediaries Linkage of SHGs with bank >29 lakh SHGs credit linked >42 million families covered Linkage of MFIs with banks Business facilitators and correspondence model.(2006, Cash in- cash out) Combination of Branch and BC Structure to deliver Financial Inclusion The idea is to have a combination of physical branch network and BCs for extending financial inclusion, especially in geographically dispersed areas. To ensure increased banking penetration and control over operations of BCs, banks have been advised to establish low cost branches in the form of intermediate brick and mortar structures in rural centres between the present base branch and BC locations, so as to provide support to a cluster of BCs (about 8-10 BCs) at a reasonable distance of about 3-4 kilometers.

Measures for promoting financial inclusion Others IT solution for financial inclusion Credit counseling and financial education (718 FLC as on 31st -03-2013). FIAC (Financial Inclusion Advisory Committee) chaired by Deputy Governor. In last one year nearly 2.2 million people have been educated. RBI has proposed to set up National Centre for Financial Education (NCFE). RBI has adopted National Strategy for Financial Education. saving with banks, facilities provided by banks and the benefi ts of borrowing from banks in a clear manner. This guide is a ready reckoner for trainers involved in fi nancial literacy and fi nancial inclusion. 3 The Financial Diary has been prepared to enable the target audience to keep a record of their income and expenses, leading to better fi nancial planning and understanding of how they spend. 4 The set of 16 posters has simple, appealing slogans and visuals for prominent display in camps to communicate messages of money management, savings, borrowings and basic banking products.

Funds for Financial Inclusion Micro Finance Development and Equity Fund Financial Inclusion Fund for Development and Promotional Interventions Financial Inclusion Technology Fund to meet cost of technology

Meeting the expectations of poor from financial inclusion requires taking into account their Seasonal inflow of income from agricultural and rural occupations Migration from one place to another Seasonal/ irregular work availability and income Security and safety of deposits Low transaction cost Minimum paper work Frequent deposits in smaller amounts Quick and easy access to their savings in times of needs Products suitability to income and consumption pattern in villages

What has been achieved so far under FIPs (April 10 – March 13) Nearly 2, 68, 000 banking outlets have been set up in villages as on March 13 as against 67,694 banking outlets in villages in March 2010 • About 7,400 rural branches opened during this period • Nearly 109 million Basic Savings Bank Deposit Accounts (BSBDAs) have been added, taking the total no. of BSBDAs to 182 million. Percentage of ICT accounts to total BSBDAs has increased from 25% in March 10 to 45% in March 2013. ‘Basic Savings Bank Deposit Account’ which will offer following minimum common facilities to all their customers: i. The ‘Basic Savings Bank Deposit Account’ should be considered a normal banking service available to all. ii. This account shall not have the requirement of any minimum balance. iii. The services available in the account will include deposit and withdrawal of cash at bank branch as well as ATMs; receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by Central/State Government agencies and departments; iv. While there will be no limit on the number of deposits that can be made in a month, account holders will be allowed a maximum of four withdrawals in a month, including ATM withdrawals; and v. Facility of ATM card or ATM-cum-Debit Card; 3. The above facilities will be provided without any charges. Further, no charge will be levied for non-operation/activation of in-operative ‘Basic Savings Bank Deposit Account’. 4. Banks would be free to evolve other requirements including pricing structure for additional value-added services beyond the stipulated basic minimum services on reasonable and transparent basis and applied in a non-discriminatory manner. 5. The ‘Basic Savings Bank Deposit Account’ would be subject to RBI instructions on Know Your Customer (KYC) / Anti-Money Laundering (AML) for opening of bank accounts issued from time to time. If such account is opened on the basis of simplified KYC norms, the account would additionally be treated as a ‘Small Account’ and would be subject to conditions stipulated for such accounts as indicated in paragraph 2.7 of Master Circular DBOD. AML. BC. No. 11/14.01.001/2012-13 dated July 02, 2012 on ‘KYC norms/AML standards/Combating of Financing of Terrorism (CFT) /Obligation of banks under PMLA, 2002’. 6. Holders of ‘Basic Savings Bank Deposit Account’ will not be eligible for opening any other savings bank deposit account in that bank. If a customer has any other existing savings bank deposit account in that bank, he/she will be required to close it within 30 days from the date of opening a ‘Basic Savings Bank Deposit Account’. RBI,DBOD,CO - 3 - continuation sheet 7. The existing basic banking ‘no-frills’ accounts should be converted to ‘Basic Savings Bank Deposit Account’ as per the instructions contained in para 2 above.

With the addition of nearly 9 With the addition of nearly 9.48 million farm sector households during this period, 33.8 million households have been provided with small entrepreneurial credit as at the end of March 2013. • With the addition of nearly 2.25 million non farm sector households during this period, 3.6 million households have been provided with small entrepreneurial credit as at the end of March 2013. • About 4,904 lakh transactions have been carried out in ICT based accounts through BCs during the three year period.

But During the same period First, the number of banked centres in the country between 1991 and 2007 had actually come down (from 35236 to 34471). Second, the number of rural branches during the same period had also declined significantly (from 35206 to 30409). Against this backdrop, the progress made during 2010-13 is certainly remarkable.

Financial Inclusion : Challenges Perception of people (lack of trust, religious reasons). Poor People (26%,not enough money). Illiteracy (82.14% males & 65.46% females are literate). Too many formal procedures. Naxalites and Terrorist menace.

Continued .. Holistic approach( problem with Adhar card ). Viability(low population & low density). Scalability(no brick and mortar structure) Adoption of technology. Use of intermediate agencies(Banking correspondents).

Lack of co-ordination. Effective delivery mechanism- still being experimented. Appropriate business model yet to evolve-availability of suitable products. ICT based BC model –yet to stabilize.

Thank you