1 RURAL BANKING IN INDIA Presented by : Kapil Mhatre34 Kapil Singh52 Gaurav Taishete53 Jwala Nayak41 Shahzad Khan24 Joe Augustine38

2 Rural banking & microfinance need to be addressed for sustainable growth : RBI Deputy Governor Microfinance FocusMicrofinance Focus, Nov. 11, 2009: Reserve Bank of India’s Deputy Governor Ms. Shyamala Gopinath recently said the rural banking and microfinance, infrastructure finance and broader regulatory approach for financial sector are precisely the issues which need to be addressed to achieve balanced and sustainable growth over the long term for emerging market economies.Reserve Bank of Indiasustainable growth What’s Making NEWS ???

3 Rural Banking - Introduction Rural banking in India started since the establishment of banking sector in India. Rural Banks mainly focused upon the agro sector. In rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas. SBI – Largest bank catering to Rural banking. Haryana State Co-operative Apex bank limited, NABARD, Sindhanur Urban Souharda Co-operative bank,United bank of India are some examples of other banks operating in rural markets. Source :Indian Finance & Investment guide

Rural population of about 780 million with limited access to financial services. A high proportion of rural lending is from informal sources. About million people in India still do not have bank accounts. Rural economy (Agriculture + Non-agriculture) constitutes about 50% of GDP. Banks have woken up to the potential in the rural sector. Current demand for credit in Rural India is around Rs.1,33,000 Crs. Commercial Bank branches cover only 7% of rural sector and large market is still untapped. Rural Banking - Current Status

Banking Network in India Source : Seminar - Rural Banking Through ICT

Still the level of exclusion is nearly 60 % with regional variances… Banking Network in India

Rural Banking : A new growth opportunity 7

8 Rural banking faces twin challenges  Regulation with respect to banking has been designed for delivery in urban India.  Distribution requires more manpower to be deployed in rural area.  Rs 1-crore business in microfinance required 30 people in terms of manpower, the same volume of business in other portfolios requires only one person. Regulation Distribution

Microfinance Provision of thrift (Savings),Credit and other financial services and products of very small amounts to the poor for enabling them to raise their income levels and improve living.

Microfinance

11 Case Study

Largest commercial bank in India Bank with largest branch network – 9247 Rural and Semi-urban branches – 6473 SBI has 30 Regional Rural Banks in India known as RRBs The rural banks of SBI is spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East The total number of SBIs Regional Rural Banks in India branches are 2349 (16%).

13  The Bank is actively involved since 1973 in non-profit activity called Community Services Banking. Micro finance deeply ingrained in SBI.  Social obligation services like E-Ticketing. Comprehensive financial services, viz., savings, credit, remittances, insurance and financial products through ICT.

14 SBI TINY ACCOUNT  Opening of simple savings accounts for the villagers with zero balance.  One of the villagers as SBI Mitra.  Drop Box for depositing cash – at the SBI Mitra’s shop / house.  Small emergency loan.  SBI Mitra assists in opening account.  Piloted in Bahirgaon village in Maharashtra. Some Rural Projects Of

15 SBI TINY SMART CARDS  A smart card with photo and fingerprint.  Card serves as the account.  Can be used for govt disbursals, insurance and loan disbursals. KCC  This is medium limit card of Rs.20,000.  Farmers can withdraw partial amount from card.  2.5% annual interest only on withdraw led amount.

Self Help Groups Credit linked 677 thousand SHGs as on December 2006 with total disbursement of US$660 million benefiting 9.48 million families. Market share of 43% of total SHGs financed by Commercial Banks in the country. 734 thousand SHGs are having thrift account with total thrift of US$108 million in these accounts.

17 Impact of SHGs  6400 thousand women beneficiaries.  Increase in income.  Increase in expenditure on education, clothes and health.  Improvement in status of women and their confidence level.

18 Improved health and hygiene. Better housing. Decline in social evils. Impact of SHGs

19 Ultimate Goal of SHG Being..

Goals ( ) Issue one crore IT enabled No Frill Accounts through alternate channels. Open 15 lac No Frill accounts through Bank’s branch channel. Cover 1,00,000 unbanked villages through BC (Business Correspondents) / BF (Business Facilitators) and opening new branches. Increase outreach through 25,000 Customer Service Point Outlets of BC/ BF. Set up additional processing capacity of Rural and Semi urban branches by setting up 300 Rural Credit Processing Centres. Open 870 new branches under second wave of branch expansion program. Open at least 250 rural household accounts at each Rural and Semi Urban branch every year as per GOI directives.

Analysis & Recommendations 21

Gap Analysis 22 Banks…

23 Hurdles in Micro Banking

24 Possible Rural Financial Inclusion

Roadmap for Financial Inclusion

26 What is needed from Banks ??  Focus on non farm rural business.  Greater levels of financial inclusion.  Reach out to the needy through micro credit/SHGs(Self Help Group).  Easy and affordable financial services through the best use of technology.

27  Expand reach through alternate channels.  exclusive focused attention to the financial Inclusion of unbanked rural area.  To extend banking services at the customer’s convenience.  Improvement in service levels in Rural Areas. What is needed from Banks ??

What is needed from Government ?? Constitute an authority for National Mission on Financial inclusion. Draw a road map for replicating the successful pilots. Establish open standards for technology to be used. Source BC from diverse streams to get at the required number.

Undertake a massive program for financial literacy and credit counseling. Dovetail Govt. payments under various programs through bank accounts. Strategic action plan for remittance facility both inter bank/intra bank and post office. Implement a time bound plan for training of BC. Include SHGs as BC. What is needed from Government ??

1. Expand Reach Tie-up with India Post to penetrate the rural market Partner with NGO / MFI to act as Business Facilitators

2.“Kiosk Banking”…Offer Convenience Kiosk Operator owns the kiosks at the villages, enroll as agents of the Business Correspondent. Banking services can be offered to the rural population at close vicinity like a mini branch. Making Kiosk –operators as the agents of the Business Correspondent, helps in building rural entrepreneurs. The bio-metric authentication helps illiterate people also operate bank accounts comfortably. The Bank in turn would benefit greatly because of the improved business adding to the bottom line of the Bank.

3. Educate Customers

4. Be Cost Effective Low cost ATM for Wage Disbursement with finger print authentication and local language interface. This ultra low cost ATM costs just 1/10 th that of the traditional ATM used in cities. Will enable transfer of funds from NREGA directly to the rural workers. It is not just an ATM but an e-governance model that is people friendly and empowers the poorest labor to assert his/her rights.

5.Innovate & Adopt Technology Smart Cards, Biometric scanning for signatures and Handheld Devices and other innovative technology needs to be explored. It will help bring down the cost per transaction as well as help improve the Service Delivery in Rural Areas.

6. Focus on Micro Finance Banks currently have to invest 40% in priority sector lending (Agriculture, SME & Government Securities) MFI lending provides 10-14% return as against 6-7% in Government instruments. Risks could be mitigated further by partnering with MFI in specific markets and while dealing with SHG directly in others. Thus entering the micro finance business makes a lot of commercial sense for SBI in the long run.

36 Thank You