27563396 Financial Inclusion

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SUMMER PROJECT REPORT

ON

A study to understand the Banking Behavior of the Financially

Included rural population in Madurai district

Under the Guidance of

Smt Madhavi Sharma

General Manager

!ural "lanning and #redit $epartment

!eserve Bank of India

#hennai

By#handrakumar B

%&'() *#lass of %'('+

April June 2009

Bharathidasan Institute of Management(School of Excellence of Bharathidasan University)

,iruchirapalli -%''(.


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A Study to understand Banin! Behaviour of the "inancially #ncluded $ural %opulation

&ontentsACKNOWLEDGEMENT 5

EXECUTIVE SUMMARY 6

INTRODUCTION ................................................................................................................................7

OBJECTIVESOFTHERESERVEBANKOFINDIA..................................................................................................... 8

MAINFUNCTIONS ..................................................................................................................................9

CHAPTER! RURALPLANNINGANDCREDITDEPARTMENT "#

INTRODUCTION .............................................................................................................................."#

BROADWORKAREASOFTHEDEPARTMENT................................................................................................... "#

THRUSTAREAS ....................................................................................................................................""

IMPORTANTASPECTSRELATINGTOPRIORITYSECTORLENDINGBYCOMMERCIALBANKS....................................................... ""

CHAPTER$! FINANCIALINCLUSION "$

INTRODUCTION .............................................................................................................................."$

CONCEPTUALFRAMEWORK ......................................................................................................................."%

FACTORSAFFECTINGACCESSTOFINANCIALSERVICES .........................................................................................."6

INITIATIVESOFFINANCIALINCLUSIONININDIA.................................................................................................. "7

CHAPTER%! MADURAIDISTRICTPROFILE

CHAPTER 5! RESEARCH METHODOLOGY %

PROCEDURAL STEPS FOLLOWED FOR THE SURVEY ......................................................................... 5

VILLAGESANDBANKBRANCHESVISITED ........................................................................................................6

LIMITATIONSOFTHESTUDY .......................................................................................................................6

CHAPTER6! OBSERVATIONS 7

OBSERVATIONS WITH NO&FRILLS ACCOUNT HOLDERS .................................................................... 7

BANKER'SPERSPECTIVEOFFINANCIALINCLUSION ...............................................................................................$7GENERALOBSERVATIONS .........................................................................................................................$9


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CHAPTER7! BUSINESSCORRESPONDENTMODEL %$

OPERATIONS OF A BUSINESS CORRESPONDENT ............................................................................. %%

PICTORIALREPRESENTATION .....................................................................................................................%5CHAPTER8! RECOMMENDATIONS( CONCLUSION %9

RECOMMENDATIONS FOR IMPROVEMENT .................................................................................... 5#

IMPLEMENTATIONMODEL ........................................................................................................................5

CONCLUSION ......................................................................................................................................5%

ANNEXURE&I! )UESTIONNAIREFORCOMMONMAN 55

ANNEXURE&II! )UESTIONNAIRE FOR BANK BRANCHES 59

ANNEXURE&III! NEWS ARTICLE 6"

REFERENCES 6


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Ackno/ledgement

My sincere thanks to S*+,. F.R. J-/0*1 F-+2/+ R/3,-4 D,+/-+1 C*/44,for giving me an

opportunity to undertake project in Reserve Bank of India and for guiding me in the initial

stages of the project y ringing in more clarity to the topic!

" #ord of thanks to S*+,. K. R. A44*1 R/3,-4 D,+/-+1 C*/44, for his constant

support for the project!

I also thank my mentor officer S2. M*:, S*+21 G/4/+ M43/+1 RPCD#ho #as a

constant source of encouragement throughout the project!

" special mention to my project guide S2. C*4,4, M--*4*4,1 D/0;< G/4/+

M43/+1 RPCDis the least I can do to ackno#ledge her incisive and meaningful insights$

#hich instilled matchless attriutes to my project!

I thank all the officers and staff of RP%& for e'tending all help and assistance during the

project!

I also thank the (eads of all the &epartments #ho helped me y giving more clarity during

project title identification stage!

I thank (R& cell officers for e'tending their support and making all arrangement during my

project! )hey have made my stay in RBI a memorale one!

B. C*4+=;2+


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01ecutive Summary

)he anking system has gro#n enormously in the last five years keeping pace #ith and in

some cases leading the country*s remarkale economic gro#th! Simultaneously$ the anking

system has improved its strength$ efficiency and resilience! )here have also een significant

improvements in the payments and settlements system and electronic payments and R)+S

is no# much more in use! "t the same time$ large numer of households continues to e

e'cluded from the formal anking system! )he greatest challenge faced y the anking

sector and the government is to enale an

inclusive gro#th environment in the country!

,inancial inclusion has to e an urgent national

priority if #e are to achieve inclusive gro#th! In

spite of the measures taken y RBI to provide -o.

,rills accounts to everyody$ it is seen that the

usage level is very lo# as compared to the

e'pected level! ,inancial Inclusion can ecome a

profitale and eneficial programme only if the account holders practice a healthy anking

hait! )his ojective of this study is to understand the anking ehavior of the -o.,rills

account holders and the anker/s perspective on ,inancial Inclusion!

%hapter e'plains aout the ojective and functions of Reserve ank of India and chapter 2

roadly discusses aout the Rural Planning and %redit &epartment in #hich the project #as

undertaken! %hapter 1 discusses on ,inancial Inclusion and chapter gives a rief note

aout Madurai district in #hich the study #as conducted! %hapters 3 and %hapter 4 e'plain

the research methodology follo#ed for the study and various 5uantitative and 5uantitativeoservations made during the project! %hapter 6 pictorially riefs the Business

%orrespondent model! )he report concludes #ith the recommendations and conclusion in

chapter 7!

#hapter (2 A3out !eserve Bank of India

8jective of the study

1. To understand the banking

behaviour of the No-Frills

account holders in rural area

2. To study the bankers

perception on Financial

Inclusion


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Introduction

)he Reserve Bank of India #as estalished on "pril $ 913 in accordance #ith the

provisions of the Reserve Bank of India "ct$ 91! )he Bank egan its operations y taking

over from the +overnment the functions so far eing performed y the %ontroller of

%urrency and from the Imperial Bank of India$ the management of +overnment accounts

and pulic det!

)he %entral 8ffice of the Reserve Bank #as initially estalished in %alcutta ut #as

permanently moved to Mumai in 916! )he %entral 8ffice is #here the +overnor sits and

#here policies are formulated! )he e'isting currency offices at %alcutta$ Bomay$ Madras$

Rangoon$ arachi$ :ahore and %a#npore ;anpur< ecame ranches of the Issue

&epartment! 8ffices of the Banking &epartment #ere estalished in %alcutta$ Bomay$

Madras$ &elhi and Rangoon! )hough originally privately o#ned$ since nationali=ation in

99$ the Reserve Bank is fully o#ned y the +overnment of India!

Burma ;Myanmar< seceded from the Indian >nion in 916 ut the Reserve Bank continued

to act as the %entral Bank for Burma till ?apanese 8ccupation of Burma and later up to "pril$

96! "fter the partition of India$ the Reserve Bank served as the central ank of Pakistan up

to ?une 97 #hen the State Bank of Pakistan commenced operations! )he Bank$ #hich #as

originally set up as a shareholder*s ank$ #as nationali=ed in 99!

"n interesting feature of the Reserve Bank of India #as that at its very inception$ the Bank

#as seen as playing a special role in the conte't of development$ especially "griculture!

@hen India commenced its plan endeavours$ the development role of the Bank came into

focus$ especially in the si'ties #hen the Reserve Bank$ in many #ays$ pioneered the concept

and practise of using finance to cataly=e development! )he Bank #as also instrumental in

institutional development and helped set up institutions like the &eposit Insurance and

%redit +uarantee %orporation of India$ the >nit )rust of India$ the Industrial &evelopment

Bank of India$ the -ational Bank of "griculture and Rural &evelopment$ the &iscount and

,inance (ouse of India etc! to uild the financial infrastructure of the country!


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@ith lierali=ation$ the Bank*s focus has shifted ack to core central anking functions like

Monetary Policy$ Bank Supervision and Regulation$ and 8verseeing the Payments System

and onto developing the financial markets!

'ectives of the $eserve Ban of #ndia

)he Reserve Bank of India "ct$ 91 sets out the ojectives of the Reserve BankA )heformulation$ frame#ork and institutional architecture of

monetary policy in India have evolved around these

ojectives maintaining price staility$ ensuring ade5uate

flo# of credit to sustain the gro#th momentum$ and

securing financial staility!

)he responsiility for ensuring financial staility has entailed

the vesting of e'tensive po#ers in and operational

ojectives for the Reserve Bank for regulation and

supervision of the financial system and its constituents$ the

money$ det and foreign e'change segments of the financial

markets in India and the payment and settlement system! )he endeavor of the Reserve

Bank has een to develop a roust$ efficient and diversified financial system so as to anchor

financial staility and to facilitate effective transmission of monetary policy! In addition$ the

Reserve Bank pursues operational ojectives in the conte't of its core function of issuance

of ank notes and currency management as #ell as its agency functions such as anker to

+overnment ;%entre and States< and management of pulic detC anker to the anking

system including regulation of ank reserves and the lender of the last resort!

)he specific features of the Indian economy$ including its socio.economic characteristics$

make it necessary for the Reserve Bank to operate #ith multiple ojectives! Regulation$

supervision and development of the financial system remain #ithin the legitimate amit of

monetary policy roadly interpreted in India! )he role of communication policy$ therefore$

lies in articulating the hierarchy of ojectives in a given conte't in a transparent manner$

emphasi=ing a consultative approach as #ell as autonomy in policy operations and harmony

#ith other elements of macroeconomic policies!

*...to regulate the issue of

Bank notes and the keeping

of reserves with a view to

securing monetary stability

in India and generally to

operate the currency and

credit system of the country

to its advantage.*


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Main Functions

". M-4/+< A;*-+,

,ormulates$ implements and monitors the monetary policy!

8jectiveA maintaining price staility and ensuring ade5uate flo# of credit to

productive sectors!

. R/3;-+ 4 ;0/+:,-+ -> */ >,44, F-+/,34 E?*43/

Manages the ,oreign D'change Management "ct$ 999!

8jectiveA to facilitate e'ternal trade and payment and promote orderly

development and maintenance of foreign e'change market in India!

%. I;/+ -> ;++/4

Issues and e'changes or destroys currency and coins not fit for circulation!

8jectiveA to give the pulic ade5uate 5uantity of supplies of currency notes and

coins and in good 5uality!

5. D/:/-02/4 +-/

Performs a #ide range of promotional functions to support national ojectives!

6. R// F;4,-4

Banker to the +overnmentA performs merchant anking function for the central

and the state governmentsC also acts as their anker!

Banker to anksA maintains anking accounts of all scheduled anks!


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#hapter %2 !ural "lanning and #redit $epartment

Introduction

)he Rural Planning and %redit &epartment formulates policies relating to rural credit and

monitors timely and ade5uate flo# of credit to the rural population for agricultural activities

and rural employment programmes! It also formulates policies relating to the priority sector

#hich includes agriculture$ small.scale industries$ tiny and village industries$ artisans and

retail traders$ professional and self.employed persons$ state sponsored organisations for

Scheduled %astes and Scheduled )ries and +overnment Sponsored credit.linked

programmes like S#arnjayanti +ram S#arojgar Eojana ;S+SE


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,hrust Areas

%redit delivery innovations

Micro finance initiatives

issan credit cards

Restructuring co.operatives

,raming guidelines for rehailitation of sick SSIs

Important aspects relating to priority sector lending 3y commercial

3anks

I. T+3/@S;&T+3/

)he targets and su.targets set under priority sector lending for domestic and foreign anks

operating in India areA

C/3-+< -> :4/ D-2/, 4= F-+/,34 4= ,4 I4,

"ggregate advances to

priority sector

0 per cent of net ank

credit


credit

"dvances to agriculture 7 per cent of net ank

credit

-o target

"dvances to #eaker

sections


credit

-o target

"dvances to SSI -o target 0 per cent of net ank

credit

D'port ,inance D'port finance does notform part of priority sector

for domestic anks

2 per cent of net ankcredit


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II. A,:,,/

Broadly$ the activitiesF purposes financed y anks included in priority sector areA

a! "griculture

! Small scale industry

c! Small road and #ater transport operators

d! Retail traders and small usiness operators

e! Professional and self.employed persons

f! State.sponsored organisations for Scheduled %asteFScheduled )rie$

g! Dducational loans$ up to Rs! 0!63 million for studies #ithin the country and Rs! !3 million for

studies aroad!h! (ousing up to Rs! !3 million in all areas for ac5uisition y individual! Rs! 0! million in

ruralFsemi uran areas and Rs! 0!2 million in uranFmetropolitan areas for repairing of

e'isting unitnited -ations$ 2004a

large segment of society$ particularly lo#.income people$ has very little access to financial

services$ oth formal and semi.formal! "s a conse5uence$ many of them have to necessarily

depend either on their o#n or informal sources of finance and generally at an unreasonaly

high cost! )he situation is #orse in most least developed countries ;:&%s

generated to a #ide spectrum of activities! )he modern development theory perceives the

lack of access to finance as a critical factor responsile for persistent income ine5uality as

#ell as slo#er gro#th! " large ody of empirical literature suggests that developing the

financial sector and improving access to finance may accelerate economic gro#th along #ith

a reduction in income ine5uality and poverty! @ithout an inclusive financial system$ poor


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individuals and small enterprises have to rely on their o#n limited savings and earnings to

invest in their education and entrepreneurship to take advantage of gro#th opportunities

;@orld Bank$ 2007

In India$ gro#th #ith e5uity has een the central ojective right from the inception of the

planning process! "ccordingly$ over the years$ initiatives have een taken continuously y

the +overnment and the Reserve Bank to address the issue of inclusive gro#th!

-ot#ithstanding the rapid increase in overall +&P and per capita income in recent years$ a

significant proportion of the population in oth rural and uran areas still e'periences

difficulties in accessing the formal financial system! Recent concerns have arisen from an

inade5uate reduction in poverty levels$ sectoral divergences in gro#th and employment

opportunities and tardy improvement in other social indicators$ despite higher economic

gro#th! )he Dleventh ,ive Eear Plan$ therefore$ re.emphasised the need for a more inclusive

gro#th in order to ensure that the per capita income gro#th is more road.ased! )he

farming$ micro$ small and medium enterprises have immense potential to play a critical role

in achieving the ojective of faster and more inclusive gro#th as these sectors contriutes

to output and employment generation in a significant #ay #ith capacity to e'pand

regionally diversified production and generating #idely dispersed off.farm employment!

#onceptual Frame/ork

&efinitions of financial e'clusion in the literature vary depending on the dimensions such as

Greadth/$ Gfocus/ and Gdegree/ of e'clusion!

)he Greadth/ dimension is the roadest of all definitions linking financial e'clusion

to social e'clusion #hich defines financial e'clusion as the processes that prevent

poor and disadvantaged social groups from gaining access to the financial system

;:eyshon and )hrift$ 993

)he Gfocus/ dimension is in the middle of the spectrum that links financial e'clusion

to other dimensions of e'clusion! It defines financial e'clusion as the potential

difficulties faced y some segments of population in accessing mainstream financial

services such as ank accountsFhome insurance ;Meado#s et al!$ 200


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definitions laying emphasis on the Gfocus/ also vary significantly to include various

segments of population such as individuals$ households$ communities$ and

usinesses!

)he Gdegree/ dimension$ #hich is the narro#est of all definitions of financial

e'clusion$ defines financial e'clusion as e'clusion from particular sources of credit

and other financial services including insurance$ ill.payment services and accessile

and appropriate deposit accounts ;Rogaly$ 999

,inally$ definitions of financial e'clusion vary consideraly according to the dimensions

such as the concept of relativity$ i!e!$ financial e'clusion defined relative to some

standard ;i!e!$ inclusion

financial products and at the same time a minority lacking even the asic anking

services! )his phenomenon is oserved mostly in developed countries #ith high degree

of financial development!


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8ver the years$ several definitions of financial inclusionFe'clusion have evolved! :isted

elo# are fe# definitions of financial inclusion!

Author $efinition

Stephen " Sinclair *%''(+ ,inancial e'clusion means the inaility to access necessary

financial services in an appropriate form! D'clusion can come

aout as a result of prolems #ith access$ conditions$ prices$

marketing or self.e'clusion in response to negative

e'periences or perceptions!

United 5ations *%''- 3+ " financial sector that provides Gaccess/ to credit for all

Gankale/ people and firms$ to insurance for all insurale

people and firms and to savings and payments services for

everyone! Inclusive finance does not re5uire that everyone

#ho is eligile use each of the services$ ut they should e

ale to choose to use them if desired!

!eport of the #ommittee on

Financial Inclusion in India

*#hairman2 #!angara6an+

*%''7+

)he process of ensuring access to financial services and

timely and ade5uate credit #here needed y vulnerale

groups such as #eaker sections and lo# income groups at an

affordale cost!

Factors Affecting Access to Financial Services

G/4/+ ,;/A "ccess to credit is often limited for #omen #ho do not have$ or

cannot hold title to assets such as land and property or must seek male guarantees

to orro#!

A3/ >-+A ,inancial service providers usually target the middle of the economically

active population$ often overlooking the design of appropriate products for older or

younger potential customers!

L/3 ,/4,


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P/ -> ,:,43A "lthough effective distance is as much aout transportation

infrastructure as physical distance$ factors like density of population$ rural and

remote areas$ moility of the population ;i!e!$ highly moile people #ith no fi'ed or

formal address ,4-2/A ,inancial status of people is al#ays important in gaining access to

financial services! D'tremely poor people find it difficult to access financial services

even #hen the services are tailored for them! Perception arriers and income

discrimination among potential memers in group.lending programmes may e'clude

the poorer memers of the community!

T -;0,-4A Many anks have not developed the capacity to evaluate loan

applications of small orro#ers and unorganised enterprises and hence tend to deny

such loan re5uests!

A+,:/4/ -> */ 0+-;A Both the financial servicesFproducts ;savings

accounts$ credit products$ payment services and insurance< and ho# their availaility

is marketed are crucial in financial inclusion

Initiatives of Financial Inclusion in India


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,inancial inclusion in the Indian conte't implies the provision of affordale financial services$

vi=!$ access to payments and remittance facilities$ savings$ loans and insurance services y

the formal financial system to those #ho tend to e e'cluded!

In order to e'pand the credit and financial services to the #ider sections of the population$ a

#ide net#ork of financial institutions has een estalished over the years! )he organised

financial system comprising commercial anks$ regional rural anks ;RRBs%Bs


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attract vast sections of population$ in particular pensioners$ self.employed and those

employed in the unorganised sector

)he process of financial inclusion received further impetus in -ovemer 2003$ #hen anks

#ere advised to make availale a asic anking G-o ,rills/ account #ith lo# or nil minimum

alances as #ell as charges to e'pand the outreach of such accounts to vast sections of the

population! )he lo# cost or free of cost account is internationally considered to e helpful in

e'panding the access of anking services$ particularly to the lo# income groups!

C/3-+< E4&M+* E4&M+* E4&D//2/+

2004 2006 2006Pulic Sector Banks 1$12$767 37$43$9 $0$24$49

Private Sector

Banks $34$177 7$34$93 3$40$37

,oreign anks 21 2$631 10$240

)otal $79$96 46$2$446 $24$6$196

N-&F+, -;4!

"s a proactive measure$ the RBI in its "nnual Policy Statement for the year 2003.04$ #hile

recognising the concerns in regard to the anking practices that tend to e'clude rather than

attract vast sections of population$ urged anks to revie# their e'isting practices to align

them #ith the ojective of financial inclusion! In the Mid )erm Revie# of the Policy ;2003.

04


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In order to ensure that persons elonging to lo# income groups$ oth in uran and rural

areas do not encounter difficulties in opening ank accounts$ the kno# your customer ;E% B-++-,43!


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Majority of the respondents ;appro' 43H< possess the hait of orro#ing from themoneylenders

" fe# of them ;appro' 2H< orro# from their relatives and friends #hen the need

is small and usually they repay it on the ne't day

Borro#ing from Self (elp groups have enefitted H of the respondents and

generally it is seen that defaulting is very minimal due to the peer pressure in the

group

)otally 6H of the population have orro#ed from the %ooperative societies and 3H

of them through anks! Bank orro#ing generally happens throught the ?e#el loan

and it has enefitted the people as they possess some form of +old #ith them

People #ho orro# from the anks face the prolem of partial payment for the

project and they do not get the full amount re5uired! )his situation naturally drives

them to orro# from the Money lender for meeting the needs

R/-4 >-+ -++-,43 >+-2 M-4/< L/4/+!


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Cattle grows along with the interest

It is been a practise in some villages that hen a houseife borros money

rom a !oney "ender# she also buys a goat. $fter a year# she sells the ell

gron cattle to repay the money to the lender.


In spite of the fact that the Money lenders charge a higher interst rate$ a large population

prefers to orro# from them! Respondents #ho orro#ed from the Money lenders #ere

asked the reason for orro#ing from Money lenders! Majority of the people ;4H of the

respondents< depend on Money lenders ecause they have no other means of getting

credit! :esser procedure and documention involved is another attraction for availing the

Money lenders service! " Money lender typically does a Spot payment #ith Lero

documentation! "vailaility of cash at the time of emergency is the reason for the choice of

2H of the respondents! Mostly #hen the cash needs arise out of medical emergency$ it is

met only y the Money lenders as they ask for no documents or surelty and gives the cash in

hand! :ocation criteria and anytime access of cash are other reasons for orro#ing from

Money lenders

Banker>s perspective of Financial Inclusion

"ll

the


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anks have rela'ed the E% norms for account opening! )hey open the account for a

person if heFshe is identified y the Makkal -ala Paniyalargal2

:ocal -+8s and the Makkal -ala Paniyalargal have played a major role in

communicating the village people aout the account opening and for coordinating

them to the anks! )hey have also volunteered in account opening #ork

&oor to door campaign has een used y the ank in order to communicate and

create pulicity aout opening ank account! Pre survey #as also used as a chance

to meet people in the village and communicate the need for opening ank account

Murasu1announcement #ere made in the streets of the village to communicate the

gathering point for account opening formalities! )hese announcements are made

either in the evening or in the early morning #hen the people are availale in their

house

Banks have opened account opening centres at common places on Sunday #here

people gather at the aforesaid time #hich

helped the anks to do a ulk processing of

account opening

Bank Managers felt that the ank account

opening drive has gained momentum after making it mandatory for -RD+S jos! In

some anks$ the numer of -o.,rills account #ere calculated ased on the numer

of -RD+S jo cards issued in their service area

"s of no#$ funds of +overnment schemes are not credited directly into the

individual/s account! )hey are either paid in the form of cash or as a crossed che5ue!

People step into ank mainly for availing services like +old loan and for collection of

issued y +overnment schemes

Benefits that the anks enjoy after the ,inancial Inclusion drive$

Increase in customer ase and higher foot falls in the anks

2

Makkal -ala Paniyalargal are the panchayat functionaries

1Is a type of Percussion instrument

!akkal Nala %aniyalargal have played

a vital role in coordinating the efforts

of bringing people to the banks for

account opening and assisting them in

documentation clari ications


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Increase in the floating deposit ase

ariety in the portfolio of the ank/s credit

+reater utilisation of the +old :oan facility

Private ank/s participation in the ,inancial Inclusion is found to e very less

Banks have not taken any initiative to impart financial literacy! )hey help out the

people #ho enter the ank y assisting them in filling up the forms and guiding them

to the right place

General :3servations

Most of the people felt that the ank account is opened only for the -RD+S purpose

and they do not associate saving hait #ith the ank! )his is mainly ecause of the

fear that small amount cannot e saved in ank and also they cannot afford to spend

a day/s #ork for depositing the money

Dducation on long term financial planning is very much re5uired for the people

Short term financial needs are generally met y the money that they keep safe in the

house

)he farmer respondents e'pressed that they have opened a ank account for

availing agriculture loan

+enerally traders have a very small #orking capital and they #ork on rotation of

money and they are found to e having a good savings hait primarily through

nearest post office

Insurance is perceived to e a comfortale saving medium as they #ere persuaded

y their relative or friend #ho #orks as an insurance agent to start a policy! )he

insurance agent comes to the door.step to collect the premium amount!

)he financial Inclusion drive has gained momentum in this district after the ank

account opening #as made mandatory for the -RD+S eneficiaries! )he village


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panchayat has taken the initiative to coordinate the account opening process for the

villages!

!akkal Nala %aniyalargal collects the re5uired details$ photographs from all the

individuals #ho have the -RD+S jo card and sumits the filled in application forms

to the ank! 8nce the account opening procedure is completed$ the Bank Managers

give the account numers to them$ #hich is then informed to the individuals

In some villages$ Bank Pass ooks are not distriuted to the individuals through the

Makkal -ala Paniyalargal ut they are issued to the Individual itself #hen they step

into the ank for any transaction

o Bank Managers feel that if the person steps into the ank for collecting the

pass ook it #ould e a chance of ac5uaintance and moreover they feel that

it is not #orth giving the passook to a person #ho #ould not use the ank

account

o 8n the other hand$ the account openers feel that they may have to forgo a

day/s #ork if they go to the ank for just collecting the passook! So they

keep postponing this #ork until they have a -DD& to use the ank account

In some villages even after the anks have issued the pass ooks in ulk$ they

haven/t reached the respective account holders! )hey #ere collected and kept in the

Panchayat office! It #as informed that they #ould e issued to the respective

account holders #hen they have a need to use the pass ook

!akkal Nala %aniyalargalhave een greatly helping the ank ranches in gathering

and coordinating the people for account opening ut their remuneration is too lo#

compared to the volume of #ork performed y them! Increasing the

remunerationFincentives to these #orkers #ill help in increasing the pace of financial

inclusion!

@ages are disursed on a #eekly asis and the amount of #ages to e paid to each

eneficiary is calculated on the numer of days heFshe #as present for the #ork!

)he technical and 5ualitative aspects of the #ork are inspected and the


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compensation is decided accordingly$ #hich is then divided among the numer of

persons #ho have een present for the #ork!

@eekly #ages funds are released to the +ram Panchayat y #ay of che5ue #hich

the +ram Panchayat gets credited into its ank account specifically opened for the

purpose of -RD+S! )he amount is #ithdra#n from this account and the actual #ages

is disursed in cash to the eneficiaries!

)hough -RD+S has a provision to credit the #ages directly into the eneficiary/s

accounts$ it is not follo#ed yet

"s of no#$ the ank accounts are opened ecause the #eekly #ages has to e

credited into the account of the eneficiary if heFshe is not availale on the day of

salary! But this method is not practised yet!

In some villages it #as oserved that people get Rs! 62 as a daily #age under -RD+S!

)he reason for this #age cut is that the #ork has not een performed to the )"R+D)

:IMI)! )he actual #age a person has to get is Rs! 70 per day

Infrastructure and the man po#er re5uirements are the major challenges from the

ank/s side if the -RD+S #age is directly credited into the individual/s account

" large section of people have a perception that the government is issuing them

ank pass ooks free of cost and if they get an account no# they need not run for

opening an account #hen they receive any che5ues from government schemes or

insurance! Savings doesn/t seem to the primary ojective of opening an account!

In Indian 8verseas Bank$ "ppantirupathi it #as oserved that je#el loan #as notprovided to the -o.,rills account holders ecause the system does not allo#

entering a loan transaction for a -o.frills account

In some cases it is seen that the -o.frills account pass ook is lank #ith no

transactions! But the same person has done a considerale amount of savings in the

S(+ account! )hey use their -o.,rills account for availing loan or for passing che5ues

ut they don/t have any individual savings as such


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eeraperumalpuram is a village located 2 kms from

the nearest ank ranch %anara Bank$ alligudi! ,or

any transaction$ a person has to travel y t#o uses to

reach the ank! In this village people have a healthy

savings hait through the Post office #hich is located

#ithin the village! People in this village can enefit a

lot if the ank comes to the door steps of the people

"s of no#$ Business %orrespondence has not een used

in any ank ranches! )here is a huge savings potential

#hich could e tapped if the ank/s services are made availale in the door steps of

the customers

Banks have not e'tended the 8verdraft facility to the -o.,rills account and the

people are not even a#are of such a facility

" communication letter #as sent from SBI to the Individual households informing

their account numer and other details! Dntire

communication is done in Dnglish language

;Refer picture

from the ank mentally alienates the customer

from the ank

Money :enders play a major role in catering to the finance needs of the rural people

y providing them the financial assistance at the times of emergency$ at their

doorsteps #ith no collateral or guarantor ut charging a high interest rate!

)he Money lending usiness typically #orks like #hen there is a need for Rs!

0$000$ the Money :ender enters the orro#ed amount in his ooks ut gives only

Rs! 7$300 in hand! ,rom the ne't day$ the orro#er has to pay Rs! 00 per day for

00 days to repay the det! )his type of loan is generally given for productive

activities like running a petty shop or for fulfilling the last fe# days cash re5uirement

for "griculture

I am doing small savings in

my house which is generallyspent for repaying the Money

Lenders

A quote by a villager


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)his e'ample e'emplifies the potential of a person to give Rs! 00 to a Money lender

and these people pay them promptly #ith the fear that the unpaid interest #ould e

added to the principal amount in case of default

Banks have the provision to issue deit cards for the -o.,rill account holders ut the

ankers feel that the deit card could also e used as a property to e mortgaged as

it is een follo#ed #ith the old age pension pass ooks!

#hapter ?2 Business #orrespondent Model


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"fter the study in the Madurai &istrict$ a one.day visit #as made to -anmangalam village

located in %hennai #here Business %orrespondent Model #as implemented and is e'ecuted

successfully!

>ma Mahes#ari #orks as the Business %orrespondent ;B%< in this village and she started

operating from ,eruary 2006! She #as identified through the (ead Master of the school

located in the village after #hich a short training #as given on operating the Dlectronic &ata

%apture Machine! She #as also given training in asic accounts ook handling #hich she

already had e'perience y handling fe# S(+s!

:perations of a Business #orrespondent

! )he B%/s first task is #as to campaign the need for opening a ank account and

e'plain the people aout the ease and convenience of operating a ank account

through the machine from their door steps

2! )he necessary details of the applicants are captured along #ith their photograph and

fingerprint #ith the help of the ,I-8 operatives

1! )he collected data is transferred to the ank/s %ore Banking System for the purpose

of opening -o.,rills account! "t the same time the data re5uired for preparation of

smart cards is used y ,I-8

! Smart cards are issued to the account holders through the B%! " Master card is also

issued to each B%F%SP #ho acts as an agent to the ank offering the anking

services to the account holders

3! Dach day$ B% has to Gsign.in/ using the land.line phone conncetion to the ank/s

dataase$ in order to e ale to carry out anking transactions during the day$ the B%

has to Gsign.off/

4! )he B% starts at pm daily and she reaches all the households in her village #ith the

,I-8 machine and cash that may e re5uired for a day/s transaction

&ustomer 'ervice %oint


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In order to have a etter understanding of the B% model and functioning$ it is pictorially

represented elo#$

Pic1: Smart card that stores the account information and Finger print details

Pic: FI!" #achine and the smart card inserted into the slot

Pic$: Sign Board that is placed in front of the residence of the B%


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Pic&: B% reaches all the households in the village

Pic': Initial authenticated of the (ccount holder by inserting the card and finger print

authentication

Pic): (mount to be deposited


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Pic*: Finger print authentication for deposit

Pic+: ,eposit Slip -eneration


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Pic: %opy of ,eposit /eceipt given to the account holder

#hapter 72 !ecommendations @ #onclusion


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!ecommendations for improvement

,ollo#ing recommendations may e made in order to see further improvements in the

e'ecution of the ,inancial Inclusion project

It #as oserved that there is lot of potential for implementing the Business

%orrespondent as there is lot of #illingness sho#n y the people to save!

Implementation of this model enefits the account holders as #ell as the ankers to

a greater e'tent

In order to purchase the Dlectronic &ata %apture Machine$ Smart cards all the anks

in the district can place a ulk order to a vendor! )his can help the anks to reduce

the cost of purchase and to negotiate terms and services #ith the vendor

Special "#areness and outreach activities should e conducted to ensure that all

concerned laourers$ including #omen are educated on the various aspects of

personal finance planning and aout using the ank account!

"s soon as the account is opened$ passooks have to e issued to the account

holders! In some cases it #as oserved that either passooks #ere not issued or the

issued passooks did not reach the eneficiaries

Many account holders #ere not even a#are of the purpose of opening the ank

account and having passook! )hey #ere under the impression that holding a ank

passook might entail them to have some assistance through +overnment schemes

or result in getting loans in the later stage! Banks have to take necessary action on

this perception y constantly reaching out to the villages and stress upon the need

for saving

"ny letter communication from the anks should e addressed in the local language

or the language of their preference

Routing the +overnment Scheme funds is one of the efficient #ays to control the

leakage of funds through intermediaries as the funds reach the eneficiaries directly!

But efore implementing the direct crediting of money into the eneficiaries/


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accounts it is very important to make sure everyody in the district possess ank

account

"s majority of the population feel that anks are located far from their residence$ it

is very important to take the anking services to their doorsteps! It has to e clearly

understood that this is a Push MarketN and the anks have to reach out to them to

initiali=e the anking haits in them

)hough the present active account users are very lo#$ they can e effectively used to

propaganda the need for saving! W-+ -> M-;*N #ill e an effective medium to

communicate this message

Banks have to #ork in the convenient hours for laourers as most of them go to

#ork early in the morning and come ack at around 4pm! Banks have to allocate a

specific time in the evening especially to meet the needs of the laourers

Banks should leverage technology to the ma'imum to induce the ne# account

holders to use and transact the accounts more and save more

Best practises follo#ed y a ank for some specific prolem has to e documented

and shared among other anks #ithin the district on a periodic asis

D'ternal "gencies may e employed to make a post implementation survey in the

region and the feedack on the situation at the ground level may e shared

&istrict "dministration and :ead Bank has to take necessary steps to conduct

#orkshops to sensitise the anks$ -+8s$ B%FB,s and other parties involved on the

need for effective utilisation of ank accounts

Bank Branches have to e financially helped in upgrading the infrastructure

re5uirements and to meet the man po#er shortage! )he anks that are performing

etter in ,inancial Inclusion may e incentivised through infrastructure support from

RBI

Bankers have to make a field visit to their service area to have a etter

understanding of the customer/s needs! )his also enales the Bankers to sensitise

the financial situation of the people


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Implementation Model

,ollo#ing is the proposed 9.stage implementation model for the ,inancial Inclusion project$

"fter studying the current implementation strategy of the ,inancial Inclusion project$ a

modified model is recommended!

Stage( ousehold SurveyA Based on the village profile particulars$ the individual ank

ranches have to form teams of ank officials and S(+s! )he team has to e formed in the

village level so that each village in the lock assemles its o#n team! )he team shall visit the

individual householdsC fill the survey form that contains particulars of the households and

their #illingness in opening account! )he particulars also should contain details of e'isting

account holders of the household!

Stage% Generating "u3lic A/arenessC"u3licity for account opening2 In order to

promote this ,inancial Inclusion Project$ Banks can plan to conduct special camps and

advertise using &oor to &oor %ampaign$ Murasu$ ne#spapers and local channels! ) ads


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could e an effective medium of communicating as the State +overnment of )amilnadu has

issued colour television to all households at free of cost! Small e'hiits of %omics in the

@eekly Market can also e an effective channel of communication!

Stage) 5o;Frills account openingA ,or the #illing people$ accounts are to e opened in

the household itself$ y taking photograph and filling the account opening form! In order to

make the account opening process easier$ the anks has to conduct account opening camps

y gathering people of the village in a common place! Simplified E% norms shall e

follo#ed! )he photograph charges shall e ared y the ank itself! "lso as a token of

having accepted the opening of the account$ the officials have to issue an ackno#ledgement

slip! "ccount opening camps shall e conducted on #eekends so that it is easier for the

people to assemle for the session! Bank employees from other locks$ -+8s$ S(+

volunteers can e trained and used to assist the documentation process!

Stage. Financial 9iteracy sessionA )he success of ,inancial Inclusion does not ends

#ith opening a -o.,rills account$ it can reach its full momentum only if there is a constant

connect et#een the ank and the customers in the initial stages of account opening!

,inancial :iteracy programmes can e conducted at a pulic gathering and it has to cover

the asic aspects of ank account like credit$ deit$ interest rate etc!$ in a dramatic manner!

%omic posters and ooks in the local language could e used! RBI shall pitch in at this stage

and drive through the process!

Stage& Follo/;up campsA ,ollo#.up camps are to e conducted for t#o purposed! ,irst

reason is to have a constant connection #ith the customers! Second reason is to follo#.up

on the ank passook issue and resolving other discrepancies in the process! )he ojective

of a follo#.up camp is to make sure everyody is supplied #ith the ank passooks!

Stage- Sanction of :verdraft @ G##CD##A Based on the household re5uirements and

eligiility 8ds$ +%%s and %%s shall e provided to them! >sually during initial stages 8ver

&raft of Rs!300 is given and on successful repayment of it$ the amount is increased up to

ma'imum of Rs!3000! )his #ill e a great opportunity to grocery shop o#ners and small

traders #ho #ork out of a small #orking capital and invest the money in productive

activities!


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Stage? "eer !evie/A "fter the implementation of the project$ a report shall e prepared

y the respective Bank Branches on the status of the ,inancial Inclusion project in their

service area! "fter this$ a peer revie# committee shall e constituted for each loc

comprising of a anker$ -+8 memer and a panchayat official! )his team #ould survey

villages in another lock randomly and collect details regarding the reach of the ,inancial

Inclusion$ issue of passooks$ sanction of 8&$ +%%F%%$ local prolems of account usage

pertaining to that lock and shall sumit the report to the :&M! " similar team from another

lock shall do the same survey cyclically! Peer revie# #ill help the System in the follo#ing

#ays$

+ives a third party perspective of the system

Dnales kno#ledge sharing et#een the locks and sharing of est practises

that may e follo#ed in different locks for a particular issue

Dffective scrutiny of the system

Stage7 !outing Government scheme fundsA ,inancial Inclusion drive can e paced up

y disursing the +overnment Benefit payment directly into the eneficiaries account! )his

not only provides a distinct advantage to the +overnments in ensuring accurate and timely

payments to the eneficiaries ut also minimi=es the instances of leakages$ frauds and role

of intermediaries!

StageE "eriodic monitoring of the ImplementationA "ny reform initiative can e

successful only if it is fle'ile enough to accommodate changes for the etterment of the

system! )he -o.,rills account functioning should e constantly monitored and necessary

assistance shall e given to the customers$ Banks and also to other parties that are involvedin the system!

#onclusion


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No- Frills account holders - Questionnaire

&istrict Madurai illage Bank

Branch

< -ame of the respondentA OOOOOOOOOOOOOOOOOOOOOOOOOOOOOO "ge A OOOOOOOOO

2< +ender A MaleF,emale

1< Dducation :evel

a< Belo# 3th Std! < Belo# 2th c< +raduate K "ove

d< )echnical Studies e< -o Dducation

< 8ccupation

a< ,armer < Self Dmployed c< Pulic FPrivate Sector

d< "gricultural :aour e< )rader f< -on "gricultural laour

g< >nemployed h< (ose #ife i< 8thers$ SpecifyAOOOOOOOOOOOO

3< Monthly income ;Rs!< A a< 300 < 300 1000 c< 1000 3000 d< Q3000

4< )otal -umer of "dult memers OOOOOOOOO of #hich having OOOOOOOOO ank account

6< @hen #as your Bank account opened OOOOOOOOOOOOOOOOOO

7< &istance of the ank from your residenceA

a< m < .1 ms c< 1.3 ms d< Q3 ms

9< (o# many transactions #ere made after opening your account

a< Lero < to 1 c< to 0 d< Q0

0< If you are not using Bank account$ #hat is the reason

a< :ack of a#areness of anking services < Banks located far a#ay

c< Banks not functioning in the convenient time d< %omple' process involved transactions

e< ,eeling that small amount cannot e saved in anks f< Banks officials not polite to guide us

g< 8thes$ Specify OOOOOOOOOO

< @hat is the reason for opening -o.,rills "ccountN

a< ,or doing savings < ,or availing loans

c< Receiving payments from +ovt schemes d< %ompulsion y ank officials

e< )o deposit %he5uesF&& f< Bank account #as offered at my

doorsteps

e< 8thers$ SpecifyOOOOOOOOO


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2< &o you have a regular savings hait A EesF-o

(Questions 13, 14 & 15 to be answered only if the participant has a saings habit!

1< @hat is the purpose of savings

a< Dducation of children < Small )rade F Petty Shop c< Purchasing a house

d< Social functions e< %onsumption needs f< others$ Specify OOOOOOOOOO

< @hat is your most preferale source of saving

a< eeping safe in home < S(+ c< Bank

d< Post 8ffice e< %hit funds f< %o.operative Societies

f< 8thers$ SpecifyOOOOOOOOOOOO

3< @hat is the reason for choosing the channel for saving other than anks

a< Dase K %onvenience of transaction < (igh Interest rate

c< &oor Step availaility d< :ack of "#areness of other means

e< "vailale at the time of emergency f< 8thers$ Specify OOOOOOOOOOOOOOOO

4< In case of a need$ from #here do you usually orro#

a< Bank < %ooperative Societies c< S(+

d< Money :enders e< ,riendsF RelativesFPa#n Brokers f< 8thers$ Specify OOOOOOOOOO

("f the answer for aboe #uestion is (d! or (e! then answer Q$ 1% & 1!

6< @hat is the reason for orro#ing from the aove source

a< :ocated neary < :esser proceduresFdocumentation

c< %ash availale at emergency d< :ack of credit from other means

e< "ny time access of cash f< 8thers$ Specify OOOOOOOOOO

7< (as any of your property een mortgaged #ith money lenders EesF-o

9< "re you a#are of the 8&$ +%% facility in your -o.,rills accountN EesF-oF-o idea

20< If yes$ have you utilised the 8verdraft facility in your ank EesF-o

2< @hat is the reason for not using the 8verdraft facility

a< -o financial need < Poor response from anks officials

c< ,ear of more interest d< ,ear of hidden charges

22< &o you have any investments in goldFhouseF vehicle EesF-o

21< @hat are various facilities that you #ould e re5uiring from the ank for effective usage of the ank services


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Anne1ure;II2 uestionnaire for Bank Branches

Bank Branches - Questionnaire

-ame of the Bank :ocation

"rea of 8peration -o of villagesFBlocks

! &etails on ,inancial InclusionA

S! -o Particulars &etails

-umer of households in the area

2-umer of households covered

1 -o! 8f -o.,rills account opened

-o! 8f operative accounts

3 -o! 8f non operative accounts

2! (as any survey een conducted to measure the reach of ,inancial Inclusion Initiative EesF-o

1! @hat are the offers made to open an account

! @hat are the various channels used for creating a#areness and pulicity among people "lso$ Rank the various

channels used for pulicity! ; eing the most effective channelsha )horat$ &eputy +overnor of the Reserve Bank of India at the th

Programme on (uman &evelopment and State ,inances jointly organised y %ollege

of "gricultural Banking$ Reserve Bank of India$ >-&P and the Planning %ommission$

at %"B$ Pune on ?anuary 4$ 2004

1! "rticle y Shri! ! :DD:"&("R$ $ &eputy +overnor of the Reserve Bank of India in

Reserve Bank of India Bulletin$ ?anuary 2004 edition on the topic of )aking Banking

Services to the %ommon Man .,inancial InclusionN

! Speech delivered y Smt! >sha )horat$ &eputy +overnor$ Reserve Bank of India at

the (M).&,I& ,inancial Inclusion %onference 2006 on ?une 9$ 2006 at @hitehall

Place$ :ondon$ >

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