FINANCIAL INCLUSION IN BANKS

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FINANCIAL INCLUSION IN BANKS, STRATEGY OF BANKS, BCBF (BUSINESS CORRESPONDENT AND BUSINESS FACILITATORS) MODEL, FINANCIAL LITERACY CENTRES AND STATUS OF BANKS INCLUDING LATEST STEPS PROPOSED IN THE MONETARY POLICY REVIEWED BY rbi ON 03.05.2013

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FINANCIAL INCLUSION IN BANKS, STRATEGY OF BANKS, BCBF (BUSINESS CORRESPONDENT AND BUSINESS FACILITATORS) MODEL, FINANCIAL LITERACY CENTRES AND STATUS OF BANKS:

FINANCIAL INCLUSION IN BANKS, STRATEGY OF BANKS, BCBF (BUSINESS CORRESPONDENT AND BUSINESS FACILITATORS) MODEL, FINANCIAL LITERACY CENTRES AND STATUS OF BANKS BY R.K.GUPTA B.Com (Hons); CAIIB; AIB (London); LL.B (I) 5/9/2013 1

Topics to be covered during the sessions:

T opics to be covered during the sessions Definition of financial inclusion What has been left so as to enforce financial inclusion by the GOI What strategies banks are following to implement FI & How effective it is? Difficulties in opening no frill accounts &Problems being encountered? BC/BF model effectiveness. Difficulties in Issuance of KCC and GCC cards/OD facility. Status of implementation of Electronic Benefit Transfer of funds ( EBTF) in banks. Issues if any. Status and issues in opening Financial Literacy centers and use thereof . Latest guidelines issued by RBI through monetary Policy declared on 03.05.2013 Plan for financial inclusion for the period from 2013-2016 5/9/2013 2

DEFINITION OF FINANCIAL INCLUSION:

DEFINITION OF FINANCIAL INCLUSION Financial Inclusion is defined as “ 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 .” RBI CIRCULAR 12.08.2011 A pproach is based on the fundamental principle of 5A’s of ensuring A dequacy and A vailability of financial services to all sections of the society through the formal financial system covering savings, credit, remittance, insurance, etc. and, at the same time, increasing A wareness of such services and ensuring A ffordability and A ccessibility of the appropriate financial products through a combination of conventional and alternative delivery channels and technology enabled services and processes. 5/9/2013 3

WHAT HAS BEEN LEFT SO AS TO ENFORCE FINANCIAL INCLUSION BY THE GOI:

WHAT HAS BEEN LEFT SO AS TO ENFORCE FINANCIAL INCLUSION BY THE GOI Types of Financial Exclusion : exclusion from payment system : not having access to bank accounts ( ii) exclusion from formal credit markets leading to approaching informal/ exploitative markets Post-Nationalization (1969) : Expansion of branch network to unbanked areas – Increased lending to agriculture, SSI, business – Recent trend : access to basic banking services Who have been excluded so far: Marginal farmers – landless labour – oral lessees – self employed – unorganized sector – urban slum dwellers – migrants – ethnic minorities – socially excluded groups – senior citizens – women – NER, Eastern & Central regions most excluded FI essential for inclusive growth which is necessary for sustainable overall economic growth – In developed economies, focus is on small population – In developing economies (India), focus is on majority excluded 5/9/2013 4

WHY FINANCIAL INCLUSION?:

WHY FINANCIAL INCLUSION? Out of total 1065 million population, 514 million are female. Out of 6,00,000 rural habitations across the country, only 30,000 rural habitations have commercial Bank Branches 60% of the population do not have Bank Accounts and life insurance cover is less than 10% 51.4% of the farmer households are financially excluded from both formal and informal sources Out of the total farmer households , 27 % access formal sources of credit 73 % of the farmer households access funds from informal sources like local money lenders

SELECT INDICATORS OF FINANCIAL INCLUSION – CROSS COUNTRY ANALYSIS:

SELECT INDICATORS OF FINANCIAL INCLUSION – CROSS COUNTRY ANALYSIS Country Number of Branches Number of ATMs Bank credit Bank deposits (per 0.1 million adults) (as per cent of GDP) India 10.91 5.44 43.62* 60.11* Austria* 11.81 48.16 35.26 32.57 Brazil 13.76 120.62 29.04 47.51 France 43.11 110.07 56.03 39.15 Mexico 15.22 47.28 16.19 20.91 UK* 25.51 64.58 467.97 427.49 United States 35.74 173.75* 46.04 53.14 Korea 18.63 250.29* 84.17 74.51 Afghanistan 2.25 0.50 11.95 21.4 Philippines 7.69 14.88 27.57 53.02

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WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?.:

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?. Ultra Small Branches being set up between the base branch and BC locations so as to provide support to about 8-10 BC Units at a reasonable distance of 3-4 kilometres. Such Ultra Small Branches should have minimum infrastructure such as a Core Banking Solution (CBS) terminal linked to a pass book printer and a safe for cash retention for operating large customer transaction and would have to be managed full time by bank officers/ employees. Such an arrangement would lead to efficiency in cash management, documentation, redressal of customer grievances and close supervision of BC operations . Promotion of SHG/ NGO and appointment of retired bank employees preferably belonging to these areas besides Micro Finance Institutions (MFIs) and other Civil Society Organisations (CSOs) as intermediaries in providing financial and banking services through the use of Business Facilitator and Correspondent models Opening the literacy centres for counselling of the borrowers and the depositors . 5/9/2013 8

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?.:

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?. Implementing the EBTF directly to the credit of the beneficiary for routing MGNREGS, wages and social security benefits including proposed cash transfers in respect of subsidies on Kerosene, LPG and Fertilisers etc . MONETARY POLICY OF RBI AS ON 03.05.2013 With a view to facilitating Direct Benefit Transfer (DBT) for the delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries, it is proposed to advise banks to: open accounts for all eligible individuals in camp mode with the support of local government authorities; seed the existing accounts or the new accounts opened with Aadhaar numbers; and put in place an effective mechanism to monitor and review the progress in the implementation of DBT. Guidelines are being issued separately . 5/9/2013 9

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?.:

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?. Social security pensions, Mahatma Gandhi National Rural Employment Guarantee Scheme ( MNREGS ), National Old Age Pension ( NOAPS ) insurance scheme etc. for the benefit of the poor to avoid leakages. Implementation of ICT (Information and communication Technology) including Mobile , internet, kiosk, ATMs for illiterate ( biometric) and blind persons (Braille language) . At least one third of new ATMs installed should be talking ATMs with Braille keypads and placed strategically in consultation with other banks to ensure that at least one talking ATM with Braille keypad is generally available in each locality for catering to needs of visually impaired persons . Simplification of branch authorization - Domestic Scheduled Commercial Banks have been permitted to freely open branches in Tier 2 to Tier 6 centres 5/9/2013 10

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?.:

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?. Banks have been mandated to open 25 % of all new branches in unbanked rural centers . Know Your Customer (KYC) requirements for opening bank accounts relaxed for small accounts Electronic Benefit Transfer for routing social security payments and other entitlements through the banking channel. Pricing for banks totally freed . Interest rates on advances totally deregulated Making available a minimum four banking products through the ICT based BC model . Banks are requested to ensure opening of Aadhaar Enabled Bank Accounts (AEBA) of all the beneficiaries including those residing in villages with less than 2000 population CIR--- RBI 30.11.11 In addition to introduction from any person on whom KYC has been done, banks can also rely on certificates of identification issued by the intermediary being used as Banking Correspondent, Block Development Officer (BDO), head of Village Panchayat, Post Master of the post office concerned or any other public functionary, known to the bank . 5/9/2013 11

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?:

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI ? Banks prepared Board approved three Year FIPs- April 2010 to March 2013 and as per latest guidelines mentioned in Monetary Policy declared on 03.05.2013 the banks are required a plan of 2013-16 S elf-set targets- FIPs to be integrated with Business plan of the banks. Coverage of unbanked villages, > 2000 & < 2000, Rural brick and mortar branches, Deployment of BCs. No-frill accounts (NFA) to be opened, including through BC-ICT, EBT, KCC, GCC. Specific products to be designed to cater to the financially excluded segments. FIP achievement- Criteria in the performance evaluation of officials of banks. Close Monitoring by Reserve Bank of India- Monthly Reporting- Annual Comprehensive review. 5/9/2013 12

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?.:

WHAT STRATEGIES BANKS ARE FOLLOWING TO IMPLEMENT FI?. Printed material in trilingual form In order to ensure that banking facilities percolate to the vast sections of the population, banks should make available all printed material used by retail customers including account opening forms, pay-in-slips, passbooks etc., in trilingual form i.e., English, Hindi and the concerned Regional Language . MONETARY POLICY DECLARED ON 03.05.2013 The Reserve Bank has prepared comprehensive financial literacy material consisting of a Financial Literacy Guide, a Financial Diary and a set of 16 Financial Literacy Posters. Banks are, therefore, advised to: use the model of financial literacy camps as a tool to achieve the targets set under their FIPs; use the financial literacy material as a standard curriculum in the literacy camps; and be innovative in devising suitable communication channels so that the messages reach the target audience effectively . 5/9/2013 13

HOW EFFECTIVE IT IS?:

HOW EFFECTIVE IT IS? Up to 31.03.2012 the villages having population over 2000 have been covered by 96.4% for the financial inclusion. EBT is one of the products offered under Financial Inclusion, which facilitates payments to reach the intended beneficiaries through bank accounts. This relieves State Government functionaries of cost and time involved in administering the high volume small value payments. Provision of door step banking services in remote areas entails a cost on the banks. The payment of commission by the State Governments for EBT transactions makes the model economically viable and also helps banks to extend their penetration to remote villages. It also provides banks with a business opportunity of linking credit products to the payments. 5/9/2013 14

STATUS OF FINANCIAL INCLUSION AS ON 31.03.12:

STATUS OF FINANCIAL INCLUSION AS ON 31.03.12 5/9/2013 15

ISSUES AND CHALLENGES:

ISSUES AND CHALLENGES Demographic Spread – How to provide banking services to villages with low population – Viability? Appropriate Business Model Yet to evolve - Availability of Suitable products. Efficient Delivery Mechanism – being experimented. Financial Literacy – Status of awareness. Lack of ownership by banks in implementation under Financial Inclusion . Issue has been raised by banks with RBI in April 13 Lack of co-ordination. ICT Based BC Model - Yet to stabilize. 5/9/2013 16

WAY FORWARD FOR EBT IMPLEMENTATION:

WAY FORWARD FOR EBT IMPLEMENTATION Keeping in view the need to spread the banking habits to all villages, it is advised that one district – many banks – one leader bank mode l may be adopted henceforth for EBT implementation. In this model, all the banks present in the district participate in EBT, though for administrative convenience the State Government deals only with one leader bank. State Government shall designate the leader bank, in consultation with the Regional Office of RBI and the SLBC, who will obtain the funds from the State Government and in turn will arrange to transfer funds through interbank transfer to other banks for credit to the accounts of ultimate beneficiaries’ account on a commission basis. The commission paid by the State Government may be from the amount which will accrue to them due to non-incurring of expenses involved in manually administering high volumes of small value payments. The revenue sharing model is to be decided mutually amongst participating banks. Today , with the availability of various modes of EFT like RTGS, NEFT and NECS, the leader bank is in a position to transfer funds to other participating banks speedily and cost effectively. 5/9/2013 17

WAY FORWARD FOR EBT IMPLEMENTATION:

WAY FORWARD FOR EBT IMPLEMENTATION However , there is no prohibition on adoption of one district – one bank model approach where the model exists and is already working provided one bank is in a position to provide whole range of minimum banking services under this dispensation. However , all the operational glitches will have to be resolved mutually by the State Government and the concerned bank . EBT implementing bank, will in such case have to follow regulatory stipulation that brick and mortar branches are built within 30 km radius of each of the BC outlets in these villages. Needless to say, the FIP implementing bank's responsibility will be secondary in the allotted villages of such districts till they also obtain the EBT mandate. However , banks will continue opening banking outlets in the villages allotted to them under FIP and speed up enrolment of customers. 5/9/2013 18

WAY FORWARD FOR EBT IMPLEMENTATION:

WAY FORWARD FOR EBT IMPLEMENTATION As EBT Scheme is a part of the overall FIP, the EBT accounts is required to provide whole range of permissible banking services viz. deposit scheme, preferably a variable recurring deposit will in-built Overdraft (OD), remittance and entrepreneurial credit products in the form of GCC/KCC . The State Governments should not stipulate any condition that prevents EBT accounts from being used for other banking transactions. Whenever the State Government plans to implement EBT scheme through banks in future, the details of the scheme should be first discussed in the SLBC. For example, these accounts cannot be opened as joint accounts of the beneficiary with a State Government agency. Similarly , in some states, EBT accounts are made dormant when there are no transactions in the account for 2-3 months. This is not permissible as per regulatory guidelines. Thus in such cases, neither the account can be made inactive nor can the amount be returned to State Government . The concerns of State Government can be addressed by providing an exception report of those accounts where there is no transaction for 2-3 months. 5/9/2013 19

WAY FORWARD FOR EBT IMPLEMENTATION:

WAY FORWARD FOR EBT IMPLEMENTATION State Government shall designate a nodal department for administration of each of the social benefit schemes. The provisions of MOU signed between Government agency and the banks should be consistent with the extant guidelines and notifications of RBI. The Nodal Department shall provide the list of beneficiaries for the district to be enrolled along with demographic details to the bank. Banks shall arrange for enrolment and creation of bank account of the beneficiary. The Nodal Department shall maintain a savings account in its name with the leader bank. The department’s account in the bank will be credited with a consolidated amount by the Treasury Bank of the State Government. The department will send instructions to the leader bank each month containing with the updated list of beneficiaries in electronic form. The bank will then debit the savings bank account of the Nodal Department and arrange for crediting the accounts of beneficiaries. The Management Information System as required by the State Governments will be strengthened automatically as payment information will flow electronically and seamlessly from end to end so that a data base is created for generating various types of reports. 5/9/2013 20

WAY FORWARD FOR EBT IMPLEMENTATION:

WAY FORWARD FOR EBT IMPLEMENTATION Achieving full financial inclusion is crucial for implementation of EBT and direct transfer of subsidies. As some of the beneficiaries could be residing in a village with population less than 2000 requisite infrastructure should be planned and put in place to cover all the EBT beneficiaries. SLBC should immediately prepare a plan of action to cover all unbanked villages including having population of less than 1000. T he allocation of these villages may be done on the basis of geographical proximity. In respect of States/Districts where the EBT scheme is yet to be implemented, this presents an opportunity for the banks to put in place the requisite infrastructure to cover all the unbanked villages irrespective of the population criteria. This will strengthen the position of the banks to provide services to all the EBT beneficiaries whenever State Government decides to implement EBT. 5/9/2013 21

WAY FORWARD FOR EBT IMPLEMENTATION:

WAY FORWARD FOR EBT IMPLEMENTATION Once banking services are extended to all villages under the FIP, convergence between the EBT Scheme and FIP would be automatically realized. Once FIP is fully implemented covering all the unbanked villages and a UID number is issued to all the villagers, a ‘model’ will emerge where the customer will have the option to transact with the bank of their choice in any village by using UID enabled Micro ATMs. This will make customers, less vulnerable to local power structures, and lower the risk of being exploited by BCs. Customers will be able to transact electronically with each other as well as with individuals and firms outside the village. This will reduce their dependence on cash, and lower costs for transactions . As banking is a public good, this is essential in the interest of public policy. 5/9/2013 22

RECENT INITIATIVES-FINANCIAL INCLUSION:

RECENT INITIATIVES-FINANCIAL INCLUSION Monetary Policy Actions – Mandated SLBCs to prepare a roadmap for covering all unbanked villages of population less than 2,000 and allot these villages to banks for providing banking services in a time-bound manner. Advised banks to open intermediate brick and mortar structure between the base branch and BC locations. These structures having minimum infrastructure like a CBS terminal, pass book printer, safe for cash retention, etc. will be at a reasonable distance of 3-4 kilometers and will provide support to about 8-10 BC units – Will lead to efficiency in cash management, documentation, redressal of customer grievances. Satellite offices in the form of Ultra Small BC outlets are also mandated and being encouraged Advised sponsor banks to formulate Financial Inclusion Plans for RRBs. Progress to be monitored by NABARD and Regional Offices of RBI. 5/9/2013 23

RECENT INITIATIVES-FINANCIAL INCLUSION:

RECENT INITIATIVES-FINANCIAL INCLUSION Disaggregation of FIP from Head Office to branch level- Banks already advised to put in place a mechanism to monitor the progress at the branch level periodically . Lead Bank Scheme - Metropolitan Areas—Monetary Policy on 03.05.2013 At present, the Lead Bank Scheme (LBS) is applicable to all districts in the country, excluding districts in metropolitan areas. However, the challenge of financial exclusion is widespread in metropolitan areas also, especially amongst the disadvantaged and low-income groups. With the objective of providing an institutional mechanism for coordination between government authorities and banks, facilitating doorstep banking to the excluded segment of urban poor, and to implement DBT, it has been decided to: • bring all districts in metropolitan areas under the fold of the LBS. 5/9/2013 24

Recent Initiatives – Financial Literacy :

Recent Initiatives – Financial Literacy Financial Literacy & Financial Inclusion should go together Financial Stability Development Council has been mandated to focus on Financial Inclusion and Financial Literacy. Discussion with NCERT/CBSE and State Boards- Efforts on to include financial education curriculum in school education. Financial Literacy Centres to be set up in all 630+ LDM offices – All rural branches of Scheduled Commercial Banks to undertake FL activities. National strategy on financial education being prepared. 5/9/2013 25

RBI-22.01.2009-100 per cent Financial Inclusion - Evaluation by external agencies- Broad findings:

RBI-22.01.2009- 100 per cent Financial Inclusion - Evaluation by external agencies- Broad findings S tudies were conducted in 26 districts in the states of Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Orissa , Punjab , Rajasthan and West Bengal. The findings reveal that although the State Level Bankers Committees (SLBCs) have declared several districts as 100% financially included, actual financial inclusion has not been to that extent in all the districts. Further , most of the accounts that have been opened as a part of the financial inclusion drive have remained inoperative due to various reasons. There is a need for SLBC/DCCs to actively step up the awareness with regard to 'no frills' accounts as this continues to be poor in many districts . 5/9/2013 26

RBI-22.01.2009-100 per cent Financial Inclusion - Evaluation by external agencies- Broad findings:

RBI-22.01.2009- 100 per cent Financial Inclusion - Evaluation by external agencies- Broad findings In order to sustain the momentum for financial inclusion, banks are advised to Ensure that steps are taken to provide banking services nearer to the location of the no frills account holders through a variety of channels including satellite offices, mobile offices, business correspondents , etc.; Consider providing General Credit Card (GCC )/small overdrafts along with no-frills accounts to encourage the account holders to actively operate the accounts; Conduct awareness drives so that the no-frills account holders are made aware of the facilities offered; Review the extent of coverage in districts declared as 100% financially included so as to meet the gaps in banking facilities to those desirous of obtaining such facilities; and 5/9/2013 27

BC/BF MODEL EFFECTIVENESS.:

BC/BF MODEL EFFECTIVENESS . Financial Literacy & Financial Inclusion should go together Financial Stability Development Council has been mandated to focus on Financial Inclusion and Financial Literacy. A technical group on Financial Inclusion and Financial Literacy under aegis of FSDC is coordinating the efforts of all Financial Sector regulators. Discussion with NCERT/CBSE and State Boards- Efforts on to include financial education curriculum in school education. Financial Literacy Centres to be set up in all 630+ LDM offices – All rural branches of Scheduled Commercial Banks to undertake FL activities. National strategy on financial education being prepared. 5/9/2013 28

DIFFICULTIES IN ISSUANCE OF KCC AND GCC CARDS/OD FACILITY.:

DIFFICULTIES IN ISSUANCE OF KCC AND GCC CARDS/OD FACILITY . Attitude of the Bank Officials Details of the land holding furnished by the P atwari Recovery of the amount Lacklustre approach of tehsil authorities after filing RCs. End use of funds Accountability Pre and post sanction report Delay in disposal Lack of knowledge Lack of confidence Pressure of local S ahukars Political intervention for write off and effect on the attitude of the borrowers. Availability of good seed and fertilizers. Benefit of subsidy Number of accounts /borrowers VS employees in the branch. VS incentive VS corruption 5/9/2013 29

OBJECTIVES OF THE FLCC—4.02.09 :

OBJECTIVES OF THE FLCC—4.02.09 To provide financial counselling services through face-to-face interaction as well as through other available media like e-mail, fax, mobile, etc. as per convenience of the interested persons, including education on responsible borrowing , proactive and early savings, and offering debt counselling to individuals who are indebted to formal and/or informal financial sectors; To educate for financial products and services available from the formal financial sector Credit counselling Savings counselling Interest in local terms i.e. monthly basis and the way of interest calculation in deposit and advances. Management of debts for borrowers in distress give due emphasis to customers' rights under fair practices code, benefits of nomination facilities, operation of accounts, etc. The choice of finally accepting or rejecting a debt restructuring proposal suggested by the FLCCs may be left to the bank/ banks concerned. However, in case of non-acceptance or rejection of restructuring proposals forwarded by FLCCs by banks, they may give the reasons in writing to FLCC in the interests of transparency. The FLCCs would, however, not involve themselves in recovering and distributing money. This may be left to the bank concerned, or the bank having the largest exposure to act on behalf of all the banks. 5/9/2013 30

OBJECTIVES OF THE FLCCS—4.02.09 :

OBJECTIVES OF THE FLCCS—4.02.09 FLCCs should not, however, act as investment advice centres /marketing centres for products of any particular bank/banks. Counsellors may refrain from marketing / providing advice regarding investment in insurance policies, investment in securities, value of securities, purchase/ sale of securities, etc., or promoting investments only in bank’s own products. Qualification of the in charge of the FLCC. The Reserve Bank's College of Agriculture Banking, Pune, Bankers' Institute of Rural Development, Lucknow or the training colleges of banks may consider conducting training programmes for the counsellors 5/9/2013 31

MONITORING AND OTHER ASPECT OF FLCCS:

MONITORING AND OTHER ASPECT OF FLCCS Monitoring The functioning of the FLCCs in each State may be monitored by a Committee headed by the Regional Director of the Reserve Bank of India and feedback provided to the banks on a regular basis. The Committee may comprise SLBC convenor bank, other banks, NABARD, IBA, consumer organizations, NGOs working in the area, etc. Transparency / Disclosure of Information To help the customers make informed decisions, all banks may display on their websites necessary information regarding fees, charges, etc. as prescribed vide Reserve Bank circular DBOD.No.Leg.BC.75/09.07.005/2008-09 dated November 3, 2008. The details of the services offered by the FLCCs opened by the banks may also be placed on the websites of banks concerned. 5/9/2013 32

MONITORING AND OTHER ASPECT OF FLCCS:

MONITORING AND OTHER ASPECT OF FLCCS Publicity A great deal of emphasis needs to be given by all institutions to educate the public of the various schemes/ facilities. All forms of publicity, viz. press conferences, workshops, publications, websites, road shows, mobile units, village fairs, etc. should be actively explored. A suitable budget needs to be provided by all banks for the purpose. As part of on going measures for publicity, banks may ensure that the list of counselling centres is appropriately publicised. 5/9/2013 33

FI AS DREAM V/S REALITY:

FI AS DREAM V/S REALITY Achievements cannot be ignored - Nearly 100 Million no frills accounts have been opened by banks so far. When banks started, we were all saying people have no bank accounts, now with bank accounts being opened we are complaining that there are no transactions in these accounts. Banks need to be given time for making these Non functional accounts (NFAs) active. Banks must be able to see Financial Inclusion as a business opportunity. The Technology is critical for this as brick and mortar branches would not be cost effective and that is why BC- ICT model is the key. The market players i.e. banks must be allowed to discover the business and delivery model. To ensure that banks do not get complacent they should be actively encouraged to set targets for themselves and for capturing untapped business in rural areas covering approximately 2/3 rd population of the country . EBT, Remittances and credit products will play a key role in making this experiment a commercial success. 5/9/2013 34

WHY TO BE OPTIMISTIC AND HOW THE DREAM CAN BE A REALITY:

WHY TO BE OPTIMISTIC AND HOW THE DREAM CAN BE A REALITY All stakeholders like RBI, Other sectoral regulators like SEBI, IRDA, PFRDA, etc., NABARD, Banks, Governments, Civil Societies, NGOs, etc. to work together for a sound and purposeful collaboration. Adequate infrastructure such as digital and physical connectivity, uninterrupted power supply, etc . will boost the financial inclusion initiatives. If the EBT scheme succeeds and if Banks are allowed to develop the business and delivery models , operations through BCs would become viable and the number of transactions in these accounts will increase. Demand side initiatives - Create awareness, literacy, national strategy, Curriculum in schools at national level . Sensitization - Efforts to be made so as to bring about cultural and attitudinal changes in the mindset of all stakeholders. 5/9/2013 35

Reasons for Financial Exclusion & Perceptions :

Reasons for Financial Exclusion & Perceptions REASONS FOR FINANCIAL EXCLUSION: Illiteracy (34.62%) Female Illiteracy (45.72%) Distance from the nearest Bank Branch resulting in longer commuting time to the branch Rigid Banking rules and procedures to commence Banking relationship Lack of Awareness of Products and services Psychological and Cultural Barriers Lack of suitable Products tailor made to their needs and infrastructure Involves small value transactions resulting in high transaction cost

Reasons for Financial Exclusion & Perceptions :

Reasons for Financial Exclusion & Perceptions BANK’S PERCEPTIONS SHOULD BE: Financial Inclusion is not just a Regulatory Directive or as Corporate Social Responsibility of Banks Financial Inclusion is now perceived as a commercially viable business which facilitates outreach of banking and financial services to excluded It provides the opportunity to Banks to create capacity building, to support livelihood programs and to add economic value NREG (National Rural Employment Guarantee) and SSP (Special Security Payments shall be easy and to the right person. ICT (INFORMATION & COMMUNICATION TECHNOLOGY)

Basic Savings Bank Deposit Account:

Basic Savings Bank Deposit Account The ‘Basic Savings Bank Deposit Account’ should be considered a normal banking service available to all. This account shall not have the requirement of any minimum balance. 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; 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 Facility of ATM card or ATM-cum-Debit Card; 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’.

Basic Savings Bank Deposit Account:

Basic Savings Bank Deposit Account 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. 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’ 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 LATEST GUIDELINES FOR OPENING OF NEW ACCOUNTS – PROOF OF IDENTITY AND ADDRESS :

RBI LATEST GUIDELINES FOR OPENING OF NEW ACCOUNTS – PROOF OF IDENTITY AND ADDRESS RBI LATEST GUIDELINES DATED 10.12.12 Since introduction is not necessary for opening of accounts under PML Act and Rules or Reserve Bank’s extant KYC instructions, banks should not insist on introduction for opening bank accounts of customers . AADHAAR LETTER FOR KYC PURPOSES In modification of instructions quoted above, banks are advised that they may now accept NREGA Job Card as an ‘officially valid document’ for opening of bank accounts without the limitations applicable to ‘Small Accounts ’. KYC COMPLINACE IN CASE OF SELF HELP GROUPS—RBI CIR DATED 01.04.2013 KYC verification of all the members of SHG need not be done while opening the savings bank account of the SHG and KYC verification of all the office bearers would suffice. As regards KYC verification at the time of credit linking of SHGs, it is clarified that since KYC would have already been verified while opening the savings bank account and the account continues to be in operation and is to be used for credit linkage, no separate KYC verification of the members or office bearers is necessary.

Guidelines for Engaging Business Facilitator-02.07.12--:

Guidelines for Engaging Business Facilitator-02.07.12-- Under the "Business Facilitator" model, banks may use the services of intermediaries such as: NGOs/SHGs Farmers Clubs Cooperatives Community based organizations IT enabled rural outlets of corporate entities Post Offices Insurance agents Well functioning Panchayats Village Knowledge Centres Agri Clinics

Guidelines for Engaging Business Facilitator-02.07.12:

Guidelines for Engaging Business Facilitator-02.07.12 Agri Business Centres Krishi Vigyan Kendras KVIC/KVIB units depending on the comfort level of the bank for providing facilitation services . Such services may include identification of borrowers and fitment of activities; collection and preliminary processing of loan applications including verification of primary information/data; creating awareness about savings and other products and education and advice on managing money and debt counselling; processing and submission of applications to banks; (v) promotion and nurturing Self Help Groups/Joint Liability Groups; post-sanction monitoring; monitoring and handholding of Self Help Groups/Joint Liability Groups/Credit Groups/others ; and ( follow-up for recovery.

Guidelines for engaging Business Correspondents(BCs) 02.07.12:

Guidelines for engaging Business Correspondents(BCs) 02.07.12 The scheduled commercial banks including Regional Rural Banks (RRBs ) and Local Area Banks (LABs) may engage Business Correspondents ( BCs), subject to Due diligence may be carried out on the individuals/entities to be engaged as BCs prior to their engagement . The due diligence exercise may, inter alia, cover aspects such as reputation/market standing , financial soundness, (iii) management and corporate governance, (iv) cash handling ability and (v) ability to implement technology solutions in rendering financial services Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana /medical /Fair Price shops, individual Public Call Office (PCO ) operators , agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own Petrol Pumps , authorized functionaries of well run Self Help Groups (SHGs) which are linked to banks, any other individual including those operating Common Service Centres (CSCs );

Guidelines for engaging Business Correspondents(BCs) 02.07.12:

Guidelines for engaging Business Correspondents(BCs) 02.07.12 NGOs / MFIs set up under Societies/ Trust Acts and Section 25 Companies ; Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act ; Post Offices; and v ) Companies registered under the Indian Companies Act, 1956 with large and widespread retail outlets, excluding Non Banking Financial Companies (NBFCs ). While a BC can be a BC for more than one bank, at the point of customer interface , a retail outlet or a sub-agent of a BC shall represent the bank which has appointed the BC . However , it has now been decided to permit interoperability at the retail outlets or sub-agents of BCs (i.e. at the point of customer interface ), provided the technology available with the bank, which has appointed the BC , supports interoperability, subject to the following conditions: The transactions and authentications at such retail outlets or subagents of BCs are carried out on-line; The transactions are carried out on Core Banking Solution (CBS ) platform ; and The banks follow the standard operating procedures to be advised by the Indian Banks' Association (IBA).

Guidelines for Engaging Business CORRESPONDENT-02.07.12:

Guidelines for Engaging Business CORRESPONDENT-02.07.12 Procedure for engaging BCs The terms and conditions governing the contract between the bank and the BC should be carefully defined in written agreements and subjected to a thorough legal vetting. While drawing up agreements, banks should strictly adhere to instructions contained in the guidelines on managing risks and code of conduct in outsourcing of financial services by banks , issued by Reserve Bank of India on November 3, 2006. The banks will be fully responsible for the actions of the BCs and their retail outlets/sub agents . D. Scope of activities The activities to be undertaken by the BCs would be within the normal course of banking business. The scope of activities of a BC may include identification of borrowers; collection and preliminary processing of loan applications including verification of primary information/data; (iii ) creating awareness about savings and other products and education and advice on managing money and debt counselling;

SCOPE OF ACTIVITIES OF BUSINESS CORRESPONDENT -02.07.12:

SCOPE OF ACTIVITIES OF BUSINESS CORRESPONDENT -02.07.12 processing and submission of applications to banks; promoting , nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit Groups/others ; post-sanction monitoring; follow-up for recovery, disbursal of small value credit; recovery of principal/collection of interest ; collection of small value deposits; sale of micro insurance / mutual fund products/ pension products/ other third party products and receipt and delivery of small value remittances/ other payment instruments .

Redressal of Grievances in regard to services rendered by Business Facilitators/Correspondents:

Redressal of Grievances in regard to services rendered by Business Facilitators/Correspondents Banks should constitute Grievance Redressal Machinery within the bank for redressing complaints about services rendered by Business Correspondents and Facilitators and give wide publicity about it through electronic and print media. The name and contact number of designated Grievance Redressal Officer of the bank should be made known and widely publicised . The designated officer should ensure that genuine grievances of customers are redressed promptly. The grievance redressal procedure of the bank and the time frame fixed for responding to the complaints should be placed on the bank's website. If a complainant does not get satisfactory response from the bank within 60 days from the date of his lodging the compliant, he will have the option to approach the Office of the Banking Ombudsman concerned for redressal of his grievance/s. 5/9/2013 47

Guidelines for Engaging Business Facilitator-02.07.12:

Guidelines for Engaging Business Facilitator-02.07.12 In the Paragraph 93 of the Union Budget announcement made by the Honourable Finance Minister for the year 2008-09 where in it was stated as under: " Banks will be encouraged to embrace the concept of Total Financial Inclusion. Government will request all scheduled commercial banks to follow the example set by some public sector banks and meet the entire credit requirements of SHG members , namely, (a) income generation activities, (b) social needs like housing, education, marriage, etc. and (c) debt swapping"

BUSINESS MODEL CHALLENGES:

BUSINESS MODEL CHALLENGES Being perceived more as an obligation than a business opportunity. Infrastructure issues - Premises, Roads, Power, etc. Less transactions- Non-operational accounts- High volume small value transactions- High Cost -Viability issues. Technology issues- availability of handheld devices, cards, technology partners, operational glitches, Digital connectivity, Turnaround time. Engaging BCs- Associated risks - Lack of professionalism of BCs. BC attrition- inadequate remuneration- Non payment of commission. 5/9/2013 49

ESSENCE OF WORK LIFE AND WORK ETHICS:

5/9/2013 50 ESSENCE OF WORK LIFE AND WORK ETHICS Why work? To purify the mind and the heart ( Chittashuddhi ’ ) and to become wise; to provide public benefit What is work? To nurture each other. It is a form of Yagna , sacrifice. It is the worship of the Divine How to work? With the spirit of renunciation, i.e., Tyag and to serve others without self-interest Spirit of work Excellence and perfection in work (GEETA PREACHES)

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THANK YOU FOR YOUR KIND ATTENTION R.K.GUPTA www.rkguptafinance.in rkgupta1949@hotmail.com

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