1.presentation final

Dr. V.A. JosephM.D. & CEO, South Indian Bank

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Trivandrum Management Association Silver Jubilee Convention

5th February, 2011 @ Thiruvananthapuram

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Financial Inclusion – A Global Picture

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East Asia (China– 42%)South Asia (India -22%)

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Source: IIFL

China’s Growth vs India’s

Number of times China’s growth

over India

Number of times China’s growth

over India

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Inclusive Growth

• Equal Growth Opportunities rather than skewed at the top

• No Geographical/cast/communal/gender barriers

• Reduction in poverty & disparities of income

• Ensuring basic minimum standard of living (education, health,

finance, housing, employment etc.)

• Financial Empowerment

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Financial Inclusion

• Financial Inclusion

– Measures to ensure each house-hold/individual is financially literate

– Each house-holds/individual (urban/rural poor) have access to

banking system (Deposits , Loans , Remittances, Insurance)

– Affordable for the poorest of poor

– Enables beneficiaries of Govt. welfare schemes to enjoy timely

payment

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Indian Banking History

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• RBI which was set up in 1935, nationalized on 1949

• Banking Regulation Act, 1949

• State Bank of India (Bank of Calcutta & later Imperial Bank) in 1806 & its

subsidiaries were constituted later

• 14 banks were nationalized in 1969

• 6 more were nationalized in 1980. (At that point almost 90% of banking

business was under Govt. control)

• Old Generation Private Sector banks started functioning from beginning of

1900s

• In 1990s, new generation private sector banks were introduced

Indian Banking History

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• In 1969, 1833 rural bank branches (22%) out of

total of 8262

• In 2010, rural branches are 32494 (38%) out of a

total of 84604

Indian Banking History

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• In 1980, for SCB, Total Deposit accounts in rural areas was

2.83 Crore, which increased to 19.97 Crore in 2009

• In 1980, for SCB Total Deposit amount in rural areas was

3,975.27 Crore, which increased to 3,63,910.19 Crore in

2009

Indian Banking History

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• SCB, Total Loan accounts in rural areas in 1980 was 76 Lakhs which

increased to 3.38 Crore in 2009

• SCB, Total Loan amount in rural areas in 1980 was 2,051.54 Cr, which

increased to 3,09,627 Crore in 2009

Indian Banking History

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• Total Domestic Savings contribution of household sector was 578 Cr in

1950, which has increased to 11,50,135 Cr in 2008

• Total agricultural credit by SCB was 378 Cr in 1970 & is 3,75,595 Cr in

2008-09

• In 1973-74 period, people below poverty line was around 54% which in

2004-05 has come down to 27.50%

Financial Inclusion – Indian Story

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• The story thus far,– Out of 6,00,000 habitations only 30,000 have commercial

bank branch– Only 40% of population across country have bank accounts– Out of the above many are dormant accounts– Proportion of people with life insurance 10%– Proportion of people with non life insurance 0.6%– People with debit cards 13%– People with credit cards 2%– 51% of 90 million house-holds did not have credit from

institutional/non-institutional sources– Only 27% had credit from formal financial sources

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Reasons for financial exclusion

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• The rural penetration of banking even though good has not

been sufficient mainly because it is perceived as not cost

effective

• The rural finance sector is still being dominated by non-

institutional factors such as money-lenders who offer tailor

made products

• They do not fall under normal credit worthiness parameters

denying them opportunities of normal institutional credit

Reasons for financial exclusion

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• High cost & burdensome procedures drive poor further

away

• Low Literacy hinders creating awareness on healthy

financial planning at rural centres

• Economic Growth has not trickled down

• The gap between haves & have nots has increased

significantly

Reasons for financial exclusion

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• Basic infrastructure facilities are lacking in rural areas

especially electricity & communication

• Vast amount of migration has created a new segment of

Urban Poor

• The poor whose primary source of income is agrarian, is

highly susceptible to vagaries of nature

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Measures for Inclusion

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– RBI& Govt. have been a real driving force in promoting Financial Inclusion• RBI liberalized licensing norms for Tier-III centres and lower.

(below 50,000 pop) • 1/3 rd of branches opened in Tier-III centre should be

underbanked districts/states for priority in Tier-I&II centres• No prior requirement of license to open branches in North-

East• ATMs can be opened by banks without prior approval• Opening Loan Counselling Centres• Adoption of villages by banks

Measures for Inclusion

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– RBI has been very strong in promoting FI• By 2012, all villages with population more than 2000

will have access to financial services through a banking outlet of any one bank• Each Bank to have a board approved policy for rolling

out Financial Inclusion• All banks have been urged to include criteria regarding

financial literacy and financial inclusion in performance evaluation of their field staff

– Promotion of financial literacy

Banking Products/Services for FI

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– No Frills Accounts – simplified KYC norms– General/Kissan Credit Cards (GCC) – small ticket credit

facility upto Rs. 25,000, cash withdrawal, revolving credit, for crop cultivation

– Targetted financial inclusion drive by RBI based on ICT (Information & Communication Technology) products

– Business Correspondent Model takes banks to masses– UID Project shall be a key catalyst in easy KYC– Education Loans for eligible candidates with staggered

repayment options and interest rate subvention

Business Correspondent Model

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– A Bank can appoint individuals, groups, agencies etc. permitted as per RBI as Business Correspondents

– The BC is allotted a village within 30 kms of branch.

– BC provided with hand-held devices with biometric authentication

– In areas with connectivity, Hand held devices are connected to branch/CBS data centre

– Else it works in offline model, using smart cards

Business Correspondent Model

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– Allows customer enrollment, debit & credit transactions, statements etc.

– Savings Account /Recurring Deposit Schemes provided

– Loans based on pre-sanctioned limits provided– Customer need not come to a bank branch– Soon inter-bank remittances may also be possible– Flexibility of banking times as BC mostly resides in

the village– High level of security to remove middle-men

Bank linked Govt. Welfare Schemes

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– New Pension System (NPS) & NPS Lite• Banks have been allowed to act as points of presence• NPS Lite targets weaker & economically disadvantaged

sections of society & promotes small savings for providing annuity (i.e. pensions) at old age

– Mahatma Gandhi National Rural Employment Guarantee Act(NREGA) Scheme• Govt. assures 100 days of employment to adult members of

rural house-holds• Now payments done through banks using EBT (Electronic

Benefit Transfer) relying on smart cards• Ensures transparency and elimination of middle-men• Timely wage payment to beneficiary

Bank linked Govt. Welfare Schemes

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– NABARD – Self Help Group (SHG) linkage program• NABARD provides assistance to NGOs• Facilitates SHGs to access credit from formal banking

channels• Started in 1992 and currently has more than 26 lakh

SHG & 4 crore households

– RIDF (Rural Infrastructure Development Fund)• To finance rural infrastructure development• Banks which have not met their Priority sector sub

targets invest in RIDF

Bank linked Govt. Welfare Schemes

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– Priority Sector Advances (40% of Net Bank Credit)– Agriculture Advances (18% of Net Bank Credit)– Advance to weaker sections (10% of Net Bank

Credit)– Education Loan Schemes to Students• Liberalized norms on collateral security• Interest Rate subsidies• Staggered repayment

Win – Win Situation

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– The banks using low cost methods get access to the most lucrative un-targetted population in the country

– Access to cheap float funds– Small charges for services rendered can give

reasonable revenue– Once, the poor (urban/rural) have responsible access

to financial services, they will become better income earners, thereby increasing the savings portfolio

– In short, it is a win-win for all stakeholders & the ultimate catalyst for real economic growth

To sum up

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– We have come a long way, especially for a country with a very high population and diverse geographical, cultural barriers

– Unless we seriously pursue the literacy programs we cannot create awareness & stimulate demand

– Measures to revive Real sectors of economy – From the supply side, we have to constantly

improvise & leverage technology to reduce costs– Basic infrastructure such as power &

communication should be spruced up.

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Experience Next Generation Banking

Data Courtesy : RBI speeches, articles, database & other public sources